Stuff You Should Know - How Corporate Taxes Work

Episode Date: April 29, 2021

There are lots of reasons to tax corporations: as a check on their power, to help pay for infrastructure, as a wealth tax. But the biggest reason economists cite for why they've stuck around is that everyday people think companies should have to pay them too. Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

Hey, I'm Lance Bass, host of the new iHeart podcast Frosted Tips with Lance Bass. Do you ever think to yourself, what advice would Lance Bass and my favorite boy bands give me in this situation? If you do, you've come to the right place because I'm here to help. And a different hot sexy teen crush boy bander each week to guide you through life. Tell everybody, yeah, everybody about my new podcast and make sure to listen so we'll never, ever have to say bye, bye, bye. Listen to Frosted Tips with Lance Bass on the iHeart radio app, Apple podcast, or wherever you listen to podcasts. I'm Munga Chauticular and it turns out astrology is way more widespread than any of us want to

believe. You can find in Major League Baseball, International Banks, K-pop groups, even the White House. But just when I thought I had a handle on this subject, something completely unbelievable happened to me and my whole view on astrology changed. Whether you're a skeptic or a believer, give me a few minutes because I think your ideas are about to change too. Listen to Skyline Drive on the iHeart radio app, Apple podcast, or wherever you get your podcasts. Welcome to Stuff You Should Know, a production of iHeart Radio. Hey and welcome to the podcast. I'm Josh Clark and there's Charles W. Chuckers Bryant over there looking magnificent and marvelous as always, at least in my head.

You're a vision, Chuck. Yeah, we're going to see each other next week. I know. How excited are you? I am pretty on fire. I'm excited too. It's been well over a year. I don't remember the last time we recorded together, but it was definitely, I would say, February of 2020. Yeah, you got nuts. We isolated pre-pandemic. We saw it coming. Yeah, we did. We probably should have warned everybody, but... Well, we didn't want to cause a stir. Right. We don't like to make waves. So we knew some people would just not believe us. Well, that's true. So we're talking today, Chuck, about corporate income tax. And I'm sure some people just said, well, goodbye and press stop. But I feel bad for those people because it

turns out that corporate income tax is less eye-bleedingly boring than it seems on its surface, I think. Yeah, I mean, I think so too. I think a lot of, I mean, economics, as you know, is tough for me. And there is a part, everyone, it's been many years since I've had to do this, but there's a part where Josh is going to have to teach me because I read that section four times in it. I told Josh it sounded like physics to me. I'm with you though. And there's a reason that I figured out all these years of us doing economics episodes, I figured out why it's so hard to understand because a lot of it is just straight up Huey. Economists are wrong about a lot of stuff and they know it too. So I'm not exactly sure what they're doing to reinvent

their field, but there's a, I mean, it's taken a beating in the last few decades for sure. So I think one of the reasons why it's so hard to understand is because it doesn't make a lot of sense in a lot of ways too. Yeah. And there's, economics is one of those things where you can have two very knowledgeable, well-respected economists saying completely opposite things and saying that they are, they are each correct. You are wrong. I'm right. And it's not like this philosophical sort of political stuff that can easily be disagreed on. It's just like, no, they're, they're like, no, I'm right about this economically speaking. And the other person's like, no, you're dead wrong. It's really this. And then guys like us are like, I don't even know

who to believe. Right. And then agreeing to disagree solves nothing. It basically just punts it down the road. Yeah. Don't you think that indicates that there's a fatal flaw in that science? If there, you know, if no one knows who's right. Well, that's like a really good point because that really comes to the surface with corporate income texts because there's a lot of people out there, typically liberal economists who tend to think that corporate income texts are a very, very good thing and we need them. And that average American typically agrees with those liberal economists, even people who are not liberal in any way, shape, or form because the average everyday American tends to think that corporations should pay taxes as well.

Right. And then there's conservative economists who say, no, this stuff is stifling business. It has all sorts of other pernicious effects that we'll get into. We should do away with them all together. And the fact of the matter is no one is sure who's right. Do we need corporate taxes? Do they actually harm things? They don't even agree on who actually ends up paying corporate taxes. Yeah, that was a pretty fun section. It is. So there's a lot to like kind of dig into here, which is one reason why I like it so much. Yeah. I mean, I guess we'll go ahead and get some stats on the board out of the gate. I think 10 of the 195 countries in the world, only 10, don't have some kind of corporate income tax. Yeah. And here in the United States, and we'll

get to how it's been over the years. But I think in 2019, we brought in about 230 billion in corporate tax compared to 1.72 trillion from people like you and I. Right. And now it's about 6% of the total take. Whereas in the 1960s, it was 40% of like all taxes were paid by corporations. Yeah. And like, I mean, corporations were paying for a lot of the functioning of America at that time. What's weird is corporate profits were also higher during that time too. And I couldn't see anything, any smoking gun where some economists are saying like, this is the reason why. Right. Right. That a decline in corporate tax rates has actually led somehow to a decline in profits. But I don't think there's anything in economics, especially when we're talking about

huge sweeping macroeconomics that make up one of the world's largest economies. If not the largest economy, America's. It's never just one thing. You don't just push one button and then it just has this one effect. Right. It's a whole bunch of buttons that are creating this one larger effect and they're really hard to disentangle. Yeah. And Congress has been taking corporate income tax since 1909 when they said, quote, Congress shall have power to lay and collect taxes on incomes from whatever source derived without. Oh, what is that? Apportionment. Okay. I read the O in the I switched in my mind. Apportionment among several states and without regard to any census or enumeration.

Right. Which is kind of a different thing. It used to be where if you taxed one group, you had to tax everybody equally regardless of say like if West Virginia had the same population as California, but California had a lot more income. Well, West Virginia had to pay the same amount, not percentage amount of income tax that all the wealthy people in California had to pay. And so that kept income taxes away for a while, which by the way, we've done an episode on income taxes. And we also did that chapter in the book on it too. We apparently can't get enough of income taxes. Yeah. And we did an episode on corporate personhood many years ago too, right? Yeah. Which really kind of plays into this. It's a reason why a lot of people say

corporations should pay their fair share. They're treated as people under the law and people under the law have to pay taxes in the United States. So that's kind of a big reason why people want to see it. But yeah, it wasn't until 1909 and I think it was like you said the 60s where that was like the heyday of corporate taxation where the tax rates for corporate income tax reached almost 53% in the United States. That's a lot. It is. Apparently, the UK had a similar peak, but theirs came later in 1982. And then Australia's peak came in 1986 at 49%. So that actually kind of points out something that I came across Chuck is there's a lot of like one country will change its tax code to kind of attract foreign money to kind of get dumped into

it. Which makes a lot of sense because when you dump billions or hundreds of billions of dollars from all these businesses who find your tax codes attractive, that money is now in your economy. Like your financial institutions can go out and invest it and you can do all sorts of amazing stuff with it. That's why countries have different tax codes at different times to attract foreign investment basically. Right, which we'll get into that. I mean, that's foreign investment is one name for it. Hiding money is another way to say it. Jackie Channing it. I don't get that. What did he do? Remember the Panama Papers? They revealed this Panama is a tax haven. The only person who was basically publicly pilloried for it was poor Jackie Chan. Somehow

Jackie Chan ended up the face of that thing. That's terrible. So you mentioned conservative and liberals. It's a little counterintuitive, but under Ronald Reagan actually, he actually went after corporate taxes to try and increase the corporate tax amount. So he could decrease us paying taxes a little bit. I think that was in 1986 with the Tax Reform Act. They cut the rate from 46 to 34, closed a lot of loopholes, and I think the end result of that was the percentage went from 5% to 10% starting in the 80s until Bill Clinton came along. Yeah. Then Bill Clinton topped it off at 35%. There it stayed. He just added a percentage point. There it stayed for quite a while actually until I think 2017 when it got

slashed to 21%. From about 1993 to 2017, the U.S. had one of the higher tax rates in the world because it seems like there's always an outlier. The United Arab Emirates, I think, has 55%. Camaros in Africa has 50%, and then usually it drops down into the 30s. There's a handful of countries in the mid to low 30s, which is where the United States was for a while until 2017. So it looks like if I'm reading this right, since the 1980s, the percentage of federal revenue from corporate taxes has been under 10%. Yes, which is historically low. I think it got down to 1% of GDP, which is another way to measure it for the first time since the very early 80s when Reagan first came in because Reagan slashed

taxes across the board in 1981. I think he overstepped it so far that Congress is like, we're reforming corporate taxes in 1986. Right. They're like, you want to paycheck? Right, exactly. A fellow congressperson? Right. Maybe we should take a break after that setup, you think? I think so, yeah.

It's a little early, but now we can really get into the really fun stuff. Prepare for the eye-bleeding. All right, we'll be right back. Hey, I'm Lance Bass, host of the new iHeart podcast, Frosted Tips with Lance Bass. The hardest thing can be knowing who to turn to when questions arise or times get tough, or you're at the end of the road. Ah, okay, I see what you're doing. Do you ever think to yourself, what advice would Lance Bass and my favorite boy bands

give me in this situation? If you do, you've come to the right place because I'm here to help. This, I promise you. Oh, God. Seriously, I swear. And you won't have to send an SOS because I'll be there for you. Oh, man. And so will my husband, Michael.

Um, hey, that's me. Yep, we know that, Michael. And a different hot, sexy teen crush boy bander each week to guide you through life, step by step. Oh, not another one. Uh-huh. Kids, relationships, life in general can get messy. You may be thinking, this is the story of my life.

Oh, just stop now. If so, tell everybody, yeah, everybody about my new podcast and make sure to listen. So we'll never, ever have to say bye, bye, bye. Listen to Frosted Tips with Lance Bass on the iHeart radio app, Apple podcast, or wherever you listen to podcasts. I'm Mangesh Atikular. And to be honest, I don't believe in astrology. But from the moment I was born, it's been a part of my life.

In India, it's like smoking. You might not smoke, but you're going to get secondhand astrology. And lately, I've been wondering if the universe has been trying to tell me to stop running and pay attention. Because maybe there is magic in the stars, if you're willing to look for it. So I rounded up some friends and we dove in and let me tell you, it got weird fast. Tantric curses, Major League Baseball teams, canceled marriages, K-pop. But just when I thought I had a handle on this sweet and curious show about astrology,

my whole world came crashing down. The situation doesn't look good. There is risk to father. And my whole view on astrology, it changed. Whether you're a skeptic or a believer, I think your ideas are going to change too. Listen to Skyline Drive and the iHeartRadio app, Apple Podcast, or wherever you get your podcasts. Okay. So when it comes to corporate income tax, it's a little different than individual income tax in the U.S., right?

Yeah. With individual income tax, there are a few things that are kind of removed from your taxable income, like your health spending account contributions, just a little stuff like that. But for the most part, you're paying like on your gross income, which makes sense because you don't have like profit and loss necessarily. Although, I guess if you think about it, you could just tax people on just what they have left over. They're, what's it called? You're something income?

Your net? No, you're, well, yeah, you're net. Oh, expendable income? Expendable income, right. Yeah, they could totally just tax everybody after like housing, after healthcare, after groceries, all that stuff, just like a business. They hadn't occurred to me, but that's totally how you could do it and they don't do it that way. That'd be great.

But they do it for corporations. They do because corporations do get taxed on their net, and this is actual corporations. If you're a sole proprietorship or if you're a partnership like an S corp, or yeah, like, you know, that's not the same thing. This is only for corporations. It says here that, you know, if you're like my wife's business, for example, is not a corporation, it's a small business, and she pays personal income tax. So that's like sort of the pass-through situation.

Yeah, her company is a pass-through entity, right? So like all of the profits and all that stuff just comes right to her, your individual income tax. But with the corporation, it's its own entity. Again, it's like in the United States, I'm sure not everybody out there understands this, but the Supreme Court starting in the 19th century and a few times over the course of the course of the last 100 or 250 years has affirmed that corporations are artificial people. They have the same rights and everything as everyday Americans. It's nuts, it's totally wrong, and it's created all sorts of horrible problems.

But one of the things that that amounts to is that you can tax a corporation. They're treated in that sense under the law as a person, but a person with special privileges. Right, and you talked about moving money around, the reason that happens is because here in the United States, they are taxed on money that they make in the United States. So if you're, I don't know, like Apple or Microsoft, let's say, or any, you know, not any or every big corporation, but many big corporations, you might want to say, hey, let's find, like you mentioned earlier, a country with a really friendly tax code. And it's called tax inversion. And let's just confuse everybody by using what's called transfer

pricing, which is basically creating, they're not fake transactions, but they're transactions between subsidiaries all over the world just to move profits around, basically. Yeah. Using more biblical terms, it's like robbing Peter to pay Paul, basically. Yeah. It's all like moving goods from one division to another within the same company. There's no reason that the company has to charge that division or the other division or providing a service. Like, let's say you bring your marketing team into launch a new podcast, you could have the podcast division charge, or the marketing division charge the podcast

division from, and it's all, as far as the company's concerned, it's all internal money. It's all kept in the family, but all of that is just kind of... Unless you're the podcaster. Right, exactly. And then you're like, I really needed that money. But as far as multinational corporations are concerned, when you do that and it crosses international borders, that's a really good way to move money from, say, the United States to, say, the Cayman Islands, where there's no income tax. It's one of those 10 countries. And so all of a sudden, that money that you just moved from

the US to the Caymans doesn't count as profit that America can tax any longer. That's transfer pricing, which is a form of tax inversion. There's other stuff you can do too. You can move your headquarters to another country with a lower tax, which really, from what I can tell, basically amounts to changing the address on your letterhead and maybe some legal documents. Like, I think Burger King did that when they bought Tim Hortons. They basically used Tim Hortons headquarters as the new corporate headquarters for Burger King. So Burger Prince could go to school in the right district?

Exactly, right. Except in this case, rather than going to school districts, it's saving billions and billions of dollars in taxes, even though it's kind of a joke, because Tim Hortons is just dwarfed by the size of Burger King. So the idea of this giant company, Burger King, transferring its headquarters to relatively smaller Tim Hortons headquarters, it seems a little disingenuous. Because that's the thing, everybody knows that corporations try to get out of paying their taxes. They're just famous for it, especially in the United States. But when you come down to it, that is deeply un-American and really immoral,

and businesses are not supposed to be doing that. They're supposed to be paying their taxes and being upstanding corporate citizens, but they don't do that. And so every once in a while, they get called out on it. And one of the reasons why we still have corporate taxes, as we'll see, is because the average American, like you and me, thinks, heck, yeah, corporations should be paying their taxes just like us. Yeah. And these tax havens, they cost governments a lot of money, all over the world, between $500 and $600 billion, which puts a dent on us here in the United States.

But if you're a developing nation or a low-income economy, it makes a real big dent. If you're losing a couple of hundred billion dollars, it's going to be a real hit to your GDP. And when Apple moves $30 billion to Ireland over the course of four years, and employs nobody over there, and their tax at a rate of 2%, that does hit the United States, but not like it would in some other countries. Right. But again, you can understand why Ireland would be like, I think they actually made a sweetheart deal with Apple for that, because Ireland's corporate tax is normally 12.5%. They knocked 10% off for Apple.

But I looked at Ireland's GDP, that $30 billion was 12% of the value of Ireland's GDP in 2013. So to Ireland, that was an enormous influx of cash and worth whatever effort they were going to make to get it into their borders. Plus, they got to make some money off of it in taxes, in addition to having it invested into their economy. And Apple, they got pilloried and kind of called out in 2013 for that kind of transfer pricing or tax inversion technique, right? Because they didn't have any employees in Ireland at the time, and they got called out for it. But if you compare Apple to a lot of the other Fortune 500 companies, they might as well be weeblos, for goodness sake, as far as paying taxes is concerned.

They are Ned Flanders just to the T as far as paying taxes goes. Compared to companies like Amazon, it's just astounding. They should not be ever be picked on at all in that respect, just by comparison. Yeah. I mean, let's talk about Amazon. They've been criticized a lot and called out a lot, especially over the past couple of years. In 2017 and 18, they paid $0 in taxes, and they made big profits, $3 billion in profits. This isn't the gross. This is that net profit that we were talking about that they're supposed to get taxed on. In 2017, I think it was, I'm sorry, in 2018, it was $11.2 billion in profits. It's up from $3 billion. Yeah, they paid $0 in taxes both years,

and not only that, they got refunds those two years. Yeah, $129 million and $137 million respectively over those two years. Then finally, a couple of years ago in 2019, they were like, we'll pay some taxes. They paid $162 million on the profit of $13.9 billion for a whopping percentage rate of 1.2%. Yeah. Amazon deserves to get publicly berated for it. I also have the impression that they paid those taxes in 2019 just because politically it was getting bad, like the press before it was getting ridiculous. They're like, I will pay $162 million. It's not even the combined refunds that we got the last two years, but at least we're paying something. There are plenty of other corporate tax dodgers. Chevron, Hallibur, and IBM also paid

$0 in taxes in, I think, 2018. There was a 2018 study that found that of 379 of the Fortune 500 companies that turned a profit in 2018. 91 of them paid $0 in taxes. I think all together, those 379 paid something like $86 billion when really had they paid just the 21%, that lower 21% effective rate, it would have been $161 billion. You can make a really good case that the corporations in America are really, really good at getting out of paying taxes for the most part, even though not all of them do. Going back to Apple, Apple paid $16 billion in taxes in 2019 compared to Amazon's $162 million in that same year. Right. You could also make the case that the 2017 tax reduction for corporations

and leaving open of the loopholes did not, in fact, boost federal corporate tax revenue like they said it would, which never made sense to begin with anyway. Exactly. No, it was all just a big scam. You mentioned earlier, though, we still can't agree on who actually pays this. You hear Amazon or whoever pays $129 million, I don't know, $162 million. Who actually, Jeff Bezos, write a check to the federal government for that? How does that work? And economists don't even really agree on who ends up taking this financial burden on. I think even in the 1700s, there was an economist named Sir William Petty, and he said what a lot of people probably think, which is it's just going to be passed on to the

consumer as higher prices. They're going to just raise the price of their goods. Other people say, well, that can't be true because if you're already charging prices where you've maximized your profits, there's a cap. You can't just keep raising your prices over and over and over to cover yourself because eventually people are going to be like, I'm not going to buy that. Right. Yeah. When you raise prices, it makes people think like, ooh, can I actually afford that? And you start actually shooting yourself in the foot. And that's generally the understanding among economists today, hundreds of years after Sir William Petty, that he was wrong. And that idea is actually borne out among the different states

in the US. Some of them have zero taxes on corporate income. Others have relatively high taxes on it. And yet, if you go from one state to another state, when you buy a pack of hubba-bubba bubblegum, it's probably going to be exactly the same price before you pay sales tax on it, which goes to show like, they're not going to charge a different price because they're having to pay corporate taxes. That just isn't the way it is. And plus also, corporations aren't the only ones who sell hubba-bubba, right? Right. If Emily wanted to, she could become a distributor of hubba-bubba bubblegum and I wouldn't blame her if she was because it's about as good as bubblegum has ever been produced. I was a hubba-bubba kid. I was not bubble-licious.

I didn't like bubble-licious either, but ultimately I was bubble-yum. And I think there are a couple of things that represent the pinnacle of human endeavor. One of them is lemon lime bubble-yum. Remember, it was the green outside in the yellow center. Oh, yeah, yeah, yeah. So good. I think I've mentioned it before, Rambo bubblegum. It was blackberry flavored big league chew with Rambo holding a missile launcher on the front for some reason. I've definitely never heard that. That's amazing. And then lastly, ET peanut butter flavored cereal. Well, I'm a Captain Crunch guy, as you know, but on the gum, hubba-bubba to me always produced,

it always yielded the best bubbles. Yeah. And if you were a champion bubble blower and sometimes bubble within bubble blower like myself. Oh, wow. Then you reach for the hubba-bubba. You need to make a video of yourself doing that, man. Bubble-yum was good too, though. But just... Bubble-yum was good too, but you're absolutely right. Hubba-bubba was as good as it gets with the bubbles, for sure. I don't chew gum anymore, but if I was going to, I would get a pack of bubble gum like that. I think hubba-bubba is basically unchanged. Bubble-yum's a little weird now. It's a little different. I love that you know the current state of bubble. I've tried it once in a while. Yeah. I mean, if you want to go get transported

back to your youth, like get some real bubble gum. Yeah, I'm going to do that. Where were we? Oh, okay. I know where we are. So states don't charge different prices. Like, it's not like, let me go to Florida and stock up on that gum because it's six cents cheaper. So then... Oh, I know where we were, really. We were talking about Emily becoming a hubba-bubba distributor. Sure. She doesn't have to pay corporate tax. So she could sell hubba-bubba way cheaper than say General Electric could sell hubba-bubba if they ever wanted to. She could undercut them. General Electric wouldn't be selling hubba-bubba any longer because it would be hamstrung by those corporate taxes. Emily's not hamstrung by that.

Right. So we're still left without an answer on who's paying. Usually these days, modern economists say, well, here's what's going on is the burden is going to fall on the owners. But what that really means is it's divided among shareholders of that corporation. And what it really is happening is employees are being paid less. And so they're all going to take it in on the chin. Yeah, because as far as the economists are concerned, if the government is coming in and taxing somebody, then there's three entities that could possibly be paying for it. Capital, the business owners, the people who own the machinery, own the money that's invested into businesses. Capital, employers, labor, the workers, employees, and then customers. And if we've

already decided that it's not being passed on to customers, you've got capital and labor left. And so yeah, it makes sense that it would be capital who's paying the tax in the form of lower dividends than they would otherwise be getting if the pot that the dividends were coming out of was greater because the tax hadn't been taken. But economists still say that's not the end of it. We think it's probably ultimately divided somewhat, probably not evenly, but somewhat between capital and labor. And that labor helps bear the cost of these corporate taxes by getting paid lower wages. There's just less capital stock involved. And so when you have less money, you can't get like a goose plucking machine. That means you're going to pluck this

goose. You can do 10 goose is an hour rather than two, that just little Samuel, the 10-year-old boy with the full chin beard can pluck by himself with just his hands. Even though Samuel's saying, if you get this goose plucking machine, I'm going to oversee it and we're really going to make some money, you don't have the money to buy the goose plucking machine. So all you can do is just keep employing Samuel, maybe his cousin Ezekiel every once in a while comes in on weekends, but you don't have that money. They're less productive, so you're making less money in the market, which means you have less money to pay Samuel and Ezekiel. Even though they're doing harder labor than they otherwise would be if you weren't such a tightwad and would buy the goose

plucking machine. Right, and you could just fire Samuel to be honest. You probably would, yeah, he has been talking back quite a bit lately. I mean, someone could turn on that machine and push go. Ezekiel could. At a lower rate than Samuel. Oh yeah, he has zero loyalty to anybody, including his cousin. Let's take a break here and then we'll talk about arguments against and then for after that. How's that? Okay. Hey, I'm Lance Bass, host of the new iHeart podcast Frosted Tips with Lance Bass. The hardest thing can be knowing who to turn to when questions arise or times get tough, or you're at the end of the road. Okay, I see what you're doing. Do you ever think to yourself,

what advice would Lance Bass and my favorite boy bands give me in this situation? If you do, you've come to the right place because I'm here to help. This I promise you. Oh god. Seriously, I swear. And you won't have to send an SOS because I'll be there for you. Oh man. And so my husband, Michael. Um, hey, that's me. Yeah, we know that Michael and a different hot, sexy teen crush boy band are each week to guide you through life step by step. Oh, not another one. Uh-huh. Kids, relationships, life in general can get messy. You may be thinking this is the story of my life. Just stop now. If so, tell everybody, yeah, everybody about my new podcast and make sure to listen so we'll never ever have to say bye, bye, bye. Listen to Frosted Tips with

Lance Bass on the iHeart radio app, Apple podcast or wherever you listen to podcasts. I'm Mangesh Atikular and to be honest, I don't believe in astrology, but from the moment I was born, it's been a part of my life. In India, it's like smoking. You might not smoke, but you're going to get secondhand astrology. And lately, I've been wondering if the universe has been trying to tell me to stop running and pay attention because maybe there is magic in the stars if you're willing to look for it. So I rounded up some friends and we dove in and let me tell you, it got weird fast. Tantric curses, major league baseball teams, canceled marriages, K-pop. But just when I thought I had to handle on

this sweet and curious show about astrology, my whole world came crashing down. Situation doesn't look good. There is risk to father. And my whole view on astrology, it changed. Whether you're a skeptic or a believer, I think your ideas are going to change too. Listen to Skyline Drive and the iHeart Radio App, Apple Podcast, or wherever you get your podcasts. So arguments against tax incorporation. Some people, and this is sort of the thing you hear all the time, is the economy referred to as an engine. And this motor that's got a hum along. And people that say you should not tax corporations are people that are saying, listen, this is what is keeping that engine humming. Is they're employing people. They're

generating money. They're selling things. I mean, this is the economy, basically. And if you just get rid of corporate taxes, then they're going to reinvest that stuff. They're going to pay their employees more. Your prices are going to drop. It's going to trickle down to you. And that engine is just going to hum. Right. I mean, that's ultimately what all of the arguments against corporate taxation amount to. And you're already taxing those individuals and those shareholders on their personal income taxes. So like you're double taxing them. So cut it out. Right. So yes, the corporation itself has to pay income taxes theoretically, where they actually, like you said, Jeff Bezos cuts a skexies from the dark crystals check

to the federal government for $162 million or whatever. Right. And then on top of that, after they pay their taxes, this post tax amount, the corporation sends out dividends quarterly, annually, however, to the shareholders. The shareholders are in some way, shape, or form. And oftentimes very literally owners of the company. But if you own shares in a company, you are part owner of that company. And so you're getting dividends. You're getting part of the profits. Right. So when you get those dividends given to you at the end of the year, you have to declare those on your income taxes. And then you have to pay personal tax on that. So it's like you said, it's double taxation. And so the government's saying, we'll take a little

bit of this capital out of the economy for ourselves. Oh, and by the way, we'll take it out of your little wealth pot too. And now all of a sudden, there's just that much less money to be reinvested into business. That's a huge argument against corporate income taxes that's been around for a very long time. But there's also like a lot more nuanced ones too. One of the big ones is that like it's a tax on entrepreneurship where if you are a company and you need some money to keep, say expand your business, right? And you've got your profits and everything like that, but you really want to take it up to the next level. And you need a lot more money than you have in the bank. You can issue shares, more shares of your company. That's called equity

financing where you're releasing equity shares, which your current investors don't really like because all of a sudden there are way more shares on the market. And their shares are suddenly worth a little bit less even though they didn't do anything and your business is doing fine. They don't like it very much. Then there's another way to do it. It's called debt financing. And that is instead of issuing shares of ownership to your company, you're saying, hey, I need to borrow money from you. I'm going to issue you this certificate. I'll pay this back in X number of years with interest. They're called corporate bonds. You have to be a massive company to issue debt securities, to raise money like that. You just have to have that kind of established

business and trust with the public to issue debt securities. But the reason that businesses do that is because you can deduct the interest that you pay those investors for lending you that money. You can't deduct dividends. So if you're a little startup, all you can do is issue shares. Nobody trusts you enough to buy debt securities from you. You're an unproven business. But they will buy shares in your company because they think you probably are going to be able to make it. They're just not sure. So you can issue shares and then put out dividends, but you can't deduct the dividends. Your competitors, the bigger guys can do that, or they can issue debt securities and then they can deduct the interest. This corporate tax is actually a tax on entrepreneurship

in that sense, which again, it's really nuanced and it's really wonky. But once you start to enter the world of high finance and new innovative technology, this is a big deal to you. You know what I mean? Yeah. And there are people that say that the disparity between the taxation between those interest and dividend payments is why we're getting all these stock buybacks happening, which you know, if you paid attention at all to the news in the United States when the 2017 tax laws changed for corporations, you heard a lot about stock buybacks, which is the idea that a company is going to use their profits to buy its own stock off the market instead of doing the thing that they said it would do, which is, hey, they're going to reinvest these profits that they're

making back into the company. They're going to get new equipment. They're going to hire more people. Everyone's going to get a raise or R&D is going to pick up. And what really happens a lot of times is they just buy stock buybacks. They just say, hey, we got this extra money now. Why don't we buy back a bunch of our own stock and consolidate even more control and more power and more money and insert Dr. Evil laughing at this point basically. Yeah, because allegedly, or theoretically, the stock buybacks only come when this company is so flush with cash, it can't spend all of it. So it just does these buybacks, but they happen even when a company doesn't have a bunch of cash because it raises the share price a lot more too. It also lowers their

non-deductible dividend payments as well. So the idea that deductibles are not, or dividends are not deductible, but interest is it's also laying the foundation for those stock buybacks like you were saying. Right. And then you add in just the complex plate of spaghetti that is the US tax code. And it's just, it's really complex. And some people say if companies weren't having to kind of sift through this tax code, and it was a lot simpler, or maybe if they didn't have to pay them at all, then maybe they would reinvest some and not have stock buybacks. Yeah, not to mention critics of corporate taxation say like, we don't even know who's paying this at this point. It's possible that wages could go up if we didn't have this. So when you take all of these reasons

together, there's some pretty good arguments against corporate taxation. And you can take them all together, put them into a pile, and say, hey, every day Joe American, what do you think of this? And watch them urinate on all of your reasons that you just neatly piled together. Reasons for corporate taxation. The people say, no, we definitely should. One of the big reasons is just kind of what we've been talking about. It's just public perception of your average American is, yeah, why do I got to pay taxes? And Amazon doesn't. So that's one big reason. Another is people that say, hey, look, the government is basically providing the infrastructure for which these companies are getting rich. Yes, dude. The bridges and the waterways and

everything that we're maintaining and subsidizing as tax paying citizens, the roads even, these corporations are utilizing that stuff. So they need to pay their fair share just to support that infrastructure. And the government is really the engine because they take care of all this stuff in theory. Dude, it is just such a smokescreen that the government has portrayed as just this spendthrift pickpocket that just steps on innovation and takes the rev out of the engine of the economy by taxing business. There's an entirely different way of looking at it and that by maintaining those bridges and these waterways and the infrastructure that businesses use to hum along, the government itself is a wealth creating engine too. And the government

is mandated to use that money as soon as it gets it, right? Yeah. A business is not necessarily mandated. There is no mandate. The board of directors and the shareholders might want the business to spend its money rather than sitting on it, but it doesn't have to. And plenty of businesses might just be sitting on a big pot of money. Well, another argument in favor of corporate taxation is that the government says, you can't do that, at least not with this percentage, this 21% of that money that you made this year because we're going to take it and we're going to put it back in those roads and everything. And yes, agreed. The government is not like an efficient machine by any stretch of the imagination. And plenty of that money also ends up going into

other things that I consider very important, like social programs that keep people from starving to death, that kind of stuff that don't necessarily have anything to do with business, unless you zoom out enough and then realize that if you want a worker to show up to work alive, they need to eat food. And so if you're not paying them enough, the government's actually taking that money from you and making sure that that worker is fed so they can show up at work the next day. If you zoom out far enough, it all has to do with business and it all connects like that. Some people argue that it should just be just on its face about business, that anything that isn't obviously overtly on its face about business should just go away and not have anything

to do with business and let business deal with business. Yeah. How's that working? Yeah. Real well, real well. Thanks for asking. Another reason you might want to argue for corporate taxation is merely to kind of put these companies in check and these corporations in check and to make them tap the brakes every once in a while, because with that kind of money yields great power, especially in the wake of the Citizens United decision when now corporations and companies can spend whatever they want to get involved in politics and to woo politicians through lobbying efforts. And some might say that if you at least smash their head with attacks a little bit, maybe that shouldn't be so violent. If you levy attacks on their corporation. If you

tickle their ear with a feather, that's a metaphor for taxation. Then that at least keeps their power and influence a little bit more in check. I'm not sure how much that's working, but that's the thought. I think it's working a lot actually. How do you do? Yeah. And I think, and it's weird to think of, and I didn't think of it before, but researching this, it seems to be, it's two sides of the same coin. Some people say, well, a good way to keep government power in check is to reduce its ability to tax things because it depends on that money. It's like a vampire that just sucks money right out of everybody. So it's two sides of the same coin. I think that that is the give and take that we see when it comes to the tax code is whatever group thinks that the government is

a bloodsucker. If they're in charge, then taxes go down. If somebody thinks that businesses need to be kept in check, taxes tend to go up. And that's that kind of seesaw effect that we see. But I think ultimately it does have at least some impact. It's not perfect, but I think it's enough that it's worth doing just for that point as well. Right. You also might say that it provides a backstop, basically, to personal income tax for the wealthy. Here in the United States, nine-tenths of corporate stock are owned by the top tenth of the income distribution. So it's, you know, the wealthy are, they're the ones that are running these corporations, obviously. And if we didn't tax the corporations, they're also getting away with tax loopholes and tax

shelters. And these individuals might not be paying any tax at all as people and as corporations. Yeah, they might actually form shell corporations themselves and say, oh, no, all of this is corporate income. It's not taxable if there's no corporate tax. And I read that that's one reason why most countries have a corporate income tax is to, because it's ultimately a tax on the wealthy, because the wealthy are the largest shareholders in the corporations around the world. And I hadn't really thought about it before. But once you see corporate taxes, a tax on the wealthy, like the picture becomes much clearer of what, you know, what the battle lines are in that, that argument and debate over the existence of corporate taxes. Right. So it's here to stay.

It's not going to go away. They're not going to completely do away with it. The tax code is a big jumble plate of spaghetti, like I said, it's a big mess. And there are some people that say, well, you know, if we want to kind of fix this corporate problem that we have, maybe, and I think these were a couple of Rutgers professors, and there are some different ideas we'll go over, but they had an idea I thought was interesting, which is let's not rewrite the tax code again, it just gets more confusing and offers more opportunities for loopholes. Let's just lock that in, but then offer a wealth tax on top of everything for these corporations. They said about 5% of the actual growth of the company for that year. So maybe the federal

government, here's what you should do. Subtract the end of the year share price from that share price where it was at the beginning of the year, multiplied by the number of outstanding shares on each date, and then tax them on that amount over and above the regular corporate tax rate. Yeah. And then that captures everything. That captures the actual growth in the company's wealth that year, not just necessarily their profits from revenue. And it also says, hey, keep it up. Keep going. You can find all these loopholes and all these tax dodges that you've figured out. This is, again, like a corporate tax is a backstop to income tax for the wealthy. This is like a backstop for corporations getting out of paying corporate income tax. It's

just kind of clomped on in addition to it. I don't know if it's going to go anywhere, but it seems like a pretty good idea. Some people say another way we could fix it is to basically treat these corporations like they are partnerships and just let the money flow through and then tax these shareholders individually. Yeah. The problem with that that I saw is that you then would be taxed on your individual income on all the profit that the corporation made that year, even though you didn't see that amount in dividends, let's say you saw a $20 dividend that year for your one share. But really, your share of that profit was $200. Well, you might be taxed on the $200 rather than the $20 dividend. And I mean, that would just chase people away from

investing in companies. So that's probably a generally bad idea. Agreed. But yeah, it's like you said, it's not going anywhere at all. It's here to stay just at the very least because the everyday American is like, yeah, corporations should pay taxes. Yeah. The non or the everyday Americans that are saying, let's just get rid of it are not everyday Americans. Right. They're like Mr. Burns in disguise. Sort of. Yeah. Wearing a bowling shirt or something. You got anything else? I got nothing else. I'm taking off my ice skates finally. You did great, man. You didn't seem like you were hanging by your fingernails at any point in time. Neither I don't think. I fooled you again. Well, since Chuck said he fooled us again, I think then everybody,

it's time for Listener Mane. Yeah, boy, this is a good one. I need to set this one up. Remember, we did, I don't want to bring this up. I know it's a matter of a past trauma for both of us. Oh, no. But remember when we did our Feral Children live show at South by Southwest? Just so you folks know, you might not have heard the story. We did our Feral Children live show at a bar in South by Southwest where there was a big sort of DJ event before and after, I think. And then we were. And during. We were squeezed in between. And this was a bar with, there were probably, I don't know, let's just ballpark it and say 400 people in there and about 15 of them were stuff you should know listeners that wanted to hear what we were having to say.

Let's not exaggerate, Chuck. It was probably like 18 or 19. I just remember you and I locking eyes at a certain point very early on and literally mind reading each other of we're agreeing right now to skip 50% of this material, right? That's right. And we did. Yeah, we did. And it was like, we just kind of knew what parts we were going to skip and all that too. It was pretty amazing. The saddest thing about all this is that a lot of stuff you should know listeners were left out in the hot sun on the sidewalk and couldn't get in, which we had nothing to do with and are still apologizing for it. So that's the setup. Okay. This morning I was listening. Hey guys, I was listening to our Feral Children Reel and you started the episode by lamenting how terrible your

first attempt was when you did it live in Austin in 2016. Like we didn't even release that. It was unreleasable. No, it wasn't even close. Like we re-recorded it, if I'm correct, right? Yeah, we recorded it as like a regular studio episode. Right, exactly. After we got over the trauma. I just want to let you know that at least one great thing came from that show. See, I was in the audience that day with an old friend that I hadn't talked to in ages. We were both fans of the show and were excited for the chance to see you live. We ended up having a great time, decided to hang out again a few weeks later. Long story short, we're now married with an 18-month-old. That's awesome. How awesome is that? Isn't that great? You guys have continued

to play a huge partner lives and have kept this company during countless road trips and commutes, including two cross-country moves. Our daughter now starts dancing when she hears the theme song and we jokingly refer to you guys as Uncle Josh and Uncle Chuck. I think that's only right. Yes. Thanks for all you do and please come back to Austin. That is Jenny. I told Jenny, I was like, this is amazing. I'm going to read this and I'm a little mad at you for not sending a picture of this baby that we're partially responsible for. I want to see this kid. I bet Jenny will send a picture. I'll bet she will too. Well, thanks to Jenny, thanks to the kid, thanks to the husband, and thanks to all of the terrible bar patrons at that episode

that we recorded that time but never released, but thanks especially to all the stuff you should know. Listen, who were turning around and telling the people at the bar, do you remember that? Yeah, it didn't work. No, it didn't work, but I was like hats off to all of you guys trying to shush the people at the bar who've never heard of stuff you should know and couldn't care less. Oh boy, that was terrible. Yeah, but that's great news, Jenny. And thanks again. And if you want to get in touch with us like Jenny and take one of our terrible memories and dust it off and make it shine and show it in a different light, we love that kind of stuff. You can send us an email to stuffpodcastsatihartradio.com. Stuff you should know is a production of I Heart Radio. For more

podcasts, My Heart Radio, visit the I Heart Radio app, Apple podcasts, or wherever you listen to your favorite shows. Hey, I'm Lance Bass, host of the new I Heart podcast, Frosted Tips with Lance Bass. Do you ever think to yourself, what advice would Lance Bass and my favorite boy bands give me in this situation? If you do, you've come to the right place because I'm here to help and a different hot sexy teen crush boy band are each week to guide you through life. Tell everybody, yeah, everybody about my new podcast and make sure to listen so we'll never ever have to say bye, bye, bye, bye. Listen to Frosted Tips with Lance Bass on the I Heart Radio app, Apple podcasts, or wherever you listen to podcasts. I'm Munga Chauticular, and it turns out astrology is way

more widespread than any of us want to believe. You can find in major league baseball, international banks, K-pop groups, even the White House. But just when I thought I had a handle on this subject, something completely unbelievable happened to me and my whole view on astrology changed. Whether you're a skeptic or a believer, give me a few minutes because I think your ideas are about to change too. Listen to Skyline Drive on the I Heart Radio app, Apple podcasts, or wherever you get your podcasts.