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Economics/offshoring of corporate profits

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Question
Mr. Taillard, I would be grateful if you evaluated the merits of this post, copied from a conversation on Newsvine. Thank you.

"As to money being hoarded offshore..simple way to fix that. Eliminate the corporate income tax and instead tax those profits as regular income when they are distributed to the individual shareholders as dividends. Whats how fast that money comes home...Watch prices drop & employment start to pick up. Oh yeah...revenues to the government will then increase."

Answer
Well, first of all, dividends already are taxed under the capital gains tax.  Second, individual people hoard wealth and income offshore, as well, not only in seeking the best global investments, but also to avoid taxes, often illegally.  Third, there are a huge number of tax loopholes available for individuals to avoid paying these capital gains taxes.

But, let's say you were able to control for all of that, ensuring that everyone paid their taxes properly, including an increase in capital gains tax that would make up for the lost revenues of the corporate income tax.  I still don't think this will accomplish much of anything, honestly.  Businesses will not decrease prices or increase costs unless they are forced to, and since price/cost are already established and increasing, it would really take something huge like a recession to cause deflation to occur.  The decreased tax costs would simply result in increased profitability.

What will a corporation do with those extra profits?  They can only either expand their operations, or give up those funds as dividends.  A business, again, will only use funds to expand operations if there is enough increased demand to warrant the increased costs of expansion.  Otherwise, by law, they have to act in the best interest of the shareholders, which means increasing profitability and dividends, when possible.

While you're shifting the source of tax revenues being generated, you're not actually changing incentives for investors or corporations, which means the mechanisms by which these taxes influence the greater economy are left intact.

Economics

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Michael Taillard

Expertise

Accepts most economic questions

Experience

Consulting with major corporations, government agencies, political organizations, small businesses, non-profits, start-ups, and even individual people. Teaching at universities around the world, and developing original coursework. Performing original research and analysis. Writing books and scientific studies.

Organizations
American Economics Association

Publications
http://www.barnesandnoble.com/s/michael%20taillard You can also check Proquest for a small selection of my research.

Education/Credentials
PhD (Financial Economics; honors) -- MBA (International Business Finance; honors) -- Grad School Certificate (International Business Management; honors) -- BS (International Business Economics; honors) -- AA (Business Administration; honors) -- Certificate (Chinese Language and Culture) -- Trade School (Transportation Logistics; honors)

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