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> Wouldn't it be simpler to just set corporate tax rates to zero, and instead raise taxes on income Do you mean income as in profit (= revenue minus expenses),

> Wouldn't it be simpler to just set corporate tax rates to zero, and instead raise taxes on income Do you mean income as in profit (= revenue minus expenses), or income as in revenue (not subtracting costs)? If you mean profit... that's what corporation tax is already. So I'll assume you mean revenue. No it wouldn't. It would kill many businesses overnight, and incentivise the worst behaviour in the rest. Consider a company that buys components for $100 and assembles them into a widget they sell for $105 to shops. (Who sell it for $110.) Let's ignore other costs. Corporation tax at 20% would charge the company $1 per widget. Income (as revenue) tax at 20% would charge the company $20 per widget, and the company would immediately have to stop producing widgets altogether, or substantially raise the price of widgets. It wouldn't have a choice. You as the end user would see the prices of everything in shops shoot up, and many things would disappear from the shelves. If you used a lower tax rate, say 1% so that companies like this can continue, it will be far too low for companies that pay $50 for components and sell their widget for $100. Those would be charged only $1 on their profit of $50, keeping $49. You want to incentivise (and indeed help) the former type of company. It's selling widgets at close to the cost of making them, and if it is so minded, it may use the highest quality materials it can afford. But you have designed a tax that strongly incentivises, even requires, the latter type of company: Only pursuing opportunities that use the cheapest possible materials while selling at high prices. Never doing anything that brings in just a small profit.

8note 5y ago
The heavily profitable company still wins in a profit based taxation. They're making a lot of profit. Its competition that reduces profits
- jlokier 5y ago
  There's a huge difference between "the heavily profitable company wins in competition" (which isn't true in all domains anyway) and "we have banned all companies except heavily profitable ones". > Its competition that reduces profits The revenue tax scheme sets a minimum profit level that every company is required to make. Competition can't reduce it below that level. It's also set things up so where many companies build things in a chain of specialised companies, for example manufacturing components, assembling devices then selling those, and shipping them, the minimum profit percentage is legally required at each step, compounding. Currently, supply chains consist of hundreds of companies working together. That won't be possible any more, as the new system forces every supply chain to merge into a self-contained conglomerate that does everything in one company. Companies in that system will be forced to merge into giants or die, and in the end most will be giants. It's probably not the intended consquence of the policy.
robomartin 5y ago
I was hoping the pandemic taught people something about business. I guess it didn't. Society does not benefit from businesses operating on vapor-thin profits. When (not if) anything goes wrong these businesses trigger a job-loss chain reaction that is impossible to avoid. What you want are businesses who make enough in profits to build a solid safety net, evolve, compete, provide security and upward mobility to employees, suppliers and the entire food chain that surrounds them. Profits are not bad. They are an absolute necessity for growth and stability.
- jlokier 5y ago
  I was hoping the pandemic taught people to read. I didn't say profit was bad. The discussion point was not about razor-thin margins. The 5% was just notional for discussion. The same problems occur with fat margins. Building on your point that profits are necessary for growth, stability and job security, presumably you have in mind that the company gets to keep the profit, to use for those things as needed. The GP proposal I replied to is a tax system which sets a legally required minimum profit margin, and then takes 100% of that required minimum as tax, though I expect the poster didn't think of it that way. As the proposal is to force the company to make some profit percentage and take that directly from the company, the remaining profit the company can reinvest in growth, stability and job security is reduced. Aside from reducing the amount available to plow back, this also acts to amplify variance in profit from period to period, increasing instability in the company's finances. Reducing profit that can be used by the company and amplifying instability both reduce growth, job security, upward mobility etc. So much for understanding business. It's also ridiculously harmful to the "food chain" because it would tend to destroy independent supply chain companies, and prevent new ones from being competitve. The GP proposal takes the legally required minimum profit margin from every individual company in a supply chain, so the total tax taken is the required margin multiplied by the number of companies in the chain. I.e. more companies in a supply chain == proportionally more tax. This creates an extreme pressure to merge small supply chain companies into a giant conglomerates that pay less tax for the same task. I say extreme because it is: Merging brings a benefit of 10-100x tax saving. If you like giant conglomerates that's fine, but if you want a food chain of independent companies, it's a disastrous policy. The tax level in that proposal could be set low enough to allow small supply chain companies to survive without succumbing to tax pressure to merge, but if that was done, giant conglomerates would pay a tiny amount of tax, compared with small companies. There would still be a 10-100x tax advantage available to giant conglomerates. Since this entire discussion is a complaint about giant companies paying too little tax, presumably that is not the intended effect. Some accounting could obviously be done to ensure giant companies pay a similar share to small companies in a chain doing the same thing, to remove the tax pressure to merge. But that's what we have already, that's corporation tax.

8note 5y ago

The heavily profitable company still wins in a profit based taxation. They're making a lot of profit. Its competition that reduces profits

jlokier 5y ago
There's a huge difference between "the heavily profitable company wins in competition" (which isn't true in all domains anyway) and "we have banned all companies except heavily profitable ones". > Its competition that reduces profits The revenue tax scheme sets a minimum profit level that every company is required to make. Competition can't reduce it below that level. It's also set things up so where many companies build things in a chain of specialised companies, for example manufacturing components, assembling devices then selling those, and shipping them, the minimum profit percentage is legally required at each step, compounding. Currently, supply chains consist of hundreds of companies working together. That won't be possible any more, as the new system forces every supply chain to merge into a self-contained conglomerate that does everything in one company. Companies in that system will be forced to merge into giants or die, and in the end most will be giants. It's probably not the intended consquence of the policy.

robomartin 5y ago

I was hoping the pandemic taught people something about business. I guess it didn't. Society does not benefit from businesses operating on vapor-thin profits. When (not if) anything goes wrong these businesses trigger a job-loss chain reaction that is impossible to avoid. What you want are businesses who make enough in profits to build a solid safety net, evolve, compete, provide security and upward mobility to employees, suppliers and the entire food chain that surrounds them. Profits are not bad. They are an absolute necessity for growth and stability.

jlokier 5y ago
I was hoping the pandemic taught people to read. I didn't say profit was bad. The discussion point was not about razor-thin margins. The 5% was just notional for discussion. The same problems occur with fat margins. Building on your point that profits are necessary for growth, stability and job security, presumably you have in mind that the company gets to keep the profit, to use for those things as needed. The GP proposal I replied to is a tax system which sets a legally required minimum profit margin, and then takes 100% of that required minimum as tax, though I expect the poster didn't think of it that way. As the proposal is to force the company to make some profit percentage and take that directly from the company, the remaining profit the company can reinvest in growth, stability and job security is reduced. Aside from reducing the amount available to plow back, this also acts to amplify variance in profit from period to period, increasing instability in the company's finances. Reducing profit that can be used by the company and amplifying instability both reduce growth, job security, upward mobility etc. So much for understanding business. It's also ridiculously harmful to the "food chain" because it would tend to destroy independent supply chain companies, and prevent new ones from being competitve. The GP proposal takes the legally required minimum profit margin from every individual company in a supply chain, so the total tax taken is the required margin multiplied by the number of companies in the chain. I.e. more companies in a supply chain == proportionally more tax. This creates an extreme pressure to merge small supply chain companies into a giant conglomerates that pay less tax for the same task. I say extreme because it is: Merging brings a benefit of 10-100x tax saving. If you like giant conglomerates that's fine, but if you want a food chain of independent companies, it's a disastrous policy. The tax level in that proposal could be set low enough to allow small supply chain companies to survive without succumbing to tax pressure to merge, but if that was done, giant conglomerates would pay a tiny amount of tax, compared with small companies. There would still be a 10-100x tax advantage available to giant conglomerates. Since this entire discussion is a complaint about giant companies paying too little tax, presumably that is not the intended effect. Some accounting could obviously be done to ensure giant companies pay a similar share to small companies in a chain doing the same thing, to remove the tax pressure to merge. But that's what we have already, that's corporation tax.