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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 pric
by 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 agoThis part of the reason I think there should be no corporate income tax.
- jpgvm 11y agoIncome 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 agoTaxing 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 agoThat 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 agoNo, 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 agoWe can see the tax loopholes for that in action today, people already set up spurious companies in order to shift income tax into lower rate corporation tax. With no corporate income taxes, I expect there would be a sudden burst of very dodgy single-person 'companies'.
- drumdance 11y agoOf course, but it would be offset by literally billions of dollars in profits that would not have to be hidden and gamed. Much of it would be distributed as dividends which would then be taxed as ordinary income. Thousands of companies spend millions on accountants to avoid taxes. Getting rid of the corporate tax would change the economics. Instead of one company hiring accountants to save them millions in taxes, you would have millions of shareholders needing to hire accountants to save them thousands. Edit: And it's easier to police the single-person companies. They can't afford the army of lawyers and accountants the large enterprises can.