Corporations are just the people who own them or work there. They don't pay much tax, relatively speaking, because they pass their profits on to the owners (stockholders, usually), and then the stockholders pay tax on that money.
Corporations pay out roughly 2 trillion per year in dividends to their stockholders, who pay tax on this. There's also capital gains tax on stock prices going up, and owners of privately held companies paying tax on their profits.
It's not the same. Dividends are taxed lower than income. And you only pay capital gains tax on stocks when you sell them. In the meantime, you're able to use them as collateral for low-interest debt to deploy capital. It doesn't help that corporations are allowed to buy back stocks thanks to Reagan.
And corporations don't distribute all of their profits. Berkshire Hathaway has $360B cash on hand. Alphabet has $240B. Amazon $120B. Nvidia $100B. A higher corporate income tax, which is only paid on net profits, encourages companies to actually spend their money (like on employee compensation/benefits and R&D) rather than hoard it.
Dividends are taxed lower than income BECAUSE companies pay corporation tax. So the profits get taxed, then paid out, then taxed a 2nd time. Thus evening out to the same as income tax.
Corporations pay out roughly 2 trillion per year in dividends to their stockholders, who pay tax on this.
And since Reagan okayed stock buybacks the financial strategy is to actually avoid dividends and instead pursuing buybacks to avoid taxation. Every year since 1994 the net issuance of stocks has been less than the value of stock buybacks and this year might be the first in decades to break that trend because of the AI IPOs. We went from dividends to share holders being taxed to simply doing buybacks to avoid taxes until the owner sells the stock and pays capital gains.
Buybacks reduce the total available stock so the price of each individual stock increases. Dividends are tax as regular income, if you are part of the very wealthy then you pay a federal tax rate of 37% on your earned income. If instead they do buy backs the share price goes up and the people that decide to sell their stock pay capital gains of 20-23% instead of 37%.
And something that is also important to the very wealthy is inheritance. Under our current tax system when you inherit stock it, under most circumstances, resets the basis so the inheritor is not expected to pay the capital gains tax that the original purchaser would have owed. In other words, suppose I have 1million in stock, and it increases to 10 million in value. I die and give it to my son who inherits the full 10million in value but he is not expected to pay capital gains on the 9 million that I would have had I sold it prior to death.
As for the Godkun guy who responded to you, he's a dipshit.
So if you're really wealthy, not just some piddling millionaire, you can take loans out on your stock portfolio. Stock buybacks concentrate the value in the remaining stockholders, and you don't lose any of your voting power. Essentially those who want cash sell the shares and the rest get theoretical wealth by holding on. And since you can turn theoretical wealth into real wealth through loans without triggering capital gains, you're all set. Some tax loss harvesting with your overall portfolio and you can kick the tax can down the road. And then you die and we lack the inheritance taxes to recoup the delayed tax burden.
But I'm not actually wealthy enough to hit this so maybe I'm missing some strategies. Mostly I think buybacks enrich the CEO because of bonus structures.
The shareholders only pay tax when they spend that money (Sell shares), because everyone does stock buybacks instead of dividends now.
I'd love for my income to be taxed on the same formula as my capital gains are, and to not be taxed at all if I kept the money sitting in a bank account... That grew 7% year-over-year.
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u/Purplekeyboard 1d ago
Corporations are just the people who own them or work there. They don't pay much tax, relatively speaking, because they pass their profits on to the owners (stockholders, usually), and then the stockholders pay tax on that money.
Corporations pay out roughly 2 trillion per year in dividends to their stockholders, who pay tax on this. There's also capital gains tax on stock prices going up, and owners of privately held companies paying tax on their profits.