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All these sorts of schemes are doomed to fail for the very simple reason that corporations are more agile than the law making process. Here's an easy plan to e

All these sorts of schemes are doomed to fail for the very simple reason that corporations are more agile than the law making process. Here's an easy plan to end tax avoidance: 1. Any company that sells more than $X/year to people living in the US needs to be registered in the US. 2. Flat tax with no exemptions (all corporations would be taxed like C-corps). 3. No more rules. A plan that won't work is one that adds even more rules on top of the the enormous mound of rules currently in place.

scottlegrand2 8y ago
I would extend this sort of simplification to individuals as well. I'd give them a huge upfront deduction all the way up to the median income and then flat tax the remainder.
- malandrew 8y ago
  This just creates a disincentive for those corporations and individuals that are being the most productive. People need to remember that the United States doesn't exist in a vacuum. We are in competition with all the other countries out there. Maximizing productivity matters at a national level. The more competitive we are, the better off Americans are on average. If we lose that lead position to other countries, we may achieve greater equality internally but we will be worse off relative to the rest of the world.
  - maxerickson 8y ago
    I think you have to be careful with semantics. If the marginal effect is small, a higher tax rate might be better described as "slightly less motivating" or something, rather than as a disincentive. The idea that there's a substantial aggregate effect on behavior if you increase taxes from 40% to 41% probably needs a little more proof than just assumption.
  - scottlegrand2 8y ago
    Oh but there is an incentive here: the higher the median wage, the higher the deduction everyone gets. And for those below the median wage, they can just keep making all the money they want all the way up to that median wage and pay $0 in taxes. What exactly am I missing that's giving me all these downvotes? I just want a fair tax code all the way up and down the socioeconomic ladder and I want to wipe out all those incredible deductions given to the capital gains class so that we're all on the same page.
    - malandrew 8y ago
      don't know why you're getting downvoted, but every time I hear someone say they want to be fair, my immediate reaction is to ask "what's your definition of fair?" My definition is that everyone has skin in the game and feels the same pain when it comes to raising or lowering existing taxes or creating new ones. Any thing else is a wealth transfer and theft from one to give to the other. Having everyone feel the pain proportionally, would have all taxpayers questioning the efficiency of how their money is used. When most taxpayers don't feel the pain is when government starts wasting money. Why pressure governments to provide more bang for the buck when you're not the one footing the bill. Furthermore, you're also distorting the cost of labor and distorting how taxes are handled. Those that don't pay any taxes end up providing artificially cheap labor. If a worker needs $10/hour for it to be worth their while and the taxes they pay are $0, businesses will pay $10/hour. If they need $10/hour for it to be worth their while and their taxes are $2, the business will have to pay $12. If the product/service the business provides sells for $20/hour, the business gets $10 in the first scenario and $8 in the second scenario. The business actually makes more in the scenario where the labor doesn't pay taxes and businesses are better at avoiding taxes through clever accounting so less money is likely to be raised than a flat percent that everyone pays with no loopholes. Having the rich pay all the taxes also gives them the most economic incentive to make modifications to the system in their favor, and it puts the most money in their pocket to spend on lobbying activities. In the example above, the business has up to $10/hour of profit to allocate to lobbying with when they are paying the taxes. At the end of the day, the market will adjust to all the distortions you bake into the system, hiding the true cost of inputs needed to produce goods and services, which reduces market efficiency. Overall, society is better off if things are priced as accurately as possible since people can make more accurate decision about the worth of providing goods and services. This also applies to making sure the costs of externalities are priced into the goods and services provided.
- int_19h 8y ago
  Change that deduction into a tax credit, and you're basically describing one way to implement UBI. I think it's not obvious to everybody that what you're suggesting is really a progressive income tax, BTW, since that flat rate is paid on different proportion of income, and with a high enough cut-off, it can easily be more progressive than our present arrangement for most middle class tax brackets and below.
AdamM12 8y ago
Just a thought. How about abolishing corporate tax and then making every entity as pass through entity for tax purposes? At the EOD all entities are owned by someone and that income is taxed at a progressive rate. From what I've read the corporate tax is only 10% of the federal budget anyway. Edit: This wouldn't stop a company from doing what Amazon did and reinvest all the time but at least given a profit an entity would be pressured to pay out cash in order to cover tax liability of owners. Would help avoid hoarding of cash on balance sheets.
- reitzensteinm 8y ago
  We have that in Australia & NZ, called Franking. When a corporation pays tax, it receives credits which can be distributed with the dividends it pays out. While strictly better than the alternative for business owners, I always felt the incentives were a bit weird; if you left profits in the company to expand, you'd pay tax on that up front which would slow growth. So it would bias you towards withdrawing profits (at least compared to the tax policies of other countries). https://en.wikipedia.org/wiki/Franking_credit https://en.wikipedia.org/wiki/Franking_credit In my opinion, corporate taxation should be tied to liability; essentially being the compensation to society for the risk that your company will go though bankruptcy. If you are willing to be personally liable for your business, you should be able to operate it as a simple pass-through vehicle. And this should apply even to something the size of Apple - investors willing. It's commonly argued that capital gains combined with corporate tax is double taxation, but limited liability has a huge amount of value; making the link between them explicit and optional would (I think) be the best of both worlds.
  - AdamM12 8y ago
    I believe double taxation actually refers to paying the corporate tax rate as well as the shareholder paying their dividend tax rate. Not capital gains.
    - reitzensteinm 8y ago
      I misspoke and meant to say corporate tax which would be more correct. But the tax rate also effectively applies to capital gains, since the value of a company is the NPV of its future distributions. If Apple were suddenly permanently excepted from income tax tomorrow through some bizarre legislation, its future dividends would be proportionally increased, and its market cap would (should) rise to match. The water is muddied due to a few factors such as inflation, uncertainty around future tax rates, potential tax holidays for overseas income etc. But they're in very general terms two sides of the same coin.
dmm 8y ago
> Flat tax with no exemptions The difficulty with taxation is not calculating tax rates, that's simple, the difficulty is determining what is taxable income/profit.
- 0_gravitas 8y ago
  Some sibling comment to oc seems pretty straightforward: the profit taxed is the profit reported to shareholders
  - anchpop 8y ago
    What would prevent a company from telling the shareholders they made no profit? Is there a separate process that prevents them from lying and is more difficult to manipulate than the current tax code?
    - guelo 8y ago
      Presumably they want the stock to go up so they would want to report a profit. And Wall Street gets pretty upset with any company trying to cheat on their GAAP reporting
- maxxxxx 8y ago
  "The difficulty with taxation is not calculating tax rates, that's simple, the difficulty is determining what is taxable income/profit." Exactly! Flat tax is just another trick to reduce top tax rates while not solving any problems.
  - mamon 8y ago
    Then do not tax income, tax revenue. If company makes, say $10B in the US in sales, they should be required to pay at least 1% of that, i.e $100M in taxes. And before anyone starts complaining that some companies have very thin profit margins: if your profit margin is close to or less than 1% then your business model is unsustainable in the long run anyway.
slg 8y ago
The government would and should never abdicate the potential to control economic incentives through taxes and subsidies.

scottlegrand2 8y ago

I would extend this sort of simplification to individuals as well. I'd give them a huge upfront deduction all the way up to the median income and then flat tax the remainder.

malandrew 8y ago
This just creates a disincentive for those corporations and individuals that are being the most productive. People need to remember that the United States doesn't exist in a vacuum. We are in competition with all the other countries out there. Maximizing productivity matters at a national level. The more competitive we are, the better off Americans are on average. If we lose that lead position to other countries, we may achieve greater equality internally but we will be worse off relative to the rest of the world.
- maxerickson 8y ago
  I think you have to be careful with semantics. If the marginal effect is small, a higher tax rate might be better described as "slightly less motivating" or something, rather than as a disincentive. The idea that there's a substantial aggregate effect on behavior if you increase taxes from 40% to 41% probably needs a little more proof than just assumption.
- scottlegrand2 8y ago
  Oh but there is an incentive here: the higher the median wage, the higher the deduction everyone gets. And for those below the median wage, they can just keep making all the money they want all the way up to that median wage and pay $0 in taxes. What exactly am I missing that's giving me all these downvotes? I just want a fair tax code all the way up and down the socioeconomic ladder and I want to wipe out all those incredible deductions given to the capital gains class so that we're all on the same page.
  - malandrew 8y ago
    don't know why you're getting downvoted, but every time I hear someone say they want to be fair, my immediate reaction is to ask "what's your definition of fair?" My definition is that everyone has skin in the game and feels the same pain when it comes to raising or lowering existing taxes or creating new ones. Any thing else is a wealth transfer and theft from one to give to the other. Having everyone feel the pain proportionally, would have all taxpayers questioning the efficiency of how their money is used. When most taxpayers don't feel the pain is when government starts wasting money. Why pressure governments to provide more bang for the buck when you're not the one footing the bill. Furthermore, you're also distorting the cost of labor and distorting how taxes are handled. Those that don't pay any taxes end up providing artificially cheap labor. If a worker needs $10/hour for it to be worth their while and the taxes they pay are $0, businesses will pay $10/hour. If they need $10/hour for it to be worth their while and their taxes are $2, the business will have to pay $12. If the product/service the business provides sells for $20/hour, the business gets $10 in the first scenario and $8 in the second scenario. The business actually makes more in the scenario where the labor doesn't pay taxes and businesses are better at avoiding taxes through clever accounting so less money is likely to be raised than a flat percent that everyone pays with no loopholes. Having the rich pay all the taxes also gives them the most economic incentive to make modifications to the system in their favor, and it puts the most money in their pocket to spend on lobbying activities. In the example above, the business has up to $10/hour of profit to allocate to lobbying with when they are paying the taxes. At the end of the day, the market will adjust to all the distortions you bake into the system, hiding the true cost of inputs needed to produce goods and services, which reduces market efficiency. Overall, society is better off if things are priced as accurately as possible since people can make more accurate decision about the worth of providing goods and services. This also applies to making sure the costs of externalities are priced into the goods and services provided.
int_19h 8y ago
Change that deduction into a tax credit, and you're basically describing one way to implement UBI. I think it's not obvious to everybody that what you're suggesting is really a progressive income tax, BTW, since that flat rate is paid on different proportion of income, and with a high enough cut-off, it can easily be more progressive than our present arrangement for most middle class tax brackets and below.

AdamM12 8y ago

Just a thought. How about abolishing corporate tax and then making every entity as pass through entity for tax purposes? At the EOD all entities are owned by someone and that income is taxed at a progressive rate. From what I've read the corporate tax is only 10% of the federal budget anyway. Edit: This wouldn't stop a company from doing what Amazon did and reinvest all the time but at least given a profit an entity would be pressured to pay out cash in order to cover tax liability of owners. Would help avoid hoarding of cash on balance sheets.

reitzensteinm 8y ago
We have that in Australia & NZ, called Franking. When a corporation pays tax, it receives credits which can be distributed with the dividends it pays out. While strictly better than the alternative for business owners, I always felt the incentives were a bit weird; if you left profits in the company to expand, you'd pay tax on that up front which would slow growth. So it would bias you towards withdrawing profits (at least compared to the tax policies of other countries). https://en.wikipedia.org/wiki/Franking_credit https://en.wikipedia.org/wiki/Franking_credit In my opinion, corporate taxation should be tied to liability; essentially being the compensation to society for the risk that your company will go though bankruptcy. If you are willing to be personally liable for your business, you should be able to operate it as a simple pass-through vehicle. And this should apply even to something the size of Apple - investors willing. It's commonly argued that capital gains combined with corporate tax is double taxation, but limited liability has a huge amount of value; making the link between them explicit and optional would (I think) be the best of both worlds.
- AdamM12 8y ago
  I believe double taxation actually refers to paying the corporate tax rate as well as the shareholder paying their dividend tax rate. Not capital gains.
  - reitzensteinm 8y ago
    I misspoke and meant to say corporate tax which would be more correct. But the tax rate also effectively applies to capital gains, since the value of a company is the NPV of its future distributions. If Apple were suddenly permanently excepted from income tax tomorrow through some bizarre legislation, its future dividends would be proportionally increased, and its market cap would (should) rise to match. The water is muddied due to a few factors such as inflation, uncertainty around future tax rates, potential tax holidays for overseas income etc. But they're in very general terms two sides of the same coin.

dmm 8y ago

> Flat tax with no exemptions The difficulty with taxation is not calculating tax rates, that's simple, the difficulty is determining what is taxable income/profit.

0_gravitas 8y ago
Some sibling comment to oc seems pretty straightforward: the profit taxed is the profit reported to shareholders
- anchpop 8y ago
  What would prevent a company from telling the shareholders they made no profit? Is there a separate process that prevents them from lying and is more difficult to manipulate than the current tax code?
  - guelo 8y ago
    Presumably they want the stock to go up so they would want to report a profit. And Wall Street gets pretty upset with any company trying to cheat on their GAAP reporting
maxxxxx 8y ago
"The difficulty with taxation is not calculating tax rates, that's simple, the difficulty is determining what is taxable income/profit." Exactly! Flat tax is just another trick to reduce top tax rates while not solving any problems.
- mamon 8y ago
  Then do not tax income, tax revenue. If company makes, say $10B in the US in sales, they should be required to pay at least 1% of that, i.e $100M in taxes. And before anyone starts complaining that some companies have very thin profit margins: if your profit margin is close to or less than 1% then your business model is unsustainable in the long run anyway.

slg 8y ago

The government would and should never abdicate the potential to control economic incentives through taxes and subsidies.