The history of taxes maybe hasn't interested many Austrians, but this question relates, I think, in an important way to the modern development of the "debt money" FRB system.
I think it is a global phenomena, and since many decades, that companies don't need to pay profit tax on interest payments to its lenders, but only on dividend payments to its equity holders. This arrangement discriminates company ownership and gives them incentive to increased debts and hence is a very good business booster for banks! It therefor obviously increases the power of an FRB or fiat central bank.
Debt is like going short a put on the company's cash flow from assets. Equity is like being long a call on it. Both parties have claims on the company's assets. It is difficult for me to see any fundamental rationale for treating those too instruments in opposite ways from a taxation point of view. It stinks big banking lobbyism to me...
Does anyone have any clue as to where I can find some sources on "the history of corporate taxation" and how their design have been influenced by big banking interests?
It's not fascism when the government does it.
“We must spend now as an investment for the future.” - President Obama
I don't know what it's like in other countries, but here in Norway lenders have to pay taxes on interest income, and the same tax rate is also paid on dividends, so there's no tax advantage to debt financing from the owners viewpoint.
Edit: Sorry, you're completely right. I forgot that corporate taxes are calculated from the net profit, from which interest expenses are already deducted. Personal income taxes, that I was thinking of, obviously don't change anything.
Zlatko:I don't know what it's like in other countries, but here in Norway lenders have to pay taxes on interest income, and the same tax rate is also paid on dividends, so there's no tax advantage to debt financing from the owners viewpoint. Edit: Sorry, you're completely right. I forgot that corporate taxes are calculated from the net profit, from which interest expenses are already deducted. Personal income taxes, that I was thinking of, obviously don't change anything.
But you highlighted a good point!
For Swedish citizens, dividends are taxed not only in the company creating them, but then again by the Swedish owner receiving them. I've heard that Sweden is now a days unique with this system, that in all other countries you are not taxed for capital income if the company has already paid corporate taxes (I'm not sure if that is true, probably tax codes are generally much more complicated than that). This tax system is however the driving reason for swedes selling their stocks to foreigners who don't have to tax the dividends twice. Swedish households therefor own less than 5% of the Stockholm stock market.
However, even when you as a private person have to pay capital income tax, there's another tax trick to further EVEN MORE debt creation! As a capital income beneficiary, you can tax-wise write off capital incomes against interest expenses. That gives you as a private person owning dividen paying stocks or benefice from other capital income, a huge incentive to get indebt! It's much the same thing all over again as for the company, but now for the private person owners of company equity or other assets generating capital income.
Paying interest rates is tax deductable. But making and/or getting profit is punished by corporate profit taxes and/or capital income taxes. BEING INDEBT and paying interest rates is very strongly favoured by the tax code. But OWNING ASSETS and getting dividens is punished by taxes. In the realm of taxes, that is maybe the greates distortion in favour of banks which I can think of.
ProudCapitalist:For Swedish citizens, dividends are taxed not only in the company creating them, but then again by the Swedish owner receiving them. I've heard that Sweden is now a days unique with this system, that in all other countries you are not taxed for capital income if the company has already paid corporate taxes (I'm not sure if that is true, probably tax codes are generally much more complicated than that). This tax system is however the driving reason for swedes selling their stocks to foreigners who don't have to tax the dividends twice. Swedish households therefor own less than 5% of the Stockholm stock market.
I don't think Sweden is unique in that respect, because we have the same thing in Norway. Companies pay 28% corporate tax on their profits, from which they can then pay dividends if they like. If you as a stockholder receive dividends you again pay capital gains taxes on this. For example, a company earns 100 kr, they pay 28 kr in taxes, pay out 72 kr dividend, and when you file your tax returns at the end of the year you have to add 28% of your 72 kr dividend to your tax calculations.
ProudCapitalist:However, even when you as a private person have to pay capital income tax, there's another tax trick to further EVEN MORE debt creation! As a capital income beneficiary, you can tax-wise write off capital incomes against interest expenses. That gives you as a private person owning dividen paying stocks or benefice from other capital income, a huge incentive to get indebt! It's much the same thing all over again as for the company, but now for the private person owners of company equity or other assets generating capital income.
I'm not sure I agree that it is a "huge" incentive. It doesn't make sense to take up a loan that costs, say, 1000 kr a year, so that you can reduce your taxes by 280, because after all, you still have to pay that 1000 to the bank, so on net you'd be exchanging a 280 reduction in your income for a 720 reduction to your income.
But yes, I do agree, taking up debt is certainly encouraged by the fact that you can deduct part of the interest expense from your income tax. And saving is discouraged. Certainly if you wanted to buy a durable good, such as for example a house, you'd be pretty stupid to set aside money from your wages for the purchase, because all those years you'd be paying taxes on the interest income. It would be much smarter to just debt finance the purchase as much as possible and as soon as possible and deduct the interest expenses from your wage income while you earn it.
In fact, this is a broadly known and accepted way of saving in Norway, and is certainly the way most "common households" do it. Saving in the form of paying down on your mortgage is the preferred way of saving. You get an asset that rises in value because of inflation, your wage also rises making the debt easier to pay off, and you pay less taxes every year. What's not to like? Oh, did I mention that if you have a "net fortune" (net meaning assets minus debt ) above 470000 kr ( about $65000 ) you have to pay "wealth tax"? That's right, 1,1% of your net wealth above this goes to the government. Every year. What's "great" though is that property is considered to be worth usually 20% of it's sale price in this calculation, so as long as you own a house you can to a large extent avoid this tax. As a result, nearly everyone in Norway owns their own house, has a mortgage, and very few, mostly only the very rich, own any other asset like stocks or bonds.
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