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Humans are taxed on their income. Corporations are taxed on their profits (they deduct their expenses). Corporations can be taxed on the money coming in, that

Humans are taxed on their income. Corporations are taxed on their profits (they deduct their expenses). Corporations can be taxed on the money coming in, that would look like a sales tax or VAT. The problem with that tax is it falls on the consumer (since what really matters is which transaction you tax, not which side pays the tax). But this brings me to a solution to the corporate tax avoidance issue that has already been figured out by economists, but rarely gets discussed. This is a simplification, but basically corporations have one place money goes in, and two places it goes out, like this: sales = expenses + profits If you tax the sales, but deduct the expenses, this leaves the incidence of the tax on the profits. Unlike profits, it's usually much clearer where the sale takes place so it's much harder to avoid than the existing corporate tax. It's called a border adjustment tax. [1] Where this gets complicated is international trade - how this works is only domestic expenses are deductible. At first glance that seems protectionist, but apparently the currency exchange rates adjust which balances is it out and although it's not obvious it ends up trade-neutral. It was actually seriously proposed as part of US tax reform in 2017, but some big companies were against it so it got killed. [1] https://en.wikipedia.org/wiki/Border-adjustment_tax https://en.wikipedia.org/wiki/Border-adjustment_tax

optimiz3 5y ago
> Humans are taxed on their income. Corporations are taxed on their profit Not true. States like WA have general B&O taxes which are a tax on revenue, not profit. This makes it much harder to operate thin margin businesses like groceries and manufacturing, while favoring high margin businesses like software.
- throwaway34241 5y ago
  Sure, I believe Ohio has something similar. More significantly I think (in percentage terms), there are already sales taxes and VATs. But when people are discussing the corporate tax and corporate tax avoidance, usually they're talking about the corporate income tax, which is also what the article is about.
bumby 5y ago
Is this similar to a gross receipts tax?
- throwaway34241 5y ago
  No, a gross receipts tax is on sales and not profits. If I understand it correctly (I don't know the details for every state), a gross receipts tax doesn't even adjust for value added (the VA in VAT). For example say a few companies are involved in producing a good (starting from raw materials) so the supply chain looks like this: $7 (raw materials) -> $8 (components) - > $9 (finished good wholesale) -> $10 (store price) With a VAT, the total taxed amount is $10, which is divided up among the companies based on how much value they added (so if they move from $8->$9, they pay tax on $1). With a gross receipts tax, the total taxed amount is $7+$8+$9+$10=$34. Goods that are produced by many small companies working together will pay a lot more taxes than those produced by huge vertically-integrated ones. There's some good reasons to use a VAT if you want to tax revenue, and one of them is to avoid problems like this.
  - jfengel 5y ago
    With a VAT each layer deducts the tax they pay. The net tax is only on the the value added. The company in the middle pays tax on $7 and collects tax on $8, and forwards the difference. It's very elegant and fair, but imposes a lot of accounting. Sales tax is easier in that it only collects at the end, but it's actually hard to define "end". (Buy a screw and you pay tax, buy a manufacturer buying the same screw usually does not.) There are still problems about regressive taxation (are stock profits value add? Services? Plain old labor? What's the difference? Usually poor people end up paying the taxes on everything while rich people buy things that aren't subject to the system). Still, if you want to tax profits on consumables, it's remarkably straightforward.
    - throwaway34241 5y ago
      It does add more accounting, but one advantage of involving the companies in the middle is it makes cheating harder and less lucrative, since a bunch of companies have to coordinate to avoid paying the VAT instead of just one company at the end. Agree that VAT/sales taxes are regressive and shift more of the tax burden to lower-income people. Although the only US political candidate I can remember recently proposing a VAT was Yang in which case his UBI proposal would probably more than balance out the effects on after-tax income.

optimiz3 5y ago

> Humans are taxed on their income. Corporations are taxed on their profit Not true. States like WA have general B&O taxes which are a tax on revenue, not profit. This makes it much harder to operate thin margin businesses like groceries and manufacturing, while favoring high margin businesses like software.

throwaway34241 5y ago
Sure, I believe Ohio has something similar. More significantly I think (in percentage terms), there are already sales taxes and VATs. But when people are discussing the corporate tax and corporate tax avoidance, usually they're talking about the corporate income tax, which is also what the article is about.

bumby 5y ago

Is this similar to a gross receipts tax?

throwaway34241 5y ago
No, a gross receipts tax is on sales and not profits. If I understand it correctly (I don't know the details for every state), a gross receipts tax doesn't even adjust for value added (the VA in VAT). For example say a few companies are involved in producing a good (starting from raw materials) so the supply chain looks like this: $7 (raw materials) -> $8 (components) - > $9 (finished good wholesale) -> $10 (store price) With a VAT, the total taxed amount is $10, which is divided up among the companies based on how much value they added (so if they move from $8->$9, they pay tax on $1). With a gross receipts tax, the total taxed amount is $7+$8+$9+$10=$34. Goods that are produced by many small companies working together will pay a lot more taxes than those produced by huge vertically-integrated ones. There's some good reasons to use a VAT if you want to tax revenue, and one of them is to avoid problems like this.
- jfengel 5y ago
  With a VAT each layer deducts the tax they pay. The net tax is only on the the value added. The company in the middle pays tax on $7 and collects tax on $8, and forwards the difference. It's very elegant and fair, but imposes a lot of accounting. Sales tax is easier in that it only collects at the end, but it's actually hard to define "end". (Buy a screw and you pay tax, buy a manufacturer buying the same screw usually does not.) There are still problems about regressive taxation (are stock profits value add? Services? Plain old labor? What's the difference? Usually poor people end up paying the taxes on everything while rich people buy things that aren't subject to the system). Still, if you want to tax profits on consumables, it's remarkably straightforward.
  - throwaway34241 5y ago
    It does add more accounting, but one advantage of involving the companies in the middle is it makes cheating harder and less lucrative, since a bunch of companies have to coordinate to avoid paying the VAT instead of just one company at the end. Agree that VAT/sales taxes are regressive and shift more of the tax burden to lower-income people. Although the only US political candidate I can remember recently proposing a VAT was Yang in which case his UBI proposal would probably more than balance out the effects on after-tax income.