Tuesday, September 20, 2011

Red Herring: comparing income tax to corporate tax or capital gains tax


Raising capital gains tax, payroll tax, or corporate tax is not comparable to raising income tax.  There are two different types of math and public policy going on there.  If someone compares the two they are throwing you a red herring and playing you for a chump.

Capital gains tax is a percentage paid on positive returns on investments for capital expenditures, investments in items whose benefits are to be gained beyond the taxable year.(house, long term stocks, new kitchen, research and development of a new product etc.)  The public policy is to tax people and corporations on money they make off of good investments that they didn't deduct for.

Payroll tax is a percentage paid by a corporate entity that is based on how much they are paying their workers.  This can include the amount that they are required to withhold for soc. sec. and unemployment, but in some states and nations it also includes a percentage of tax paid based on the salary that the company pays a worker.  The public policy is that the government can generate revenue based on how much their economic ecosystem can afford to pay people.

Corporate tax is a percentage of corporate taxable income paid to the government by a corporation.  The percentage paid is based on the taxable income of the corporation and here are the brackets
taxable income:
<50k 15%
50k<>75k 25%
75k<>100k 34%
100k<>335k 39%
335k<>10M 34%
10M<>15M 35%
15M<>18.333M 38%
18.333M< 35%

That is just the federal corporate tax; there is still a state corporate tax in most states.  The public policy is to tax corporations for making money and not paying it out or reinvesting it in non-capitalized ways.

Income tax is something paid by individuals which is a percentage of their taxable income.  The U.S. system is currently bracketed meaning you pay a different percentage based on what your taxable income is for the taxable year.  The public policy is to tax people for their use of the federal government's services.

All these taxes come at different times, have different requirements, and different implications.  Comparing them shows a lack of understanding of the tax code at best and a intention to deceive at worst.

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