Some companies need to reinvest a lot and some don’t.? Thus the creation of tax-favored vehicles like REITs and MLPs.? A high percentage of taxable income must be paid out, but it is not taxed at the corporate level.
With REITs and MLPs, they don’t need to reinvest much, so the structures work most of the time.? But what if we changed corporate tax policy to mimic REITs and MLPs?? Maybe end corporate income taxation, but require corporations to pay out what they don’t reinvest.? They all become pass-through vehicles, but some with delay due to reinvestment.? That would give growth companies a small advantage.? Personal tax rates would likely have to rise, unless we are willing to cut federal spending.
Note that this would move tax policy for public companies closer to that of private equity.? It’s not the same thing, but delaying taxation on reinvestment would promote growth.? If we have to balance this out, a small rise in personal tax rates would do it, and more rise for the rich.
Personally, I would prefer a simpler system where everything gets taxed the same way, but this might not be a bad approximation of a good system.? If the tax system is rigged to pass through income for free at the corporate level for some vehicles, then delaying taxation on reinvestment is not a horrible idea.? After all, we do the same with IRAs of all sorts, where nothing is taxed until the assets are used for consumption.
All for now; just a few thoughts.
I think a bigger question to ask is: why should big universities have an advantage?
They raise tuition each and every year by multiples of inflation (CPI) — and they have been doing this every year for decades.
Most of the university’s budget goes to pensions for staff (which people in the real world do not get). While full time students are expected to take 4-5 classes per semester, professors teach 1-2 classes (often zero). Supposedly they are doing “research” — but the research hasn’t produced much real world benefit (published papers are not the same as creating economically productive assets). Productivity of workers at university is abismal.
University presidents meanwhile get paid well into six figures and often into the millions.
Why are we subsidizing entities that pay million dollar paychecks? Is that charity?
Why are we gutting patient care at non-profit hospitals, while paying the hospital administrators millions per year?
If the government cannot (or will not) cut its spending, then we have to broaden the tax base to include all the tax dodging entities — like non-profits.
David, Maybe I’m too cynical but my expectation is that a corporation will then find new and (ultimately) inefficient ways to reinvest in their company. I’ve learned from you to evaluate how a company’s earnings are being reinvested whether through dividends, buybacks, acquisitions, etc. I think that corporations at present seem to be sitting on too much money than distributing it out and while your proposal would potentially help that, I would expect a lot of companies would try to do everything so that they can “reinvest” putting off taxes by the owners until they sell their shares. -Ari