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Very different structurally. Tax brackets almost always apply _marginally_. The higher tax bracket only applies to income made above the higher bracket level.
by mgraczyk 4y ago
Very different structurally. Tax brackets almost always apply _marginally_. The higher tax bracket only applies to income made above the higher bracket level.
Behavior that applies marginally avoids most "discontinuity" and distortions in incentives that come along with them. For example, people whose income increases from $99,999 to $100,001 are only incentivized by a 100,000 bracket to hide the marginal $2, rather than suddenly needing to hide all of their income.
EU regulations that apply to companies above a certain size are not like this. Once you pass a certain level, it applies to all the business below the level. That already has a distorting incentive on growth and incentivizes companies to stay small. Maybe that's something you want in this case, but it's almost always an unintended consequence.
- laumars 4y agoThere are other taxes that don’t function that way though. Like capital gains and stamp duty. Those taxes do frequently get gamed.
- mgraczyk 4y agoAnd capital gains taxes in particular massively distort incentives. But in that case it's intentional
- dragonwriter 4y agoUS long term capital gains do work that way: they have marginal brackets just like regular income taxes. (Your starting bracket is calculated based on your regular income, rather than from 0 the way regular income tax brackets work, but otherwise they work the same.) And short term cap gains are just regular income.
- mgraczyk 4y agoI assumed the discontinuity the commenter was referring to here is the >=1 year cutoff for long term capital gains. After one year, all of the gains from the previous year are instantly converted to a lower tax bracket. You're not required to reassess the cost basis at the 1 year mark or anything like that, so there's a huge (intentional) incentive to hold capital for over 1 year.
- laumars 4y agoThe US isn’t in the EU though ;) I can’t speak for all member states but I do know some have a threshold and from that point you have to pay a percentage of the total amount. So some investment firms will game your portfolio to bring you in just enough to fly under that threshold. The U.K., while not technically an EU member any more (and I’m still bitter about that), also operates this way. Stamp duty is a U.K. tax placed on purchases of property. It’s free for properties under a threshold but the moment you go over it you have to pay a percentage of the total price of your house. Stamp duty does have incremental percentages but it isn’t calculated like income tax. Thus you’ll often see a lot of properties for slightly under each increment and then a jump in prices after. Some sellers even go as far as to put the house on for £x (under that threshold) but charge extra for additional purchases outside of the property (like a gazebo, hot tub, etc). I’ve even seen some buyers/sellers ask for private bank transfers for the additional extra. Which is outright fraud. But it does still happen.
- dragonwriter 4y ago> I can’t speak for all member states but I do know some have a threshold and from that point you have to pay a percentage of the total amount So, exactly the same thing with a bottom bracket marginal rate of 0%?
- laumars 4y agoNo. Income tax you only pay the percentage of the bracket you’re in. So (made up numbers here) if you earn 100k and the bracket changes every 40k then the first 40k will be taxed at the first bracket. The second 40k at the second bracket, and the remaining 20k at the third bracket. This means there’s no incentive to game income tax because if you narrowly slide into the next bracket then you only pay the higher tax rate for that margin you’ve gone over. Whereas the capital gains and stamp duty go from (again made up numbers) 0% on 15k to 15% on anything above 15k. So if you had 15k you get taxed nothing. But if you get 15,001 then you pay 15% on ~15k (just by gaining an extra £1) rather than 15% on £1 (like how income tax works). Thus that extra £1 actually ends up costing you _a lot_ more in tax than it’s face value. And thus why people game such taxes to slide under the threshold in ways that doesn’t make sense with income tax.
- bee_rider 4y agoI wonder if there's any way these sorts of regulations could be applied marginally. Perhaps if we formalized legal code as code, we could apply automatic differentiation (just kidding... I think) Continuous laws do seem more fair in general. But it seems more important (to me, at least) that this sort of fairness is applied to individuals. For companies... they aren't people, we don't need to worry about making their lives confusing or miserable. They have legal departments to sort this sort of stuff out, they'll respond rationally to incentives, it is just a business decision.
- robertlagrant 4y agoThey aren't people, but every additional thing they have to contend with affects only people. The abstract company is just a common understanding of what people are doing and what group of people they are dealing with when they buy a product.
- deleted 4y ago[deleted]
- rkagerer 4y agoMake the fine 10% of the marginal revenue?
- thayne 4y ago> Maybe that's something you want in this case I think it is.
- mgraczyk 4y agoBut keep in mind that this is at least partially contributing to the status quo, where there are very few large European tech companies and even fewer young ones.
- manholio 4y agoThe amount of market power Apple has left even after such extensive regulation still far surpasses what a small company can hope to get by building even the most restricted walled garden. So, if there were any medium companies just below the regulation threshold, the discontinuity argument would make sense. But there isn't, and there won't be, precisely because of anti-competitive behavior of the giants, they can sustain walled gardens precisely because they are giants.