7 ms·

As someone who supports all business large and small, the #1 thing the government needs to do is get everyone taxed at the same rate. Large companies who can pl

by seibelj 10y ago

As someone who supports all business large and small, the #1 thing the government needs to do is get everyone taxed at the same rate. Large companies who can play games with taxes, moving profits offshore, loopholes, etc. wind up with 0 to 20% corporate tax rate while small businesses who can't afford to figure that out pay full freight of 35%. I don't know what the solution is, but until this is figured out, an enormous subsidy and competitive advantage is given to big business which small businesses cannot possibly match.

Quinner 10y ago
Replace corporate taxes with a VAT, perhaps?
- astazangasta 10y ago
  Since a VAT is a consumption tax, it is essentially regressive; poor people are hit harder.
  - zeveb 10y ago
    That could, though, be balanced with e.g. basic income.
    - deleted 10y ago
      [deleted]
  - todd8 10y ago
    Corporate taxes have a similar (although not identical) impact; the corporate taxes end up costing three different groups: shareholders due to reduced dividends, employees due to reduced wages and bonuses, and consumers due to increased prices for company's products. Thus corporate taxes tend to have an impact across the entire population, somewhat like VATs, see [1]. I feel like this is why they are popular, it sounds like you are taxing someone else to most people. [1] http://www.pgpf.org/sites/default/files/0102_tax-rates-full.gif http://www.pgpf.org/sites/default/files/0102_tax-rates-full....
    - fu9ar 10y ago
      That is because the problem is the ideology of Capitalism working within a consumer market economy.
  - marcosdumay 10y ago
    It is really? Investment always lead to some kind of consumption, that is taxed just like plain consumption. I've never seen this taken into account when calculating VATs regressiveness. Although it can't really be progressive, so the real question here is how regressive is the tax? Does it win over income taxes, that are also regressive?
  - Broken_Hippo 10y ago
    That is true, but that can be worked around to an extent. I mean, if you know food has VAT, you simply increase the amount of money you give for food to cover that tax. And son on: Adjust poverty levels to show that. You can exclude some things, improve public transportation, and other things to lessen the burden. Of course, the reality is that it is harder to do in some political cultures - the US, for example.
- jbpetersen 10y ago
  Perhaps you're more familiar with VAT than me, my impression is it would still subsidize large businesses but for their ability to integrate vertically instead of their ability to play taxes.
  - marcosdumay 10y ago
    In theory, VATs are taxes over added value. That means it just doesn't matter in how many unities you break the production, turning the same insumes into the same products creates the same taxes. On practice, of course, things aren't this clear cut. Every place I've looked at (not many) refuses to simply deduct the already payed VAT from companies debits, and instead use some complex rules to determine what is "added value" that often enough subsidize large business on the expense of small ones.
  - notauser 10y ago
    VAT "Value Added Tax" is designed to avoid exactly that issue. Imagine a product which requires two processes, A and B. Raw materials cost 1 After process A is done, the value of the intermediate output is now 11 After process B is done, the value of the finished product is now 21 If you are vertically integrated: you do A and B, so you collect VAT on (sale price less cost of inputs) = 21 - 1 = 20 Whereas if non-integrated firm One does process A A will collect VAT on (sale price less cost of cost of inputs) = 11 - 1 = 10 And non-integrated firm Two does process B B will collect VAT on (sale price less cost of inputs) = 21 - 11 = 10 So the VAT is calculated on 20 "value added" in both cases meaning that vertical integration gains you nothing at all. Big companies can and do manipulate transfer pricing to minimize VAT payments but this is "playing with taxes" rather than a problem with the concept of VAT.
- notJim 10y ago
  What would this do?
Roboprog 10y ago
What would happen if we shifted away from income tax to property taxes and import tariffs at the federal level? (adjusted as needed to be "revenue neutral")
- douche 10y ago
  a.k.a the way things worked before the First World War (OK, 1913, but close enough). The size and cost of government has increased so astronomically beyond the levels that existed under that earlier taxation regime that it's hard to imagine.
- RUG3Y 10y ago
  I personally would prefer some kind of flat tax. Property tax is despicable. In effect, you rent your own property from the government. Can't pay the taxes? Then they take it from you. It happens to people on fixed incomes often enough.
  - twblalock 10y ago
    Your property costs the government money. Did you think your electricity, power, water, natural gas, roads, garbage collection, schools, police, and firefighters don't cost anything to maintain?
    - RUG3Y 10y ago
      I pay for most of the things you mentioned out of my own pocket. My kids go to private school. Currently, property tax pays for some of those things, but only because our system is structured to work that way. Without getting into a long, drawn out discussion, I believe that there could be better ways to pay for those things.
      - gumby 10y ago
        My kid went to private school as well but I benefit from free public education the same way I benefit from a good public health system: other people are somewhat educated and healthy meaning.
yourapostasy 10y ago
> ...while small businesses who can't afford to figure that out pay full freight of 35%. "Figure that out" isn't the issue, "afford" is. I've had my company pay to work out what it would take for my US small business to avail itself of the same advantages as "the big boys". The tl;dr is it's pay to play. Sharing what I determined: The tax minimization techniques are initially shrouded in secrecy as individual practitioners figure out how to hack the tax regulations, and over time gradually spread out through the industry, and eventually the IRS gets around to shutting down some of them. There are many, many levels of tax minimization. There is a minimum buy-in for each level, of professional services fees, regulatory/statutory fees, and annual maintenance fees. Your tax liability must substantially exceed these buy-in levels before it makes sense to pursue them. The uncertainty around specific techniques' legality is always >0. Not a single firm I spoke with would vouch for any technique 100%, no matter how long it has been in place, no matter how many of their clients use it, no matter what the IRS has pronounced before upon the technique. The best I could find was if I used the firm's in-house bookkeeper, accounting system, CPA, and tax attorney to be my company's sole and exclusive accounting department and tax advisor, and my company complied with every single recommendation they made to the letter and precisely on time never missing a deadline, then if a technique was invalidated by the IRS they would defend me...up to a "reasonable point", which they declined to define, beyond which they would charge us for the tax attorney's time. For the simpler more established techniques that were more widely-used in their client base we interpreted they would defend us in tax court whatever it took, as it was in their financial interests to do so. But they needed an out for the more complex and newer techniques which fewer clients used, which is where the "reasonable point" wording came from. Minimum I identified was high-6 to 7-figure tax liabilities p.a. before it started to make sense to even think about these techniques, and closer to mid-to-high-7 figures to be practical and conservative. It is a far lower bar to clear on just a pure tax liabilities-to-savings basis, but the uncertainty that surrounds you compels a conservative approach to put away enough to pay for not just a tax court fight, but enough to pay sufficient penalties+interest in case you lose so that an adverse ruling doesn't immediately put your company into perilous financial straits. A large factor why small business can't afford these techniques is due to the aforementioned secrecy: every firm I spoke with, and the one I engaged and retained (paid money to) so I could review the techniques, demanded an NDA. Take the NDA to a contracts attorney and you will determine that the practical effect is despite what you might be told in the marketing sell-side of the engagement, once you employ these techniques, you are effectively obligated to use the tax minimization firm's CPA's and tax attorneys (sometimes even bookkeeper and accounting system), and not your own. You will be told you can use your own, but you cannot divulge any of the techniques. With holes like that in your financial and tax planning picture, your own CPA and tax attorney will never sign off on the end result of any of their work, and therefore you are left with going to the tax minimization firm's services as a practical matter. When you add up all those costs, it raises the bar of how high your tax liabilities must be before you can justify hiring one of these firms (even if you were willing to take away all outside options of retaining financial advice, a completely separate matter). No one I spoke with would agree to report a comparison between the total spend on their services and the taxes I would have paid if I hadn't retained them, without substantially more services to generate that information. In other words, they themselves had no idea of the baseline tax liability and therefore the optimal point beyond which it was costing the client more to spend on them to reduce tax liability than it was worth. It was premature optimization gone completely off the rails at the smaller scale businesses. The big business' can afford this game because they vertically integrate their own in-house tax minimization efforts, and/or they bring a large enough book of business that any outside counsel they retain will agree to sharing the techniques with in-house staff in exchange for relatively lengthy contracts. The big business' tax liabilities are so large and complex, these tax technicians' time budget to spend on optimization was gargantuan, so there was no effective need to establish a baseline. By the time they worked out one year's taxes, it was already time for the following year, with new tax regulations to take into account. The entire industry has striking parallels to infosec hacking. Some of the specialists I met would probably strongly identify with other (sw/hw/ham/etc.) hackers. If it were feasible to organize a mountain of small businesses into a single, monolithic producer co-op to present the same "interface" to the tax authorities as the big business' (PEO's are one form of acknowledging scaling issues in the business regulatory environment, payroll firms another), then that might level the playing field somewhat, but until that or similar action(s) happen, yes, US small businesses do face tax regulatory environment challenges. If someone with a small business finds a tax minimization specialist firm that didn't come with these drawbacks I outlined, I'd really appreciate it if they would post here who they retained. The 35% rate is pretty eye-watering to pay when I want to put away for a rainy day fund, or save up to add an employee/purchase capital equipment/
drabiega 10y ago
I think this makes sense from a government revenue perspective, but I'm not sure why it would matter from a small business survival perspective since corporate taxes are taxes on profit, not revenue. Especially given my experience: most small businesses I've worked with/for have made little to no profit. The owner takes a salary(or not, especially early on) and plows the rest of the revenue back into the business.

by seibelj 10y ago

Quinner 10y ago

Replace corporate taxes with a VAT, perhaps?

astazangasta 10y ago
Since a VAT is a consumption tax, it is essentially regressive; poor people are hit harder.
- zeveb 10y ago
  That could, though, be balanced with e.g. basic income.
  - deleted 10y ago
    [deleted]
- todd8 10y ago
  Corporate taxes have a similar (although not identical) impact; the corporate taxes end up costing three different groups: shareholders due to reduced dividends, employees due to reduced wages and bonuses, and consumers due to increased prices for company's products. Thus corporate taxes tend to have an impact across the entire population, somewhat like VATs, see [1]. I feel like this is why they are popular, it sounds like you are taxing someone else to most people. [1] http://www.pgpf.org/sites/default/files/0102_tax-rates-full.gif http://www.pgpf.org/sites/default/files/0102_tax-rates-full....
  - fu9ar 10y ago
    That is because the problem is the ideology of Capitalism working within a consumer market economy.
- marcosdumay 10y ago
  It is really? Investment always lead to some kind of consumption, that is taxed just like plain consumption. I've never seen this taken into account when calculating VATs regressiveness. Although it can't really be progressive, so the real question here is how regressive is the tax? Does it win over income taxes, that are also regressive?
- Broken_Hippo 10y ago
  That is true, but that can be worked around to an extent. I mean, if you know food has VAT, you simply increase the amount of money you give for food to cover that tax. And son on: Adjust poverty levels to show that. You can exclude some things, improve public transportation, and other things to lessen the burden. Of course, the reality is that it is harder to do in some political cultures - the US, for example.
jbpetersen 10y ago
Perhaps you're more familiar with VAT than me, my impression is it would still subsidize large businesses but for their ability to integrate vertically instead of their ability to play taxes.
- marcosdumay 10y ago
  In theory, VATs are taxes over added value. That means it just doesn't matter in how many unities you break the production, turning the same insumes into the same products creates the same taxes. On practice, of course, things aren't this clear cut. Every place I've looked at (not many) refuses to simply deduct the already payed VAT from companies debits, and instead use some complex rules to determine what is "added value" that often enough subsidize large business on the expense of small ones.
- notauser 10y ago
  VAT "Value Added Tax" is designed to avoid exactly that issue. Imagine a product which requires two processes, A and B. Raw materials cost 1 After process A is done, the value of the intermediate output is now 11 After process B is done, the value of the finished product is now 21 If you are vertically integrated: you do A and B, so you collect VAT on (sale price less cost of inputs) = 21 - 1 = 20 Whereas if non-integrated firm One does process A A will collect VAT on (sale price less cost of cost of inputs) = 11 - 1 = 10 And non-integrated firm Two does process B B will collect VAT on (sale price less cost of inputs) = 21 - 11 = 10 So the VAT is calculated on 20 "value added" in both cases meaning that vertical integration gains you nothing at all. Big companies can and do manipulate transfer pricing to minimize VAT payments but this is "playing with taxes" rather than a problem with the concept of VAT.
notJim 10y ago
What would this do?

Roboprog 10y ago

What would happen if we shifted away from income tax to property taxes and import tariffs at the federal level? (adjusted as needed to be "revenue neutral")

douche 10y ago
a.k.a the way things worked before the First World War (OK, 1913, but close enough). The size and cost of government has increased so astronomically beyond the levels that existed under that earlier taxation regime that it's hard to imagine.
RUG3Y 10y ago
I personally would prefer some kind of flat tax. Property tax is despicable. In effect, you rent your own property from the government. Can't pay the taxes? Then they take it from you. It happens to people on fixed incomes often enough.
- twblalock 10y ago
  Your property costs the government money. Did you think your electricity, power, water, natural gas, roads, garbage collection, schools, police, and firefighters don't cost anything to maintain?
  - RUG3Y 10y ago
    I pay for most of the things you mentioned out of my own pocket. My kids go to private school. Currently, property tax pays for some of those things, but only because our system is structured to work that way. Without getting into a long, drawn out discussion, I believe that there could be better ways to pay for those things.
    - gumby 10y ago
      My kid went to private school as well but I benefit from free public education the same way I benefit from a good public health system: other people are somewhat educated and healthy meaning.

yourapostasy 10y ago

> ...while small businesses who can't afford to figure that out pay full freight of 35%. "Figure that out" isn't the issue, "afford" is. I've had my company pay to work out what it would take for my US small business to avail itself of the same advantages as "the big boys". The tl;dr is it's pay to play. Sharing what I determined: The tax minimization techniques are initially shrouded in secrecy as individual practitioners figure out how to hack the tax regulations, and over time gradually spread out through the industry, and eventually the IRS gets around to shutting down some of them. There are many, many levels of tax minimization. There is a minimum buy-in for each level, of professional services fees, regulatory/statutory fees, and annual maintenance fees. Your tax liability must substantially exceed these buy-in levels before it makes sense to pursue them. The uncertainty around specific techniques' legality is always >0. Not a single firm I spoke with would vouch for any technique 100%, no matter how long it has been in place, no matter how many of their clients use it, no matter what the IRS has pronounced before upon the technique. The best I could find was if I used the firm's in-house bookkeeper, accounting system, CPA, and tax attorney to be my company's sole and exclusive accounting department and tax advisor, and my company complied with every single recommendation they made to the letter and precisely on time never missing a deadline, then if a technique was invalidated by the IRS they would defend me...up to a "reasonable point", which they declined to define, beyond which they would charge us for the tax attorney's time. For the simpler more established techniques that were more widely-used in their client base we interpreted they would defend us in tax court whatever it took, as it was in their financial interests to do so. But they needed an out for the more complex and newer techniques which fewer clients used, which is where the "reasonable point" wording came from. Minimum I identified was high-6 to 7-figure tax liabilities p.a. before it started to make sense to even think about these techniques, and closer to mid-to-high-7 figures to be practical and conservative. It is a far lower bar to clear on just a pure tax liabilities-to-savings basis, but the uncertainty that surrounds you compels a conservative approach to put away enough to pay for not just a tax court fight, but enough to pay sufficient penalties+interest in case you lose so that an adverse ruling doesn't immediately put your company into perilous financial straits. A large factor why small business can't afford these techniques is due to the aforementioned secrecy: every firm I spoke with, and the one I engaged and retained (paid money to) so I could review the techniques, demanded an NDA. Take the NDA to a contracts attorney and you will determine that the practical effect is despite what you might be told in the marketing sell-side of the engagement, once you employ these techniques, you are effectively obligated to use the tax minimization firm's CPA's and tax attorneys (sometimes even bookkeeper and accounting system), and not your own. You will be told you can use your own, but you cannot divulge any of the techniques. With holes like that in your financial and tax planning picture, your own CPA and tax attorney will never sign off on the end result of any of their work, and therefore you are left with going to the tax minimization firm's services as a practical matter. When you add up all those costs, it raises the bar of how high your tax liabilities must be before you can justify hiring one of these firms (even if you were willing to take away all outside options of retaining financial advice, a completely separate matter). No one I spoke with would agree to report a comparison between the total spend on their services and the taxes I would have paid if I hadn't retained them, without substantially more services to generate that information. In other words, they themselves had no idea of the baseline tax liability and therefore the optimal point beyond which it was costing the client more to spend on them to reduce tax liability than it was worth. It was premature optimization gone completely off the rails at the smaller scale businesses. The big business' can afford this game because they vertically integrate their own in-house tax minimization efforts, and/or they bring a large enough book of business that any outside counsel they retain will agree to sharing the techniques with in-house staff in exchange for relatively lengthy contracts. The big business' tax liabilities are so large and complex, these tax technicians' time budget to spend on optimization was gargantuan, so there was no effective need to establish a baseline. By the time they worked out one year's taxes, it was already time for the following year, with new tax regulations to take into account. The entire industry has striking parallels to infosec hacking. Some of the specialists I met would probably strongly identify with other (sw/hw/ham/etc.) hackers. If it were feasible to organize a mountain of small businesses into a single, monolithic producer co-op to present the same "interface" to the tax authorities as the big business' (PEO's are one form of acknowledging scaling issues in the business regulatory environment, payroll firms another), then that might level the playing field somewhat, but until that or similar action(s) happen, yes, US small businesses do face tax regulatory environment challenges. If someone with a small business finds a tax minimization specialist firm that didn't come with these drawbacks I outlined, I'd really appreciate it if they would post here who they retained. The 35% rate is pretty eye-watering to pay when I want to put away for a rainy day fund, or save up to add an employee/purchase capital equipment/

drabiega 10y ago

I think this makes sense from a government revenue perspective, but I'm not sure why it would matter from a small business survival perspective since corporate taxes are taxes on profit, not revenue. Especially given my experience: most small businesses I've worked with/for have made little to no profit. The owner takes a salary(or not, especially early on) and plows the rest of the revenue back into the business.