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Oh whoops I messed up with the 250. You're right it should have been 200. The 18.6 number doesn't come from journalists though but from the CBO. And these nu

Oh whoops I messed up with the 250. You're right it should have been 200. The 18.6 number doesn't come from journalists though but from the CBO. And these numbers are in line with similar studies by other entities. I'm sure you agree that its not just how much your taxed on profit, but also how much profit you had to record that matters.

AnthonyMouse 9y ago
> I'm sure you agree that its not just how much your taxed on profit, but also how much profit you had to record that matters. If you're a retailer and you buy 1000 widgets at $9 and sell them at $10, then pay $350 in income tax, is your effective tax rate 35% or 3.5%? Can you see the problem if the government demanded 35% of total revenue instead of total profit? What you're no doubt complaining about is the fact that many of the deductions can be gamed. But that doesn't mean you can discount the legitimate ones.
- JamesBarney 9y ago
  A more apt analogy is imagine you are selling 1000 widgets @ $10 that you bought for $9 in two different countries. One country taxes you 20% but you can't mark down the depreciation of the building you're using so you're taxed $200 of your $1000. The other country taxes you 30% but you get to mark down the $500 depreciation of the building you're using as an expense so instead you record $500 profit. Which means you're taxed $150. You can see how even though the statutory tax rate is higher in the first country the effective tax rate is lower in the second. Different tax jurisdictions have different allowable expenses and deductions, which mean your recorded profit can be different between them. The U.S. has an especially high statutory rate, but also allows for many more deductions and expenses than other countries. The effective tax is how you take into account these differences in deductions and expenses between countries, and the U.S. has one that is in the middle of the pack.
  - AnthonyMouse 9y ago
    The problem with considering things that way is that then you can't compare countries unless they have identical economies. Suppose two countries have exactly the same tax law. One of them is full of online retailers and the other is full of brick and mortar retailers. Maybe the second country has an oppressive package delivery monopoly. The brick and mortar retailers charge higher prices and have higher expenses (more employees, more real estate) and payroll and rent are deductible in both countries. So the online retailers can make the same dollar amount of profit on lower revenue and expenses and as a result that country is considered to have a higher effective tax rate, even though their tax law is identical, because their economy is composed of a different type of companies. And no two countries have the same economy, so you end up measuring something that can't usefully be compared with anything. Effective tax rate as percentage of total income is a concept that originated in personal income tax, where it makes sense because the default is for expenses to not be deductible from personal income. But for business the default is the opposite. What expense is a business entity going to have that isn't a business expense? Which means that effective tax rate for a business is primarily a question of what percentage of revenue is profit.
    - JamesBarney 9y ago
      Corporations don't care what the nominal tax rate is, they just care how big their tax bill will be if they incorporate in different jurisdictions. They care about the average and the effective. They care about the average for long term investments and the marginal-effective rate expansions of projects in countries they already operate in. And while the U.S. statutory rate is highest in the developed world by a good margin, the effective and average rates are close to top quartile.
      - AnthonyMouse 9y ago
        You're still ignoring the fact that the effective rate depends on the company type. The US is a great market for international companies because they can hire educated US workers to design their products and then manufacture elsewhere and sell those products to US consumers, in a way that most of the profits go to offshore subsidiaries. And so we have a lot of those companies here and it brings down the average. But the US is quite horrible for small and medium sized companies who actually do pay the high nominal rates because they have no foreign subsidiaries to park profits in.

AnthonyMouse 9y ago

> I'm sure you agree that its not just how much your taxed on profit, but also how much profit you had to record that matters. If you're a retailer and you buy 1000 widgets at $9 and sell them at $10, then pay $350 in income tax, is your effective tax rate 35% or 3.5%? Can you see the problem if the government demanded 35% of total revenue instead of total profit? What you're no doubt complaining about is the fact that many of the deductions can be gamed. But that doesn't mean you can discount the legitimate ones.

JamesBarney 9y ago
A more apt analogy is imagine you are selling 1000 widgets @ $10 that you bought for $9 in two different countries. One country taxes you 20% but you can't mark down the depreciation of the building you're using so you're taxed $200 of your $1000. The other country taxes you 30% but you get to mark down the $500 depreciation of the building you're using as an expense so instead you record $500 profit. Which means you're taxed $150. You can see how even though the statutory tax rate is higher in the first country the effective tax rate is lower in the second. Different tax jurisdictions have different allowable expenses and deductions, which mean your recorded profit can be different between them. The U.S. has an especially high statutory rate, but also allows for many more deductions and expenses than other countries. The effective tax is how you take into account these differences in deductions and expenses between countries, and the U.S. has one that is in the middle of the pack.
- AnthonyMouse 9y ago
  The problem with considering things that way is that then you can't compare countries unless they have identical economies. Suppose two countries have exactly the same tax law. One of them is full of online retailers and the other is full of brick and mortar retailers. Maybe the second country has an oppressive package delivery monopoly. The brick and mortar retailers charge higher prices and have higher expenses (more employees, more real estate) and payroll and rent are deductible in both countries. So the online retailers can make the same dollar amount of profit on lower revenue and expenses and as a result that country is considered to have a higher effective tax rate, even though their tax law is identical, because their economy is composed of a different type of companies. And no two countries have the same economy, so you end up measuring something that can't usefully be compared with anything. Effective tax rate as percentage of total income is a concept that originated in personal income tax, where it makes sense because the default is for expenses to not be deductible from personal income. But for business the default is the opposite. What expense is a business entity going to have that isn't a business expense? Which means that effective tax rate for a business is primarily a question of what percentage of revenue is profit.
  - JamesBarney 9y ago
    Corporations don't care what the nominal tax rate is, they just care how big their tax bill will be if they incorporate in different jurisdictions. They care about the average and the effective. They care about the average for long term investments and the marginal-effective rate expansions of projects in countries they already operate in. And while the U.S. statutory rate is highest in the developed world by a good margin, the effective and average rates are close to top quartile.
    - AnthonyMouse 9y ago
      You're still ignoring the fact that the effective rate depends on the company type. The US is a great market for international companies because they can hire educated US workers to design their products and then manufacture elsewhere and sell those products to US consumers, in a way that most of the profits go to offshore subsidiaries. And so we have a lot of those companies here and it brings down the average. But the US is quite horrible for small and medium sized companies who actually do pay the high nominal rates because they have no foreign subsidiaries to park profits in.