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And taxing revenue punishes economic activity per se. For small firms, it will force them out of business, and only high margin ones will remain (as explained).

And taxing revenue punishes economic activity per se. For small firms, it will force them out of business, and only high margin ones will remain (as explained). In other words, for the 2/3rds or so of the economy that is small and medium businesses this will be a tax on having economic activity at all. That's why it'll never fly (or should I say never be enforced). And don't worry, as usual, for large businesses there's an easy way out : simply don't transact in money. Then negotiate what the value is of the transaction with the tax department. For instance, buy Disney Club 33 access for all executives and their family in trade for 10% cheaper plumbing for the park. Do huge transactions for suspiciously low monetary value, and they won't get counted in revenue, or only partially. Problem solved. In case people doubt that such negotiation works, I would like to point out that the most powerful man in Europe, the president of the European commission, Jean Claude Juncker, got where he is by negotiating preferential tax deals with large international corporations. I'd say for years, but the guy is no spring chicken. For decades. All taxes that are less than 100% enforced (all of them, but these revenue taxes are a particularly bad example. Utterly unrealistic to do this for small businesses) are a tax on honesty. Thing is, you can't have global supply chains without "taxing honesty". And without global supply chains, you won't get an iPad.

jon_richards 9y ago
I think a better explanation is that taxes on revenue favour vertical integration. Imagine a product that requires building widget A, then turning that into widget B, then turning that into widget C. If we have the following companies: C: revenue $6m, purchase costs $4m, other costs $1m B: revenue $4m, purchase costs $2m, other costs $1m A: revenue $2m, purchase costs $0, other costs $1m then taxes are paid on $12m. If we instead have: Alphabet: revenue $6m, purchase costs $0, other costs $3m then taxes are paid on $6m, even though the same amount of stuff is being made with the same efficiency, same profits, etc. Whether this is relevant for tech giants is another matter. Software tends to be quite vertically integrated (financially speaking, at least).
- vidarh 9y ago
  This is typically the argument for VAT over other sales taxes. In the EU, A would charge $2m + VAT. Let's say 10% for ease. So B would have purchase costs of $2.2m, and would charge $4.4m. $400k of that is VAT, but they get a $200k VAT refund for the VAT paid on the purchase from A. C would charge $6.6m, of which $600k is VAT, and claim $400k VAT back. End result is A, B, and C would all pay $200k VAT each. In your second example, the VAT inclusive price would still be $6.6k, and the VAT due would still be $600k. In practice many non-VAT sales taxes also counters this problem by trying to define what makes a "final" sale or a sale to consumers as opposed to other companies, and taxing only that.

jon_richards 9y ago

I think a better explanation is that taxes on revenue favour vertical integration. Imagine a product that requires building widget A, then turning that into widget B, then turning that into widget C. If we have the following companies: C: revenue $6m, purchase costs $4m, other costs $1m B: revenue $4m, purchase costs $2m, other costs $1m A: revenue $2m, purchase costs $0, other costs $1m then taxes are paid on $12m. If we instead have: Alphabet: revenue $6m, purchase costs $0, other costs $3m then taxes are paid on $6m, even though the same amount of stuff is being made with the same efficiency, same profits, etc. Whether this is relevant for tech giants is another matter. Software tends to be quite vertically integrated (financially speaking, at least).

vidarh 9y ago
This is typically the argument for VAT over other sales taxes. In the EU, A would charge $2m + VAT. Let's say 10% for ease. So B would have purchase costs of $2.2m, and would charge $4.4m. $400k of that is VAT, but they get a $200k VAT refund for the VAT paid on the purchase from A. C would charge $6.6m, of which $600k is VAT, and claim $400k VAT back. End result is A, B, and C would all pay $200k VAT each. In your second example, the VAT inclusive price would still be $6.6k, and the VAT due would still be $600k. In practice many non-VAT sales taxes also counters this problem by trying to define what makes a "final" sale or a sale to consumers as opposed to other companies, and taxing only that.