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ryandrake parent
Veering into a slightly off topic and controversial opinion, but I always thought it was kind of unfair that corporations could deduct so many of their expenses and not pay taxes on them, but I as an individual cannot deduct most of my major expenses. I don't understand the rationale. Why can corporations deduct their cost of raw materials they use to make products, but I cannot deduct the food I need to eat in order to live? Why can corporations deduct the cost of the office in which they operate, but I cannot deduct rent on an apartment I live in? Why can corporations deduct the cost of company jets, but I cannot deduct the cost of my car? What is the moral justification?

If my salary is $80,000 and my expenses to survive are $70,000, I pay taxes on "$80,000 minus the weak sauce standard deduction."

If I'm a corporation and my revenue is $80,000 and my expenses are $70,000, I pay taxes on $10,000.

Not fair.

seanmcdirmid
People are taxed on income (with only certain deductions), corporations are taxed on profits. If corporations were taxed on income, lots of industries would become unviable, creating huge distortions in the economy. However, people generally have the same expenses (food for example), so at least it’s somewhat fair. It gets unfair and distortive, for example, when health insurance bought for you buy a company is deductible (to the company) but health insurance you buy on your own isn’t.

If corporations could be taxed on income without creating bad distortions, they probably would be. Even taxing profits creates a distortion (profits become double taxed as (1) profit and (2) dividends), leading to behavior like stock buy backs that wouldn’t exist otherwise.

ryandrake OP
> People are taxed on income (with only certain deductions), corporations are taxed on profits.

Thanks, but you’re just restating the problem. Income is not analogous to profit. We agree on that. Why can’t people be taxed on some measure of disposable income? Income After Necessities or something more analogous to net profit?

seanmcdirmid
Tax systems need to be fair, they need to avoid creating distortions that are negative. Taxing corporate income (revenue) is non-viable, taxing personal income is viable.

Figuring out what corporate income is is near impossible if it’s considered income after past and future investments because companies are constantly turning over money to make more. At some point, they get to declare a “profit”, but it’s a very artificial thing. Investment is already indirectly (all those Amazon R&D investment goes to pay SWEs), so it’s not like the government is losing out on revenue.

Since most people don’t employ people directly for personal tasks, it doesn’t make sense to do the same for personal income. Of course we are also just turning around money to increase the value of our lives, and in the end when would we ever declare a profit as well? We have no shareholders to return a dividend to anyways.

nullc
That concept is efficiently captured by both the standard deduction and progressive tax rates. --- without requiring tracking all expenses to classify them as necessary or creating an incentive to disguise luxuries as necessary expenses (of course this is necessary, this penthouse is my dwelling!).
someguydave
Well the simple argument is that those corporate expenses ultimately benefit other people (customers) while your own expenses only benefit you. The corporation would just mark up prices to reflect tax expenses which would be paid by customers. So taxing corporate expenses would amount to taxing end-users twice.
mixmastamyk
Believe the income threshold, standard deduction, childcare credit, etc are there for this reason.

But they are capped. Otherwise, many folks might get expensive things instead of paying taxes.

gottorf
If it helps, just think of corporations as legal fiction to help organize the business affairs of natural persons that ultimately own the profits and losses (the "beneficial owners"). So every natural human ends up paying taxes, regardless of how many layers of corporations were involved between the source of the money and their eventual spending.

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