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Not only are losses not taxed, but they are often deductible against other taxable (profit) income. I believe this is mostly out of a sense of fairness, and als

Not only are losses not taxed, but they are often deductible against other taxable (profit) income. I believe this is mostly out of a sense of fairness, and also because profitable business activities often start out as unprofitable, and we don't want to discourage that start-up phase, or we might not ever get profitable businesses. edit: losses are not deductible in perpetuity, however. For small businesses, after several years of losses, the business is presumed to be a not-for-profit ("hobby") activity for which losses are not deductible. And larger businesses can only continue to generate losses by investors dumping more money in only to lose it. (U.S tax system) >We want to incentivize profits There is already plenty of incentive without any government intervention. And as others have pointed out, taxes are heavily based on a ability to pay. For example, while cancelation of debt (forgiven loans) result in taxable income (U.S), there are exceptions for people who are insolvent (and therefore obviously can't really pay the tax).

daenz 5y ago
The point about the start-up phase is a great argument against my question. I mentioned in another post, but for this idea to not impact startups very negatively, I suppose there would have to be an exemption for new businesses. >There is already plenty of incentive without any government intervention. That's true, but there is also an incentive to hide profits to avoid taxes. I'm not very knowledgeable in this, but my understanding is that there are a number of accounting tricks that many different industries can use to disguise profits as losses, which feeds directly into corruption.
- hcta 5y ago
  > I'm not very knowledgeable in this, but my understanding is that there are a number of accounting tricks that many different industries can use to disguise profits as losses, which feeds directly into corruption. I'm not knowledgeable about this either but I think you're confused. It sounds like you're saying you believe it's easy with "accounting tricks" to flip the sign on net income so that a profit of $X looks like a loss of $X, more so than to make a profit of $X look like a profit of $0 (which is what your proposal incentivizes). I find this very doubtful. There's always incentive to hide profits, because they have to be shared. Then you could imagine an "incentive structure" that pays companies a bonus based on profits. Obviously, that would incentivize exaggerating profits, and people would look for accounting tricks to do that.
  - daenz 5y ago
    I'm thinking specifically of Hollywood accounting[0] 0. https://en.wikipedia.org/wiki/Hollywood_accounting https://en.wikipedia.org/wiki/Hollywood_accounting

daenz 5y ago

The point about the start-up phase is a great argument against my question. I mentioned in another post, but for this idea to not impact startups very negatively, I suppose there would have to be an exemption for new businesses. >There is already plenty of incentive without any government intervention. That's true, but there is also an incentive to hide profits to avoid taxes. I'm not very knowledgeable in this, but my understanding is that there are a number of accounting tricks that many different industries can use to disguise profits as losses, which feeds directly into corruption.

hcta 5y ago
> I'm not very knowledgeable in this, but my understanding is that there are a number of accounting tricks that many different industries can use to disguise profits as losses, which feeds directly into corruption. I'm not knowledgeable about this either but I think you're confused. It sounds like you're saying you believe it's easy with "accounting tricks" to flip the sign on net income so that a profit of $X looks like a loss of $X, more so than to make a profit of $X look like a profit of $0 (which is what your proposal incentivizes). I find this very doubtful. There's always incentive to hide profits, because they have to be shared. Then you could imagine an "incentive structure" that pays companies a bonus based on profits. Obviously, that would incentivize exaggerating profits, and people would look for accounting tricks to do that.
- daenz 5y ago
  I'm thinking specifically of Hollywood accounting[0] 0. https://en.wikipedia.org/wiki/Hollywood_accounting https://en.wikipedia.org/wiki/Hollywood_accounting