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I agree with your post and you list a number of good ideas. Except... > If you really want you can tax companies' revenue (not profits). That one doesn't rea

by Lazare 10y ago

I agree with your post and you list a number of good ideas. Except... > If you really want you can tax companies' revenue (not profits). That one doesn't really work. Some industries are very low margin and capital intensive. There is, realistically, no level of revenue based tax that a supermarket chain can pay. Maaaaybe 1%. Max. Same goes for airlines, steel mills, and a thousand other old-school bricks and mortar industries where a lot of money may come in the door, but then in goes right back out again as a cost of doing business. Other industries are very high margin, including a lot of tech businesses that were all familiar with. A 1% revenue tax would represent a massive decrease in their total tax bill, but if you charge them a more realistic tax rate you've bankrupted everything that's not a highly profitable tech company, which is basically your entire economy. (Yes, they'll try to pass it on, but a supermarket chain isn't going to be able to pass on a 20% tax on revenue. They're already making no profits, paying crap wages, and bargaining their supliers down to the wire; the only thing they could do is raise prices 20%, and people who aren't working at the aforementioned high-margin tech companies can't remotely afford a 20% surcharge on their food bill with no offsetting changes to their tax or benefits. Plus, if that's actually the policy result you wanted...maybe just enact a 20% VAT?) Of course, you could adjust the tax rate based on how capital intensive the industry is and how high your margins are at which point...it's a tax on profit again. :) The more you dig into it, the more it becomes clear (in my view) that revenue based taxation isn't the right lever to pull. Whatever policy outcome you want can be more easily gained via other methods.

deleted 10y ago
[deleted]
derefr 10y ago
I've always wondered if you could combine corporate income taxes with a law against "passing on" those taxes. As in—by law, the company would have to do its accounting and business model analysis as if it wasn't paying that tax. The individual employees would be fully aware that the company is days away from bankruptcy, but by law they wouldn't be allowed to charge more, because—in the magical legal-fiction alternate reality that the board of directors would, by charter, have to think in terms of—the company wouldn't be days away from bankruptcy. (Even as it was going into bankruptcy, and purchased by a private-equity firm, that firm wouldn't be allowed to raise prices to save it, because that would still be acknowledging the effect of the tax.)
- Lazare 10y ago
  > could [you] combine corporate income taxes with a law against "passing on" those taxes. Short answer: No. Tax incidence doesn't work that way. Long answer: The concept doesn't even make sense; a company can pay taxes in an accounting sense, but not in an economic one. Since a corporation is not a real person, every dollar of tax is by definition passed on; all we can do is try and figure out if it's being passed on to customers (via higher prices), employees (via lower wages), or investors (via lower returns). But, obviously, every dollar going into the treasury is a dollar not going into some real person's pocket. Unless we start letting companies cover their tax bills by printing money. :) Of course, what you probably meant was "a law against passing on those taxes to specific groups"; you're looking for a way to force the tax to be passed on to investors and not employees (or whatever). In which case the answer is... ...still no. Because tax incidence (which is the technical name for this) isn't just a matter of deciding how to divy up a tax bill. If investors face lower returns, they'll invest less money (both because they'll have less money to invest, because they'll decide to invest in other areas where taxes are lower, and because they'll decide to consume more and invest less). Investment, at an industry level, is strongly correlated with productivity (eg, build a new factory and your employees can make more widgets), and productivity (again at an industry level) is strongly correlated with wages. Or in other words: If you tax investment in an industry heavily, you'll end up with decrepit plant and poorly paid workers. That's how taxes on investment end up being born by workers, not by some sort of conscious decision to cut wages to free up more money for dividends. And no law is going to stop it either. Is a union supposed to bargain with a company as if there were other employers in the industry paying high wages, even though there aren't, because there's been industry-wide under-investment for the past 10 years? Does your law force investors to invest as if they were receiving dividends, even though they're not? Does this law apply to foreign investors? Are you going to try and order round some massive Middle Eastern sovereign wealth fund and tell them how much they would have invested without the tax, and send them an invoice for the balance? In short: The issue has been well studied. It might work in a world without trade, globalization, and the free-ish movement of labour, capital, and goods. It doesn't work in our world.
bluecalm 10y ago
I agree about revenue tax - it's problematic. My issues with VAT are: 1)It's very easy to go around - VAT cheating in EU is rampant, for example in my country it's estimated to be about 10% of total yearly budget (not only VAT, total) 2)It's impossible to collect from businesses operating abroad which don't ship physical goods. There is no way EU is going to go after a guy in Thailand for selling software unless he becomes a big fish. Until then he is unfairly competing with all EU developers who pay-up ~20% on every license sold to EU countries. The idea of consumption tax appeals to me in general (if land/real estate taxes aren't enough) but it would need to be somehow collected from the buyer (for example for using a currency) and that's not going to happen.

by Lazare 10y ago

deleted 10y ago

[deleted]

derefr 10y ago

I've always wondered if you could combine corporate income taxes with a law against "passing on" those taxes. As in—by law, the company would have to do its accounting and business model analysis as if it wasn't paying that tax. The individual employees would be fully aware that the company is days away from bankruptcy, but by law they wouldn't be allowed to charge more, because—in the magical legal-fiction alternate reality that the board of directors would, by charter, have to think in terms of—the company wouldn't be days away from bankruptcy. (Even as it was going into bankruptcy, and purchased by a private-equity firm, that firm wouldn't be allowed to raise prices to save it, because that would still be acknowledging the effect of the tax.)

Lazare 10y ago
> could [you] combine corporate income taxes with a law against "passing on" those taxes. Short answer: No. Tax incidence doesn't work that way. Long answer: The concept doesn't even make sense; a company can pay taxes in an accounting sense, but not in an economic one. Since a corporation is not a real person, every dollar of tax is by definition passed on; all we can do is try and figure out if it's being passed on to customers (via higher prices), employees (via lower wages), or investors (via lower returns). But, obviously, every dollar going into the treasury is a dollar not going into some real person's pocket. Unless we start letting companies cover their tax bills by printing money. :) Of course, what you probably meant was "a law against passing on those taxes to specific groups"; you're looking for a way to force the tax to be passed on to investors and not employees (or whatever). In which case the answer is... ...still no. Because tax incidence (which is the technical name for this) isn't just a matter of deciding how to divy up a tax bill. If investors face lower returns, they'll invest less money (both because they'll have less money to invest, because they'll decide to invest in other areas where taxes are lower, and because they'll decide to consume more and invest less). Investment, at an industry level, is strongly correlated with productivity (eg, build a new factory and your employees can make more widgets), and productivity (again at an industry level) is strongly correlated with wages. Or in other words: If you tax investment in an industry heavily, you'll end up with decrepit plant and poorly paid workers. That's how taxes on investment end up being born by workers, not by some sort of conscious decision to cut wages to free up more money for dividends. And no law is going to stop it either. Is a union supposed to bargain with a company as if there were other employers in the industry paying high wages, even though there aren't, because there's been industry-wide under-investment for the past 10 years? Does your law force investors to invest as if they were receiving dividends, even though they're not? Does this law apply to foreign investors? Are you going to try and order round some massive Middle Eastern sovereign wealth fund and tell them how much they would have invested without the tax, and send them an invoice for the balance? In short: The issue has been well studied. It might work in a world without trade, globalization, and the free-ish movement of labour, capital, and goods. It doesn't work in our world.

bluecalm 10y ago

I agree about revenue tax - it's problematic. My issues with VAT are: 1)It's very easy to go around - VAT cheating in EU is rampant, for example in my country it's estimated to be about 10% of total yearly budget (not only VAT, total) 2)It's impossible to collect from businesses operating abroad which don't ship physical goods. There is no way EU is going to go after a guy in Thailand for selling software unless he becomes a big fish. Until then he is unfairly competing with all EU developers who pay-up ~20% on every license sold to EU countries. The idea of consumption tax appeals to me in general (if land/real estate taxes aren't enough) but it would need to be somehow collected from the buyer (for example for using a currency) and that's not going to happen.