4 ms·

There's no good reason. If a service business is worth having it can charge its clients enough to cover its tax bills.

Silhouette 9y ago
Just curious: How many service businesses have you owned/managed to reach that conclusion? Your premise seems to imply that every such business can afford to lose 20% or so off its margins and still remain viable. (Or that the market will bear all such businesses increasing their prices accordingly, but in that case, we have to ask why they have not done so already.)
- TheCoelacanth 9y ago
  They can't because their competitors don't. If their competitors had to, then they would be able to as well. If that didn't happen, then even a sales tax of a few percent would destroy every grocery store because that is as big as their entire profit margin.
  - Silhouette 9y ago
    They can't because their competitors don't. That's one possible factor, but not the only one. Otherwise any business with no direct competition could increase its prices arbitrarily, and clearly that's nonsensical.
    - TheCoelacanth 9y ago
      > Otherwise any business with no direct competition could increase its prices arbitrarily, and clearly that's nonsensical. That's the entire theory behind why monopolies are bad. It's not nonsensical at all. Monopolies can increase their prices far beyond what the market would bear if they had competition. Obviously, they can't increase their prices without any limit at all, because at some point people would decide to do without instead of paying the higher prices, but they can increase their prices far beyond what a normal business with competition could.
      - Silhouette 9y ago
        Monopolies can increase their prices far beyond what the market would bear if they had competition. Monopoly suppliers of something essential can do that, and that is why we tend to have stronger regulation of such "markets". However, if you're offering a luxury, customers can simply choose not to buy if they don't think the price is worth it. So again, where does this magical ability to knock 20% or so out of existing margins and continue trading viably come from?
        TheCoelacanth 9y ago
        > However, if you're offering a luxury, customers can simply choose not to buy if they don't think the price is worth it. Right, but the market price usually isn't exactly the same as the maximum price customers would be willing to pay, because competition between suppliers forces suppliers to set their prices lower than that. This is referred to in economics as the consumer surplus[1]. So that is where the "magical" 20% comes from: from the consumer and producer surplus. [1] https://en.wikipedia.org/wiki/Consumer_surplus https://en.wikipedia.org/wiki/Consumer_surplus
        Silhouette 9y ago
        OK, but that effect assumes significant competition in the market, and we were talking about monopolies. I think the point I'm trying to make here is that you are characterising businesses having such competition as being the norm. I'm not sure that's a valid assumption in the market today. Contrary to various traditional economic theories, it's pretty obvious by now that there are plenty of niche markets in the online/digital era that can support a viable small business but where competition will not automatically follow. I have businesses that do things that, as far as I'm aware, no-one else is trying to do in anything like the same form. There are some services that we in turn use that also provide unique abilities where as far as I'm aware there's no-one we could readily switch to offering a similar facility in a similar way that provides direct competition. In effect, their competition is that if they become too expensive or too much trouble to use, we will do it ourselves instead of outsourcing. I'd say this sort of situation is not particularly unusual today, at least in some "broad but shallow" sectors. The pricing we set (and, I have to assume, that the services we use set) is based on experimenting with what our customers are willing to pay. As such, we know that we couldn't just increase prices by say 20% to cover higher overheads. And even if we could reduce margins by 20% of revenue to absorb the cost instead, that would have a crippling effect on growth. More fundamentally, we would probably never have started some of these businesses in the first place. The risk of losing our money before they became established enough to cover their costs would simply have been too high.
- neilwilson 9y ago
  Quite a few. What makes you think subsidised businesses should be propped up at the expense of more massified and efficient ones? There is no justification for differential taxation of business structures. Competition should determine the appropriate form. And never forget that to pay tax you are in receipt of recycled government spending. In other words your income is higher than it otherwise would be. Government doesn't save. It spends.
  - Silhouette 9y ago
    What subsidy do you think I'm advocating here? I'm not sure I agree with your position here, or even fully understand what it is, but if anything you seem to be supporting my argument that changing from working as an employee to working independently shouldn't be penalised. I'm also not sure what point your final paragraph is trying to make. It looks like the standard socialist/big-government argument to justify arbitrarily high taxation, but obviously that argument is controversial and in any case it doesn't seem to inform any decisions about what an appropriate level of taxation actually is.

Just curious: How many service businesses have you owned/managed to reach that conclusion? Your premise seems to imply that every such business can afford to lose 20% or so off its margins and still remain viable. (Or that the market will bear all such businesses increasing their prices accordingly, but in that case, we have to ask why they have not done so already.)

TheCoelacanth 9y ago
They can't because their competitors don't. If their competitors had to, then they would be able to as well. If that didn't happen, then even a sales tax of a few percent would destroy every grocery store because that is as big as their entire profit margin.
- Silhouette 9y ago
  They can't because their competitors don't. That's one possible factor, but not the only one. Otherwise any business with no direct competition could increase its prices arbitrarily, and clearly that's nonsensical.
  - TheCoelacanth 9y ago
    > Otherwise any business with no direct competition could increase its prices arbitrarily, and clearly that's nonsensical. That's the entire theory behind why monopolies are bad. It's not nonsensical at all. Monopolies can increase their prices far beyond what the market would bear if they had competition. Obviously, they can't increase their prices without any limit at all, because at some point people would decide to do without instead of paying the higher prices, but they can increase their prices far beyond what a normal business with competition could.
    - Silhouette 9y ago
      Monopolies can increase their prices far beyond what the market would bear if they had competition. Monopoly suppliers of something essential can do that, and that is why we tend to have stronger regulation of such "markets". However, if you're offering a luxury, customers can simply choose not to buy if they don't think the price is worth it. So again, where does this magical ability to knock 20% or so out of existing margins and continue trading viably come from?
      - TheCoelacanth 9y ago
        > However, if you're offering a luxury, customers can simply choose not to buy if they don't think the price is worth it. Right, but the market price usually isn't exactly the same as the maximum price customers would be willing to pay, because competition between suppliers forces suppliers to set their prices lower than that. This is referred to in economics as the consumer surplus[1]. So that is where the "magical" 20% comes from: from the consumer and producer surplus. [1] https://en.wikipedia.org/wiki/Consumer_surplus https://en.wikipedia.org/wiki/Consumer_surplus
        Silhouette 9y ago
        OK, but that effect assumes significant competition in the market, and we were talking about monopolies. I think the point I'm trying to make here is that you are characterising businesses having such competition as being the norm. I'm not sure that's a valid assumption in the market today. Contrary to various traditional economic theories, it's pretty obvious by now that there are plenty of niche markets in the online/digital era that can support a viable small business but where competition will not automatically follow. I have businesses that do things that, as far as I'm aware, no-one else is trying to do in anything like the same form. There are some services that we in turn use that also provide unique abilities where as far as I'm aware there's no-one we could readily switch to offering a similar facility in a similar way that provides direct competition. In effect, their competition is that if they become too expensive or too much trouble to use, we will do it ourselves instead of outsourcing. I'd say this sort of situation is not particularly unusual today, at least in some "broad but shallow" sectors. The pricing we set (and, I have to assume, that the services we use set) is based on experimenting with what our customers are willing to pay. As such, we know that we couldn't just increase prices by say 20% to cover higher overheads. And even if we could reduce margins by 20% of revenue to absorb the cost instead, that would have a crippling effect on growth. More fundamentally, we would probably never have started some of these businesses in the first place. The risk of losing our money before they became established enough to cover their costs would simply have been too high.
neilwilson 9y ago
Quite a few. What makes you think subsidised businesses should be propped up at the expense of more massified and efficient ones? There is no justification for differential taxation of business structures. Competition should determine the appropriate form. And never forget that to pay tax you are in receipt of recycled government spending. In other words your income is higher than it otherwise would be. Government doesn't save. It spends.
- Silhouette 9y ago
  What subsidy do you think I'm advocating here? I'm not sure I agree with your position here, or even fully understand what it is, but if anything you seem to be supporting my argument that changing from working as an employee to working independently shouldn't be penalised. I'm also not sure what point your final paragraph is trying to make. It looks like the standard socialist/big-government argument to justify arbitrarily high taxation, but obviously that argument is controversial and in any case it doesn't seem to inform any decisions about what an appropriate level of taxation actually is.