For what it's worth, I don't think corporations should pay taxes.
Corporations are created for many reasons. If you were to eliminate the taxes on "Corporations", every "rich" person would incorporate, placing all assets into the corporation and pay themselves a minimal salary. (Equal to spending habits.)
Double taxation is only an issue if the company distributes a dividend and therefore can be avoided. Rather than providing a dividend, the company should do a stock repurchase. By reducing the outstanding shares, they increase the value of those remaining and the only investors that have any tax consequences are those that decide to sell.
I would rather determine when I have to pay taxes on my gains than let a corporation decide I need a "special" dividend to change my carefully planned income stream.
I believe this is true even for people approaching or into retirement. Selling shares of a company that uses profits to buy back it's own shares periodically to cover expenses is very similar to receiving a dividend.
For example, suppose a company generates sufficient profits to retire 4% of it's shares yearly and does so, rather than pay out a 4% dividend. Further suppose that a retired person owns the stock and, in order to cover retirement expenses, sells 4% of his/her shares yearly. Their ownership in the company remains constant. if they owned .001% of the company at the start, they will own .001% of the company 10 years later. However, instead of paying taxes on dividends at their marginal tax rate, they pay long term capital gains on the profit from the sale of the stock.
Someone that owned .001% of the company and never sold a share, would own .0015% at the end of the decade, a 50% increase over the original holdings, without paying a nickel in taxes.
I can think of no situation where I would want a company to pay a dividend and therefore create the double taxation issue.
Ira |
