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I really don't understand why corporations are taxed on profit. It produces weird effects such as where a company is better off paying interest on debt rather t

I really don't understand why corporations are taxed on profit. It produces weird effects such as where a company is better off paying interest on debt rather than dividends on stock. Having the tax be payable on revenue of a corporation in that jurisdiction rather than profit would be simpler to understand, easier to administrate and avoid the current tax avoidance we have have.

wpasc 9y ago
Example: My company makes 100M in revenue. To sell my goods, my cost is 99M, I only have 1M in profit. If I were taxed on my 100M revenue, I would just lose money and my business would have no point and I would have to close even though I am profitable. If it costs me 99M to sell 100M worth of goods, why wouldn't I be taxed on the 1M? Why should two companies who have 100M in revenue at 99M costs vs 15M costs to pay the same taxes?
- DoveBrown 9y ago
  A reason to not take on your profit is that your "cost of sales" can be a pretty nebulous concept. How much of your 99M costs is licensing to entities you control in other jurisdictions? I understand why it is fairer have it be profit, but profit in the modern accounting world seems to be a strange thing. A good accountant can make your profit be anything you like, so it doesn't make sense to tax based on the idea that company has bad accountants. Generally it is harder for accountants to change revenue figures (other than defer into different years). The rules lawyering as to what is a legitimate cost is huge.
- lifeisgood99 9y ago
  Why are individuals taxed on revenue then? A person making 100K but spending 99K of it as "costs" will have the same tax bill as a person making 100K but with 15K of "costs". I know individuals also have deductible items, but things like food or rent are often not deductible but take a big part of our costs.
dahdum 9y ago
Profit margin varies across industries and individual companies, so you would be collecting less tax revenue on the most profitable companies. Essentially it’s like setting a sales tax on the products, then giving the company zero income tax. Doesn’t usually sit right with most people.
true_religion 9y ago
A business expense is eventually someone else's profit. In the terminal sense some one will take it out as personal income, and it will be taxed at a higher rate. Then there are things like sales tax, tariffs, VAT, tangible property taxes which all are accounted for. So every bit if businesses revenue is taxed somehow.
maxerickson 9y ago
VAT taxes revenues (more or less anyway). Income taxes on profits are in addition to that.
poke111 9y ago
Or just abolish the corporate tax altogether. The profit is already taxed once the gains hit individuals in the form of dividends or capital gains. [edit] here is a nice article outlining the argument: https://www.nationalreview.com/2014/09/abolish-corporate-tax-kevin-d-williamson/ https://www.nationalreview.com/2014/09/abolish-corporate-tax...

wpasc 9y ago

Example: My company makes 100M in revenue. To sell my goods, my cost is 99M, I only have 1M in profit. If I were taxed on my 100M revenue, I would just lose money and my business would have no point and I would have to close even though I am profitable. If it costs me 99M to sell 100M worth of goods, why wouldn't I be taxed on the 1M? Why should two companies who have 100M in revenue at 99M costs vs 15M costs to pay the same taxes?

DoveBrown 9y ago
A reason to not take on your profit is that your "cost of sales" can be a pretty nebulous concept. How much of your 99M costs is licensing to entities you control in other jurisdictions? I understand why it is fairer have it be profit, but profit in the modern accounting world seems to be a strange thing. A good accountant can make your profit be anything you like, so it doesn't make sense to tax based on the idea that company has bad accountants. Generally it is harder for accountants to change revenue figures (other than defer into different years). The rules lawyering as to what is a legitimate cost is huge.
lifeisgood99 9y ago
Why are individuals taxed on revenue then? A person making 100K but spending 99K of it as "costs" will have the same tax bill as a person making 100K but with 15K of "costs". I know individuals also have deductible items, but things like food or rent are often not deductible but take a big part of our costs.

dahdum 9y ago

Profit margin varies across industries and individual companies, so you would be collecting less tax revenue on the most profitable companies. Essentially it’s like setting a sales tax on the products, then giving the company zero income tax. Doesn’t usually sit right with most people.

true_religion 9y ago

A business expense is eventually someone else's profit. In the terminal sense some one will take it out as personal income, and it will be taxed at a higher rate. Then there are things like sales tax, tariffs, VAT, tangible property taxes which all are accounted for. So every bit if businesses revenue is taxed somehow.

maxerickson 9y ago

VAT taxes revenues (more or less anyway). Income taxes on profits are in addition to that.

poke111 9y ago

Or just abolish the corporate tax altogether. The profit is already taxed once the gains hit individuals in the form of dividends or capital gains. [edit] here is a nice article outlining the argument: https://www.nationalreview.com/2014/09/abolish-corporate-tax-kevin-d-williamson/ https://www.nationalreview.com/2014/09/abolish-corporate-tax...