The Biz of Pacelinebiz

Turning things on end to achieve results!

Corporations and taxes – Part Two

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Corporate Fat Cat

For a moment let’s pretend that we reduced corporate taxes to zero – what would happen?  For one thing, profits would go up by as much as 35% and if all things remained the same that would lead to mountains of excess cash in the hands of corporations.  Is that a bad thing?  I don’t think so because the cash that accumulated from the tax savings would be distributed or re-allocated in some way that would lead to a taxable event.  Corporations could do the following with all that cash:

  • Pay out juicy cash dividends to stockholders who would get taxed and probably spend a good bit of the extra money left over which would increase companies’ profits that would sit in their bank accounts waiting to be distributed and this would continue over and over again
  • Use it to invest in equipment or other expansion efforts to grow their businesses which would stimulate the economy and create jobs
  • Pay bonuses to corporate fat cats and maybe some of the “little people” all of which is taxed and generates spending similar to the dividend pay out
  • Hire salespersons to get more sales so they can make more profit and inevitably add employees to keep up with demand.  If they were competing in a global environment they could also lower their selling price since they have a tax advantage so that they could gain market share and bring more jobs to the United States.

One thing corporations won’t do is sit on the money because as is evident today, wall street analysts and brokerage houses will not allow excess cash to remain on the balance sheets of corporations.  They will want return from the investment and want the cash put to good, productive use.  They will force them to pay a dividend, make investment in assets etc. as described above.    

This is a very complicated issue as many factors come into play but I believe the first place we need to look is to downsize government to solve our debt crisis.  We also may have to accept the hardship in reduction of services that a leaner government provides.  I for one can do without another study on the affect that cow belching has on greenhouse gases!  The less money we allow the government to take (yes, it is up to us as we have the power through the vote) the less they will waste through corruption, inefficiency and other follies too numerous to mention.

I hope my examples gave you a different perspective on this issue.  Have a great week.


Written by pacelinebiz

September 12, 2011 at 11:37 am

One Response

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  1. Downsizing gov’t is a great theory but in practice where will all of the former gov’t employees go, who will hire them in the private sector when the economy is in a state of upheaval? I’d like to see a reduction in the size of gov’t and accompanying accountability but is it a realistic goal that can be achieved?


    September 20, 2011 at 6:13 am

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