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I'm all for simplification, but I think your plan would have some unintended consequences. It's essentially a subsidy of vertical integration. This would mak
by lsc 16y ago
I'm all for simplification, but I think your plan would have some unintended consequences. It's essentially a subsidy of vertical integration.
This would make it hard for any b2b company. you can hire an accountant in house, as an employee (deductible, under your plan) or you can pay an external firm (say, a firm next door. small business accounting is usually done locally.) to do your taxes (not deductible under your plan, even though the accountant salaries are deductible to the accounting firm, the accounting firm fees you paid would not be deductible for you.)
This would make it doubly hard for those of us who spend most of their revenue on non-salary expenses and who are primarily b2b businesses. The thing is, I pay more for power/rackspace/bandwidth than I pay for salary, and that disparity will only increase as I scale up. For me, it'd be a double whammy, as not only would I get taxed on what I pay for power, (so I'd have to raise my rates) but my customers would have to pay those higher rates out of post-tax money.
This would probably be incentive enough to move my corporation abroad or shut down... I mean, a bunch of my customers are already outside the country, and while it wouldn't help my US customers pay me out of pre-tax dollars, it would mean that I could lower my rates by 35%.
Really, I think only taxing profits is great for growing companies. Right now, I live in California, an area with ridiculous taxes. but you know what? I don't really care, because I only have to pay taxes on profit, so worrying about my taxes being high is one of those "good problems to have" that I really only have to worry about once I start making a lot of money.
- lionheart 16y agoIf we just changed % of profit in his plan, wouldn't that solve it?
- lsc 16y agoit would solve it for me, certainly. Really, that's how I view the tax system now. (I mean, there are loopholes and all that, but I don't really have enough money to put too much effort into that sort of thing at this point.) but, the guy was suggesting that %revenue is more simple and harder to fake than %profit (and he's right about that.)
- protomyth 16y agoprofits are way too easy to hide - see Monster Cable and Toyota America (license fee to mother company = low profits)
- fragmede 16y agoAnother example of revenue hiding is Hollywood movies - http://en.wikipedia.org/wiki/Hollywood_accounting http://en.wikipedia.org/wiki/Hollywood_accounting
- lionheart 16y agoWell, yes and no. That's why there are accounting standards like the FASB that the government makes companies use to pay taxes. In fact, almost all large corporations keep one set of books using their internal accounting standards and another set of books using the federally-mandated standard in order to pay taxes. Hollywood revenue hiding was done using their particularly-unfair internal accounting rules. However, those same companies then did, in fact, recognize that revenue correctly using the FASB when they had to pay takes to the IRS. As long as all taxes have to be paid using a standard accounting system, there really isn't any way to hide profits except to ship them off to another country, like in this example.
- fragmede 16y agoHow does an accounting standard like the FASB prevent cheating? My understanding of the most egregious creative accounting tricks was via shell/dummy corporations. Even if each of those corporations individually follows an accounting standard, the graft comes via many companies acting in concert. It would take someone investigating from the outside to matching all the involved companies together before the ploy was exposed. (If Hollywood revenue hiding never got that advanced, then I blame Hollywood movies, and their fictional depictions of accounting practices.) (I'm not an accountant and this is out of curiosity.)
- lsc 16y agonow, I'm not an accountant either, but the whole idea behind the accounting standards is to prevent cheating, right? so if you can get around that by using a shell corporation, the accounting standard is broken.
- protomyth 16y agoYeah, B2B is an issue. Taxing profits and behavior tends to be the basis of all the accounting tricks and dodges. Revenue is harder to hide. It would also depend on what [x] really is. I am pretty sure it needs to be a lot lower than the current tax rate. This is especially true for low margin businesses (some agriculture related). So, if I was actually true to what the intent would be (simple, trying not to double tax, simple (again), hard to weasel), it would seem I forgot the service sector pretty badly. So if it was: revenue - salary - services then I would be a lot closer. Verifying the services would probably be the biggest audit issue.
- lsc 16y ago>So if it was: revenue - salary - services then I would be a lot closer you're still driving out everyone who spends a large percentage of their revenue on equipment... actually, those people would probably respond by renting that equipment from foreigners. for example, if you spend a lot of money on servers and power, etc... instead of owning servers in-house, you'd rent those servers from some guy in Canada or Mexico.