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Technology Stocks : Apple Inc.
AAPL 149.32+2.6%3:59 PM EDT

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To: Doren who wrote (210637)7/13/2021 12:57:56 PM
From: Art Bechhoefer1 Recommendation

Recommended By
J.F. Sebastian

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There are no simple answers to fixing the tax code, whether for big corporations like Apple or thousands of smaller ones. The corporate income tax, even at its present low rate, is inflationary because it amounts to a taxpayer subsidy of corporate investment. Let me explain.

The combination of low interest rates and a corporate tax of about 21% (it varies, depending on the type of corporation and numerous other factors) means that corporations can borrow at low rates and acquire other corporations at prices that would otherwise be too high if interest rates were higher. The cost of interest, nevertheless, is deductible, so the higher the corporate tax rate, the greater the public taxpayer subsidy of corporate acquisitions done with borrowed money. In this point you are correct to believe a lower corporate tax rate would tend to reduce the price of goods made by the corporation, to the benefit of the consumer.

In fact, however, it's not always true that a lower tax rate benefits the consumer. The corporate tax cut approved by the previous administration didn't lead to more corporate investing or lower prices, but it did produce higher dividends and capital gains, which benefit mainly higher income shareholders. The higher tax rate proposed by the current administration (somewhere near 25%) would theoretically increase taxpayer subsidy of corporate deductions, but a better way to fix this problem would place limits on deductions.

There could be limits on borrowing for the purpose of acquiring other corporations or assets. Even more to the point, it would preserve the higher tax rate for corporations that paid their top executives more than 40 times the median wage earned by their workers and/or workers under contract. Many corporate executives today earn typically between 200 and 2,000 times the wages of their workers, if you include not only salaries but stock based compensation. You could lower the corporate tax to 20% or less for corporations that paid their workers more, and increase the tax for those whose top management luxuriate in their stratospheric salaries and compensation. Amazon's former head Jeff Bezos is a good example. The discrepancy at Apple is less so, mainly because the professionals who comprise a large portion of the Apple work force get paid plenty. But if you included the pay given to workers, for example, in China, who assemble most of the iPhones, iPads, Apple Watches and some of the Mac computers, then the discrepancy looks worse than that for many corporations operating wholly within the U.S.

As I say, it's complicated, but the main goal should be to reduce tax inequalities that favor wealthy individuals and large corporations and shift more of the tax burden to low and middle income households. That appears to be the direction indicated in a proposed corporate tax increase as well as the recently signed executive order that would lead to more competition, especially in sectors dominated by a handful of big firms.

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