The corporation doesn’t go to the money farm to harvest some more cash

Monday, May 24th, 2021

The Editorial Board of the Wall Street Journal calls raising the top tax rate on capital gains to 43.4% the dumbest tax increase:

First, under current tax rules, all gains from investments are fully taxed, but all losses are not fully deductible. Losses can offset gains in any given year, but losses that exceed gains can only be offset against personal income up to $3,000. The preferential rate compensates for this asymmetry.

Second, gains in asset values aren’t adjusted for inflation, so investors who hold assets for an extended period pay taxes on increases that are partly illusory. Other parts of the tax code, including the income-tax brackets, are indexed for inflation, but not capital gains that arguably need it the most since assets are often held for decades.

Third, a capital-gains tax is a second tax on corporate income. A neutral revenue code would tax all income only once. But the U.S. also taxes business profits when they are earned, and President Biden wants to raise that tax rate by a third (to 28% from 21%). When a business distributes after-tax income in dividends, or an investor sells the shares that have risen in value due to higher earnings, the income is taxed a second time.


The Congressional Budget Office says the revenue-maximizing rate for capital gains is about 28%. Other economists say it’s lower, and many think the ideal rate is zero. No one outside the fever swamps thinks it is more than 40%, much less the 55% or more that would apply in high-tax states if the Biden proposal becomes law.

Back when she was writing as Jane Galt, Megan McArdle noted that you can’t tax a corporation; you can only tax that corporation’s employees, shareholders, or customers:

When you say you’re going to “tax a corporation”, the corporation doesn’t go to the money farm to harvest some more cash to give to the government so we can expand job training for unwed mothers — some real person is going to pay that tax. When you put a tax on wages, such as social security or the unemployment tax, the employer doesn’t say, “oh, well, profits dropped 15% this year; better tell Merrill Lynch to issue a ‘sell’ rating” — they pay their employees less, both to lower the tax burden and to recover the lost profits. They hire fewer employees, because each employee is now more expensive. This costs real people money. When you up the corporate tax, either the employees pay, because the firm can’t afford as many of them; the customers pay, because the firms have to raise their prices to cover the taxes; or the shareholders pay because dividends are lower and the company is worth less. And before you liberal types start rubbing your hands in glee at the thought of those pained shareholders, keep in mind that the largest shareholders in companies are insurance companies, which invest in stocks in order to make the money they need to pay off when your house burns down; and pension funds, making the money to take picketing US Steelworkers off the streets and put them into good homes. The other big holders are mutual funds, which is what most of us have our 401(k)’s in. So when you say “I want to tax corporate profits”, try silently saying to yourself “so that Mom can sell the condo in Florida and move in with me.”

If the goal is “to redistribute money from the company’s richer owners, customers, and managers to its poorer employees,” then we already have a way to do that: “It’s a little thing I like to call the progressive income tax.”


  1. Gavin Longmuir says:

    The huge hidden cost that Ms. McArdle did not mention is the vast waste of human potential in unproductive activity made necessary by the Political Class’s tax avariciousness.

    Think about all the bureaucrats in the IRS. All the employees of businesses in payroll keeping the accounts straight for the IRS. All the lawyers in the Swamp and elsewhere advising businesses on how to take advantage of complications in the tax code to reduce their tax burden. All the hustlers in the DC Swamp pouring their business clients’ money into dealings with Hunter Biden and his ilk to get suitable complications written into that ever-expanding tax code.

    And then think about the lesser versions of the same thing in every State House and in many City/County offices.

    Think about how much genuine production those people could add to the real economy if the tax code were simplified and all those bureaucrats, lawyers, and hangers-on could be redeployed from Overhead to some more useful function. That lost production is the really major cost of our over-complicated perverted tax system.

  2. VXXC says:

    Economic Repression: It’s not about taxing the corporation. It’s about confiscating the shareholders’ wealth, and the wealth of the institutional investors, aka pensions and 401Ks, aka THE SUCKERS. It’s not about revenue. It’s about KEEPING YOU DOWN.

    This is the Duvalier method [Papa Doc]; all wealth and income above sustenance will be taxed, fined, or otherwise confiscated and consumed. Simply repression. This is about KEEPING YOU DOWN, not lol tax policy. This is the policy.

    And frankly, sheep, you deserve to be shorn. You are weak. You deserve this, America, for being weak.

  3. Sam J. says:

    VXXC says, “And frankly, sheep, you deserve to be shorn. You are weak. You deserve this, America, for being weak.”

    No person should be abused because he is less powerful than another. It’s evil.

  4. Contaminated NEET says:

    “You deserve this, America, for being weak.”

    People say this kind of thing because it hurts them to see their people mistreated, and it helps them deal with it. It hurts to see your tribe beaten down, and it hurts that you can’t help them, but this way at least it’s their own fault. If it didn’t hurt you on some level, you wouldn’t care whose fault it was.

  5. VXXC says:

    “You deserve this, America, for being weak.”

    It stands. Evil? I say it is EVIL to be WEAK.

    And NEET is right, it certainly hurts.

    So get smacked around a bit and get some sense knocked into you then.

    Good Fusking Grief Mr. Sam J “No person should be abused because he is less powerful than another. It’s evil. Sam, are you a 9 year old? Yes it’s evil. Thank you Sam, how profound. Yes, it’s evil.

    And quite deserved for being so weak, and frankly selfish and concerned more with your new kitchen, job etc *knowing full well* they will take it all away and kill us all if they can.

    You deserve whatever happens to you America for being weak. Be strong…and then I’ll help, others will help. Until then….learn to stand up, or learn to die quietly.

  6. Sam J. says:

    VXXC, one day you will be old and you will be weak. Will you be vindicated if someone plays knock out game and kills you?

    Should children be raped because they are weak? Murdered? Maybe old people enslaved and their last finances forced from them?

    I say that is evil and those that are physically stronger should protect those weaker from thugs and “evil” behavior by thugs.

    I’ll tell you exactly where we have the EXACT type society that you call for. In the ghetto where the strong prey on the weak. You want that type society then go there and good luck to you.

  7. VXXC says:

    “I say that is evil and those that are physically stronger should protect those weaker from thugs and “evil” behavior by thugs.”

    Gee Sam, those who do are jailed and destroyed. I don’t see anyone rioting for the cops, or the soldiers overseas getting lynched*, so..defend yourselves. * I’m a multi-deployed veteran.

    Now, Sam, to clarify, yes, the strong should be acting, and there are plenty of physically able, well armed COWARDS in America Sam, who meekly beg the state and school board not to castrate their sons, etc.

    Sam, it’s a nice deflection to talk about the old and the weak but it’s sh_i_t Sam. Sh_t. The quite able bodied, numerous well-armed males of America are cowards, Sam. So I have no time for them. They are, of course, thinking only of themselves, and their precious jobs and money. F–k them, and their precious bourgeois selfishness.

    Rise, fight, show those who have done something that they’re worth defending, indeed that it’s even possible.

    Until then I have contempt for you. You are slaves America, coward slaves.

  8. Sam J. says:

    VXXC says, “You deserve whatever happens to you America for being weak. Be strong…and then I’ll help, others will help.”

    If they are strong they don’t need your help so thanks for nothing.

    I understand what you are saying related to the state of nature and the weak but if people are civilized they are not in a state of nature. If everyone in civilization preys on all the weak then in fact civilization will break down and collapse. This is “in fact” what psychopaths do and are doing right this moment.

    Giving that we can have civilization where all are reasonably somewhat protected or a state of nature where all the strong prey on the weak I choose civilization. These are substantially the rules in play. It’s a choice.

    Whether it can be sustained in the west is not yet known.

    “I’m a multi-deployed veteran.”

    If true then you’ve seen dis-civilization and would you choose it? I suspect not.

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