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> Would give corporations a free ride at the expense of consumers. It'd stimulate consumers to start fake corporations just to avoid tax. This depends a lot on

> Would give corporations a free ride at the expense of consumers. It'd stimulate consumers to start fake corporations just to avoid tax. This depends a lot on the other details of the tax system. Giving corporations a "free ride" can be unfair if it benefits one group of people at the expense of others, but it can also make a lot of sense when you think about all the different ways corporations can be organized. Just for a simple example, imagine two different pencils. Pencil A is made by a big company that owns graphite mines, logging equipment, factories, ships, warehouses, and retail stores. Pencil B is made by lots of small companies, one of which is a graphite mine, which sells raw materials to a pencil factory, which sells finished pencils to a distributor, etc etc. We really don't want a system that taxes pencil B more than pencil A. Because corporations aren't "real"; they can get bought and sold and merged and split. So of course if pencil A is taxed less, then overnight the market would organize itself into nothing but giant pencil companies just to pay less in taxes. We need some way to decide what "share" of taxes each small company gets, so that all else being equal they add up to the same tax the big company was paying. We could do that with profits vs losses, or with value-added taxes, but we have to do it some way or another. How should we do it?

omegaworks 10y ago
I think the framing is a bit distorted in your representation of the situation. Pencil B provides more value to society as any of of these small companies can compete to do business with other entities while Pencil A can choose to avoid the overhead of establishing and maintaining these relationships, closing the market to small players that might seek to purchase graphite for other purposes, for example. In an ideal situation Pencil B should be taxed less than Pencil A, as taxes would offset this overhead and incent this shift toward many small independent actors participating in an open marketplace. In the real world, we have the opposite scenario. Companies are incentivized to become more like Pencil A, forming large vertical monopolies that minimize overhead and lock smaller players out. Even worse, once they're big enough to do business across national borders, taxation becomes mired in international law and cross-jurisdictional quagmires. In this laissez faire world, nations race to the bottom and compete for these businesses by offering places to incorporate at the lowest rates they can accommodate.
- oconnor663 10y ago
  There are legitimate advantages to big integrated companies too. The graphite mine doesn't have to spend money hiring salespeople if it already knows who's buying all the graphite. Things like that depend on the nitty gritty details of the market you're in, so I think it doesn't make sense to try to legislate them if we can avoid it.

omegaworks 10y ago

I think the framing is a bit distorted in your representation of the situation. Pencil B provides more value to society as any of of these small companies can compete to do business with other entities while Pencil A can choose to avoid the overhead of establishing and maintaining these relationships, closing the market to small players that might seek to purchase graphite for other purposes, for example. In an ideal situation Pencil B should be taxed less than Pencil A, as taxes would offset this overhead and incent this shift toward many small independent actors participating in an open marketplace. In the real world, we have the opposite scenario. Companies are incentivized to become more like Pencil A, forming large vertical monopolies that minimize overhead and lock smaller players out. Even worse, once they're big enough to do business across national borders, taxation becomes mired in international law and cross-jurisdictional quagmires. In this laissez faire world, nations race to the bottom and compete for these businesses by offering places to incorporate at the lowest rates they can accommodate.

oconnor663 10y ago
There are legitimate advantages to big integrated companies too. The graphite mine doesn't have to spend money hiring salespeople if it already knows who's buying all the graphite. Things like that depend on the nitty gritty details of the market you're in, so I think it doesn't make sense to try to legislate them if we can avoid it.