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But tax laws have to become more and more onerous in order to close each loophole... it's a self-fulfilling prophecy.

jpgvm 11y ago
Not entirely true. Tax laws have loopholes because exceptions were made. If there were no exceptions there would be no loopholes. So the real goal should be instead of trying to patch the infinite number of loopholes created by ever increasing complexity is to throw it all out and come up with a simple ruleset that applies to everyone and everything with no exceptions.
- derekp7 11y ago
  Let's try on an example: All revenue is taxed at 20%. Now this will work for some businesses, as the cost to make the product is low enough, and the sale price high enough, that 20% can be paid and there is still profit left over. But then there are very low margin, high volume businesses. They may have only a marginal profit per unit sold due to the nature of what they are selling, leaving no room for 20% tax. So we add in an exception that says "You can deduct from revenue the cost of goods sold" (i.e., tax on net instead of gross). Now all the business has to do is find ways of hiding profit in the cost of goods sold. Then there are products which contain materials that changed hands many times before it got to the final product. So if a raw material (lets say, cotton) is the majority expense, it has to go to one company to refine it, a second company to turn it into thread, a third to add color, a fourth to make it into fabric, and finally a fifth company to make a shirt. So that cotton gets taxed 5 times before it gets sold to the end consumer. So let's add another exception, that goods sold for use in making another product aren't taxed -- that way, large businesses that produce the entire vertical stack in-house don't have an unfair tax advantage against smaller companies. Gee, now we have another loophole that can be creatively exploited.
  - drumdance 11y ago
    This part of the reason I think there should be no corporate income tax.
    - jpgvm 11y ago
      Income tax as a whole is the problem I feel. We should tax wealth instead. By not taxing income you avoid placing the burden on those that don't have and thus avoid needing to create loopholes for them.
      - LordKano 11y ago
        Taxing wealth suffers from the same problem. People who have a lot of wealth will move that wealth to places with the lowest tax burden. Basically, the truly wealthy will start living in luxury apartments while shuttling their wealth to the Costa Rican villa in which they are planning to reside during retirement.
        jpgvm 11y ago
        That relies again on making exceptions for wealth held outside of the country. Not providing these exceptions and just making it flat wealth no matter were it resides fixes this problem too.
        LordKano 11y ago
        No, it doesn't fix the problem and it creates several others. That's the biggest problem with all of these quick-fix new tax ideas, the proponents never think them through. 1. What jurisdiction does one country have to tax assets held in another country? 2. Why wouldn't the country where the assets are located be the one to tax them? 3. How would you address the possibility of double-taxation? 4. How would you prevent the wealthy from shifting ownership of these assets to corporations or family trusts that are incorporated in that foreign country. Assets located in a foreign country, owned by an entity in the country would be taxed in that country.
    - joosters 11y ago
LordKano 11y ago
When the tax laws become too burdensome, people simply leave. Look at this. New York's tax burden is so great that it was economically advantageous for this man to pay someone to keep track of the number of days he spent in New York just so they couldn't claim he was a resident and force him to pay their taxes. http://www.newyorker.com/magazine/2012/03/19/tax-me-if-you-can http://www.newyorker.com/magazine/2012/03/19/tax-me-if-you-c...

jpgvm 11y ago

Not entirely true. Tax laws have loopholes because exceptions were made. If there were no exceptions there would be no loopholes. So the real goal should be instead of trying to patch the infinite number of loopholes created by ever increasing complexity is to throw it all out and come up with a simple ruleset that applies to everyone and everything with no exceptions.

derekp7 11y ago
Let's try on an example: All revenue is taxed at 20%. Now this will work for some businesses, as the cost to make the product is low enough, and the sale price high enough, that 20% can be paid and there is still profit left over. But then there are very low margin, high volume businesses. They may have only a marginal profit per unit sold due to the nature of what they are selling, leaving no room for 20% tax. So we add in an exception that says "You can deduct from revenue the cost of goods sold" (i.e., tax on net instead of gross). Now all the business has to do is find ways of hiding profit in the cost of goods sold. Then there are products which contain materials that changed hands many times before it got to the final product. So if a raw material (lets say, cotton) is the majority expense, it has to go to one company to refine it, a second company to turn it into thread, a third to add color, a fourth to make it into fabric, and finally a fifth company to make a shirt. So that cotton gets taxed 5 times before it gets sold to the end consumer. So let's add another exception, that goods sold for use in making another product aren't taxed -- that way, large businesses that produce the entire vertical stack in-house don't have an unfair tax advantage against smaller companies. Gee, now we have another loophole that can be creatively exploited.
- drumdance 11y ago
  This part of the reason I think there should be no corporate income tax.
  - jpgvm 11y ago
    Income tax as a whole is the problem I feel. We should tax wealth instead. By not taxing income you avoid placing the burden on those that don't have and thus avoid needing to create loopholes for them.
    - LordKano 11y ago
      Taxing wealth suffers from the same problem. People who have a lot of wealth will move that wealth to places with the lowest tax burden. Basically, the truly wealthy will start living in luxury apartments while shuttling their wealth to the Costa Rican villa in which they are planning to reside during retirement.
      - jpgvm 11y ago
        That relies again on making exceptions for wealth held outside of the country. Not providing these exceptions and just making it flat wealth no matter were it resides fixes this problem too.
        LordKano 11y ago
        No, it doesn't fix the problem and it creates several others. That's the biggest problem with all of these quick-fix new tax ideas, the proponents never think them through. 1. What jurisdiction does one country have to tax assets held in another country? 2. Why wouldn't the country where the assets are located be the one to tax them? 3. How would you address the possibility of double-taxation? 4. How would you prevent the wealthy from shifting ownership of these assets to corporations or family trusts that are incorporated in that foreign country. Assets located in a foreign country, owned by an entity in the country would be taxed in that country.
  - joosters 11y ago

LordKano 11y ago

When the tax laws become too burdensome, people simply leave. Look at this. New York's tax burden is so great that it was economically advantageous for this man to pay someone to keep track of the number of days he spent in New York just so they couldn't claim he was a resident and force him to pay their taxes. http://www.newyorker.com/magazine/2012/03/19/tax-me-if-you-can http://www.newyorker.com/magazine/2012/03/19/tax-me-if-you-c...