U.S. companies have had a long love affair with debt, and Washington has tacitly approved. Although the tax benefits are not the only driver of corporate America’s preference for loans — cheap rates and corporate strategy, as in Macy’s case, are other major factors — the tax code often tips the scales toward using debt for deals or for expanding a business.
Over the past generation, debt in America has exploded, becoming a way of life in nearly every sphere of society. And the tax code has been its handmaiden. Home buyers, towns and corporations all enjoy tax breaks that grow as they borrow more. Indeed, federal officials have found that the deductions for business debt are so generous that the government is, in many cases, essentially paying companies to borrow.
The surge in borrowing has opened new markets and financial industries. It has also at times powered economic growth — for instance, the boom preceding the housing bust — and activities that wouldn’t have been possible under other conditions. Commercial developers build projects they otherwise wouldn’t. Private equity firms are able to buy out companies with huge sums of borrowed money. Big banks that lend out all this borrowed money have come to play an outsize role in the economy.
[...]
“The tax code is interfering dramatically with the choice of how you finance and how you deliver returns in the corporate sector,” said Douglas Holtz-Eakin, an economist who heads the American Action Forum. “Why would you build into the tax code a permanent bailout for corporate debt-financed investments?”
Father,
thats 1/2 lie.
TAXING the life out of the workers, HURTS the economy, as they cant Purchase or pay bills.
Forcing CORPS to pay TAXES from profits, makes the corps TRY to GIVE you a good product. It makes the THINK HARDER. It makes them NOT TO WANT tons of profit, so product prices tend to be LOWER, more FAIR.
If they RAISED prices to Transfer TAX to the consumer, the consumer would go someplace ELSE, or BULK at buying un-needed goods. they would have to SHOW negative Values to NOT be taxed. WHICH they dont want, as then they would be going into bankruptcy.
19,
THAT works, IF’
NO DEDUCTIONS, would/could be proven to WORK.
Corps would just change to Benefits, INSTED of money. Like the person for DELTA, after 6 years got 20 years of PAID retirement, with a Clause against Bankruptcy.
I still would rather take MONEY off the table completely.. MAX income, not MIN income. every job paid the same, unless its dangerous or NO ONE will do the job.
Government sponsorsed idiocy. First national party to stump on reversing this trend gets my vote. Guess I won’t be voting for awhile, eh?
#20 Why shouldn’t corporations pay taxes? They are legal persons after all.
I read an interesting idea a few days ago, that corporations should be taxed at a rate inverse to the amount of value their average employee adds to the economy.
The average McDonalds burger flipper makes little so you tax McDonalds more. A successful small software company pays it’s people more and they spend more into the economy, so that company would get a lower rate. Essentially you make a tax benefit for corporations that would otherwise hurt the economy most by outsourcing workers.
Workers that make the least are often in positions that are hardest to outsource, and tend consume more public resources than they contribute.
Example, why does Walmart love to hire older workers? Because the are on Medicare so Walmart doesn’t have to pay health benefits.
chris,
Interesting points.
I think corporations / businesses shouldn’t pay taxes because:
1. Some do pay taxes and some don’t, the playing field isn’t always level due to variability in the ethical standards at the top of these institutions. The honest ones finish last and go out of business.
2. Taxes paid by corporations / businesses are passes directly to the consumer through higher prices, effectively a REGRESSIVE tax on all of us.
The BIG trick with Taxing corps…
1. OUR money has to BUY something from them..They EARN MORE, they PAY MORE..
2. they will VALUE employee’s, as the MORE you pay LOWER employees, they BUY MORE of your stuff, and its deductible.
IF’ insted of paying 1 person the EXTRA BONUS of $1,000,000, you paid 400 employees an EXTRA $1 per hour.
3. BUYING POWER, of the poor 60%, over the RICH 1%..The POOR buy MORE STUFF.
Chris.
you know NOTHING about medicare. Making $100-600 per month KICKS YOU OUT of medicare, or they charge you 20% AND a monthly deductible of $80-100..
IF 1/2 of the PROFITS from the last 10-15 years had GONE to paying BETTER wages on the BOTTOM, it would have PAID everything.. NOTHING would have happened. THE LOANS would have been PAID.. The 1/2 profits from the MAJOR corps in the last 15 years, SHOULD HAVE RAISED the lowest paid employees,,AT LEAST $3-10 per hour.
SO,
if the CORPS arent going to do the RIGHT THING, the GOV should FORCE IT TO HAPPEN.
“Only the rich people own homes?”
In the vast majority of the country, the standard deduction wins out over the mortgage deduction big time. The mortgage subsidy benefits the rich and the stupid who pay $500K+ for tract houses in California. So let’s end this dumb subsidy.
#23 — vote some third party, any third party, but vote regardless, when you don’t vote D or R you aren’t responsible for the continuing malfeasance —– when the electorate that got us where we are figures out that they are destroying the US and decide to never vote R or D again (including not voting for anyone who ever held a D or R office) then possibly we can salvage this country.
#27,
say it like this..
“Only the rich people own homes?”
CORRECT..
and how many persons in the USA RENT?
How many RICH persons OWN MORE then 1 rental property?
Its constant, perpetual LIQUID income.
Even if you hand the control, renting, repair, of the buildings/property to another corp, and ONLY get $100 per month.. 100 houses is $10,000 per month.
the article really doesn’t explain the problem of why the tax code encourages debt over other types of financing. Investments in equipment are tax deductible, and this is generally considered a good thing. Now why is it better to borrow the money rather than raise stock?
#26 I know a high income 65 year old who is being forced into medicare because of the way they penalize you if you DON’T accept it as soon as you are eligible. So I don’t know who gets kicked out. I mentioned walmart’s propensity to hire old people as greeters to avoid paying health benefits. I doubt walmart greeters make enough bread to hit any upper limits.
#25 I get your distinction, and agree wholeheartedly, between progressive and regressive tax schemes. We’ve had top marginal rates higher than 80% and had no ill effects from it. The current top rate, especially considering the way the rich can structure their money to avoid taxes, is a complete joke. We are creating a system where the idiot children of the rich have an unassailable advantage over the hardscrabble climbers who made this country great.
One thing I think you are overestimating is the degree that companies can pass costs onto consumers. Even before the current downturn there was extreme pressure on prices. Now with slack demand it is even more true.
Higher corporate taxes would need to be accompanied by pressure on Washington not to cut sweetheart deals for the usual suspects.
Our money supply comes from debt. Without debt there would be no money and the economy would die.
The problem is that we are now pushing up against real limits to economic growth which cannot be worked around as seen in the video in #8. As a result of these limits, banks are lending less.
#30–Mike==I think the article “lies.” Debt financing is an option “if you qualify.” If you don’t, you may want to sell part of your company by way of offering stock. Pro’s and Con’s/Requirements to every type of capital generation.
I don’t see any “limitation on growth” as it relates to debt. Right now, one view is that the Banks can make more money by lending it to the Government by buying bonds. No risk, secure, easy to manage. Why lend money to real people and put up with that hassle?
33,
bO,
They keep changing the rules.
They had the gov. change rules.
they handle things but STUPID RULES..(how much is the corp worth, in STOCK, is how much you can BUY, FORCE the value up and you get more)..
The OLD standard rules of business have GONE OUT THE DOOR, with the baby(money)..
They DONT CARE how the economy is SUPPOSED to work.
They PUSHED the stock market in 2000, JUST TO SHOW THEY COULD…they couldnt go BACKWARDS AFTER, otherwise the market WOULD HAVE FAILED THEN. Like being PUSHED to the edge of a SLIDE, to see how close you can get…OPPS and AWAY you go. There are STILL major parts that will hit the slide.
BUT, many BANKS are pulling money BACK..look at the price of foods..LAST year it started, and this year, its happening again, its a TOTAL of about 50+% increase..in 2 years. Im not even counting the 30+% in the 10 years BEFORE..
#31, so you support a tax rate of 69% on income over forty thousand, and 81% on income over seventy thousand? These were the rates in 1963(source:Mad Men). The Treasury has a fund where you can write voluntary checks in excess of your regular income tax. If you qualify, I hope you take the opportunity to provide your appropriate level of taxation.
#31–Chris or Anyone: How exactly are you penalized if you don’t take MediCare on reaching age 65? I thought you were “in” MediCare whether you apply or not and I assume most people don’t confirm their status until they get sick and then care about it?
Same with SS?
More anti-government scare talk made up by the BS right?
bo,
they have capped SS,
My step father died, so they had to determine how much my mother was to get..Either HIS or HER SS.. IT USED to be, that SS would go up with TIME if you DIDNT CLAIM IT, even IF’ you claimed it..it started at a LOW point and went up a small % each year. My mother at age 70, is getting $700 per month. After working over 40 years.
the REAL problem with SS…only the POOR and lower classes put MONEY IN IT..everyone else uses a retirement fund..When it fails they go STRAIGHT to SS.
SS and medicare, are WEIRD.. you still pay for MEDICAL, unless you DONT make enough on SS.
Then Medicaid(state) can assist.
Where I am..
If you make LESS then $850 TOTAL with SS/Medicare. They cover my Deduction..and the 20% bill.
If you make over $900, you PAY your deductible. but you get drug coverage.
THEn if you make over $6000 in 1 year, they DING you EQUAL to the $6000.
SS gives you $800/per month, $9600 per year..
You cant make over $600 per month or LOOSE your benefits..$7 per hour for 2 weeks. At 10 months you have to QUIT.
Also it USED to be..
at 65, you could take SS.
But you could delay it, for a few years to get MORE. About 10% more per year of work.
Start at $600 per month..
Goto 66 and get $660..
BUT, they have changed the retirement age EACH year in the last 10 years.
ALSO, you are only graded for SS, on the last 10 years of earnings.
ECA = sounds complicated. Still don’t see any “penalty” though.
The penalty I can think of is that “by law” if you are MediCare qualified it is illegal for Docs to charge you more? I’ve heard that several times, but don’t believe it. Surely, if a rich person wants to pay more for something that should be legal==or do you indeed have to leave the country to get ripped off?
Not getting rippied off. Yes, quite a penalty.
13, Bobbo,
Isn’t that why Chairman Obama got elected? He was ushered in for hope and change.