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Originally Posted by Brass
In lieu of corporate income tax, all corporations must give the government a 20% stake in the company. So for example, if this plan were enacted tomorrow, shares of Coca-Cola would jump because their tax rate has gone from 21% to zero, but then they would normalize upon realization that there was a 20% dilution as the government acquired 20% of the stock.
this would leave existing investors fundamentally worse off. the price wouldn't stabilize the way you're envisioning, because the 20% dilution would apply to existing invested capital while the benefit of reduced corporate taxes would only apply to profits going forward.
would you be willing to pay the same amount for 20% less of something that returns 6% instead of 5% in the future? you just traded 20% in exchange for 1% of benefit a year. how long until we break even?
there are other problems that, loosely speaking, revolve around control and corporate governance. if the government has 20% of the equity of a large public corporation (like Coca-Cola), is it able to vote at shareholder meetings? who decides how it votes? can it attempt to influence who's on the board of directors? you've just created a broad bureaucratic class of government administrators whose job it is to try to run every public corporation that exists in your jurisdiction.
and if your response to that is to say "oh, fine. the government's shares won't have voting rights", how do you ensure that the board declares dividends on their share class?
all of this sets aside the question of what shares that won't (can't?) be traded are actually worth, and what that does to the value of other share holdings.
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As for the artist who puts 1m into a corporation to avoid paying 320k in income tax, he'll find that over ten years withdrawing 100k a year (and still lowering his income bracket, which is a deferment that I'll allow), he has paid an additional 200k in taxes (the government's 20% of the corporate profit that he withdrew), bringing his total contributions to 354k after income taxes.
i don't think you understand the timing of tax events and why that matters, but putting this aside why would the artist ever take a dividend in this regime? he could refuse to declare dividends on any class of shares (i assume you don't intend to put voting control of every corporation into the government's hands as well?), and instead pay himself a wage or a management fee. this would cut the government out entirely. or he could sell $100k worth of his shares to a third party every year. services would probably pop up to facilitate this. either way, the government receives nothing for its ownership interest.
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And needing accountants for "tax loss carryforwards" and tables of how long it takes office furniture to depreciate and other things I don't understand would be a thing of the past.
why would these things go away? would you also make sole proprietorship illegal? individuals would still have tax balances to track on their investments held personally, and unincorporated businesses would still want to depreciate their assets. the complexity of the tax code and its administration remains unchanged or even increases, now.
presumably you would put some anti-avoidance rules in place for all of the stuff i described above, and we're back to needing those annoying accountants and lawyers to decipher it all.