Recently read the interesting discussion on endowment taxes from Matt Levine.
If endowments’ tax rate were to increase, they need to pay more on their investment income.
However, they might as well just include more payroll in its expenses, so that income before tax is significantly less.
Sounds very smart…
What’s the catch?
I guess –
if the entity needs to grow, it usually involves “net profit”. Thus it may grow slower, as more taxes will need to be paid each year for positive profits, unless net income is managed well to avoid near term taxes, or there is just no profit, which means it’s hard to grow (organically).