A Word About Corporate Taxes

There are people in the world who know a lot more about corporate taxes than I do. This isn't really saying much, because here's what I know about corporate taxes: companies pay taxes on their net earnings. That's about it. (And to be honest, I'm not really sure how accurate that statement is.) But there has been a lot of talk lately about corporate taxes, namely that some companies that make a lot of money haven't paid any income taxes. It's got me thinking: Why do corporations need to pay any income taxes at all? (Bet you didn't see that coming.)

Before you answer, let me share my thinking so that you know that I'm not completely insane. It seems to me that when a company makes money, it can only do one of four things with that money (there may be more, but I can only come up with four):

1. Spend it to maintain or grow the business
2. Keep it
3. Give it to employees through wages or bonuses
4. Give it to owners/shareholders through distributions or dividends

It is my understanding that option one makes the money non-taxable. Companies only pay taxes on net profits, so any earnings re-invested in the company are non-taxable.  (Please, somebody, correct me if I'm wrong.)

Option two allows the company to to build up a reserve, making it a stronger and more stable in the future.

Options three and four have the money passing from the company to actual people, all of whom presumably pay income taxes on that money.

So to recap, if a company doesn't pay income taxes, the only things it can do with the money is reinvest it, save it (both of which strengthen the company and presumably benefit the economy), pay it out in higher salaries, or pay it out in dividends (both of which give money to real people who pay income taxes on that money). Plus, if there is no corporate income tax in America, wouldn't that provide a huge incentive for companies to be based here (and bring  job with them).

I do see that it's possible that companies could be based here, even though all their employees or shareholders are actually not in America, but that seems pretty easy to fix. American companies can only avoid income taxes if at least 75% of their workforce and 75% of their shareholders are American, otherwise, you pay. Done.

So that's one take on the subject. Now you, many, many people who are much smarter than me, tell me where the holes are. (I am assuming there must be many, or there would be a lot more countries with no corporate taxes.)