madfranks
7th March 2012, 09:32 AM
Interesting, did you know that shareholders of companies in "free market" America pay more taxes on their dividends than shareholders of companies in "communist" China?
http://lewrockwell.com/schiff/schiff153.html
The communist revolutions in the 20th century sought to nationalize the wealth generated by privately held industries back to the "exploited" workers on whose backs the profits were supposedly derived. America has made the rejection of this idea and its support of free market principles the centerpiece of its economic narrative. However, as a result of our current and proposed tax policies towards corporate shareholders, our government collects a portion of industrial output that would inspire envy in even the most rabid Bolshevik.
The purpose of a corporation is to generate profits for owners (all other functions are secondary to this goal). Public corporations distribute these profits through dividends. But as a result of America's system of double taxation, where income is taxed on the corporate level and then again on the personal level, government receives a much bigger share of corporate income than the owners themselves. I also address this topic in my latest video blog (http://www.youtube.com/user/SchiffReport?feature=guide#p/u).
Suppose a publicly held U.S. corporation made one million dollars in income over the course of a year. Currently its profits would be taxed at a 35% level (for the purpose of this example I will not factor in the lower rate that is applied to its first $100K of profits), meaning that the company would have to pay $350,000 directly to the government (assuming it earned its income without special tax breaks). Of the $650,000 that remained, the typical dividend-paying corporation might distribute 40 percent to shareholders (this is known as the "payout ratio" and the actual average is slightly below 40%). So in this instance the company would pay $260,000 (40% of $650,000) to shareholders. The remaining $390,000 would typically be held as "retained earnings," and would be used to maintain and replace depreciating equipment, make capital investments, fund research and development, and expand operations. If the company did not make such investments it would be impossible for it to survive and its ability to perpetuate profit distributions would be limited.
These retained earnings still represent assets to shareholders, but their primary purpose is to generate future profits and higher dividends. However, shareholders do not directly benefit from those retained earnings until future distributions are paid. Sure they can sell their shares at a gain, paying a capital gains tax in the process, but this merely transfers those deferred benefits to the new buyer.
When received by shareholders, the $260,000 in dividends are taxed again at a rate of 15 percent (according to current law). As a result, shareholders receive just $221,000 of the million dollar profit. The $39,000 in dividend taxes are added to the $350,000 "off the top" corporate tax to bring the government's total take of the company's profits to just a shade under $390,000. In other words the government gets about 75% more cash flow from the company than the actual owners. Looked at in a slightly different way, the government gets about 65% of the non-retained earnings while shareholders, who put up the money and take all the risk, get 35%. Does this seem fair?
This level of taxation puts American corporations at a noticeable disadvantage vis-à-vis companies in the countries against which we are most keenly competing. In China, the slicing of the pie is much more favorable to owners. There, corporations are taxed at a rate of 25% and dividends at 10%. Using these numbers (and the same payout ratio used for the US corporation), the Chinese government gets 51% of distributed corporate profits and shareholders get 49%. In Hong Kong (which is part of Communist China), the situation is even better. There, the corporate tax rate is 16% and the personal dividend rate is zero. If you do the math there, the government gets 33% and the shareholders get 67%.
This comparison raises an interesting point. If shareholders in communist China are allowed to keep more of their earnings than shareholders in capitalist America, which nation is more communist and which more capitalist?
More at link...
http://lewrockwell.com/schiff/schiff153.html
The communist revolutions in the 20th century sought to nationalize the wealth generated by privately held industries back to the "exploited" workers on whose backs the profits were supposedly derived. America has made the rejection of this idea and its support of free market principles the centerpiece of its economic narrative. However, as a result of our current and proposed tax policies towards corporate shareholders, our government collects a portion of industrial output that would inspire envy in even the most rabid Bolshevik.
The purpose of a corporation is to generate profits for owners (all other functions are secondary to this goal). Public corporations distribute these profits through dividends. But as a result of America's system of double taxation, where income is taxed on the corporate level and then again on the personal level, government receives a much bigger share of corporate income than the owners themselves. I also address this topic in my latest video blog (http://www.youtube.com/user/SchiffReport?feature=guide#p/u).
Suppose a publicly held U.S. corporation made one million dollars in income over the course of a year. Currently its profits would be taxed at a 35% level (for the purpose of this example I will not factor in the lower rate that is applied to its first $100K of profits), meaning that the company would have to pay $350,000 directly to the government (assuming it earned its income without special tax breaks). Of the $650,000 that remained, the typical dividend-paying corporation might distribute 40 percent to shareholders (this is known as the "payout ratio" and the actual average is slightly below 40%). So in this instance the company would pay $260,000 (40% of $650,000) to shareholders. The remaining $390,000 would typically be held as "retained earnings," and would be used to maintain and replace depreciating equipment, make capital investments, fund research and development, and expand operations. If the company did not make such investments it would be impossible for it to survive and its ability to perpetuate profit distributions would be limited.
These retained earnings still represent assets to shareholders, but their primary purpose is to generate future profits and higher dividends. However, shareholders do not directly benefit from those retained earnings until future distributions are paid. Sure they can sell their shares at a gain, paying a capital gains tax in the process, but this merely transfers those deferred benefits to the new buyer.
When received by shareholders, the $260,000 in dividends are taxed again at a rate of 15 percent (according to current law). As a result, shareholders receive just $221,000 of the million dollar profit. The $39,000 in dividend taxes are added to the $350,000 "off the top" corporate tax to bring the government's total take of the company's profits to just a shade under $390,000. In other words the government gets about 75% more cash flow from the company than the actual owners. Looked at in a slightly different way, the government gets about 65% of the non-retained earnings while shareholders, who put up the money and take all the risk, get 35%. Does this seem fair?
This level of taxation puts American corporations at a noticeable disadvantage vis-à-vis companies in the countries against which we are most keenly competing. In China, the slicing of the pie is much more favorable to owners. There, corporations are taxed at a rate of 25% and dividends at 10%. Using these numbers (and the same payout ratio used for the US corporation), the Chinese government gets 51% of distributed corporate profits and shareholders get 49%. In Hong Kong (which is part of Communist China), the situation is even better. There, the corporate tax rate is 16% and the personal dividend rate is zero. If you do the math there, the government gets 33% and the shareholders get 67%.
This comparison raises an interesting point. If shareholders in communist China are allowed to keep more of their earnings than shareholders in capitalist America, which nation is more communist and which more capitalist?
More at link...