It also takes money away from the corporation, when they should be doing one of these:
- spend their profits to try and grow, but fail; thus spreading their capital into the rest of the economy
- spend their profits to try and grow, and succeed; not only spreading capital but creating new wealth that will eventually work its way around to the shareholders
- return it to shareholders, where it gets taxed
Isn’t that how it already works? They can spend all of their profits or pay taxes on profit and sit on the rest?
Depends on what it gets spent on - capital purchases dont reduce net income. You can write it off, but there are rules limiting how much.
So you could have a situation where you have $1m in profit, and you want to buy a $1m machine, but the machine goes on your balance sheet and not your income statement, so your books still show $1m in profit, even though you now have no cash. And now you still have to pay tax on the $1m.
Now, in the next year, the rules allow you to write off say $200k of that machine, reducing your profit by that much. Eventually, you get to write off much / all of the machine.
But cash is king, and on a cash basis, the tax man is doing very much better than the business in this scenario.
Better to dispense with all the accounting intrigues, tax corporations at 0%, and just tax dividends, buybacks, and salaries.