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It’s weird that individuals are taxed on revenue but corporations are (usually?) taxed on profit.

Diggsey 4y ago
Not really. If you imagine a supply chain with raw materials at one end and finished products at the other, if every step along the chain is taxed even a small amount on their total revenue, the cumulative effect would completely dwarf the value of the final product. To solve this, in most countries, companies are taxed VAT instead, so intead of taxing the total value of product at every step, you are only taxing the value the company adds in the process. Effectively the government is taxing the total value of the product at a fixed rate once but that tax is being split among the companies which helped supply that product proportionally to the value added by each company.
- 2Gkashmiri 4y ago
  i would explain this in this way. there are 2 taxes. direct and indirect. direct taxes are paid by recipient themselves. (income tax is an example. a person/corp pays a tax on "net income after deductions" at whatever percentage) indirect taxes are "collected" by the taxpayer but the person who ultimately buys a product pays it as the cost of product is inclusive of this indirect tax. VAT or GST or whatever. a business who is registered for indirect tax collects it from the customer and pays it to government. this indirect tax is not shown in their profit and loss account because for a business, they are just an intermediary. direct tax OTOH, is shown in p&l because it there is PBT>tax>PAT.
- isitmadeofglass 4y ago
  > Not really. If you imagine a supply chain with raw materials at one end and finished products at the other, if every step along the chain is taxed even a small amount on their total revenue, the cumulative effect would completely dwarf the value of the final product. Yes, and that’s why it’s weird that the most important resource for most big corporations is taxed like that. All the human labor gets taxed based on revenue and not profit, unlike all the other raw materials.
hollerith 4y ago
How would you define how much profit an individual made last year?
- ErikVandeWater 4y ago
  Income minus basic living expenses would be one way.
  - prawn 4y ago
    In Australia, there is a tax-free threshold of $18,200. Not sure about other countries.
    - pardon_me 4y ago
      IMO when UBI becomes a global standard country by country the tax-free threshold should be the UBI amount.
anonuser123456 4y ago
Individuals (in the US) have standard deduction, which approximates the minimum value to sustain one's person. It's a bad approximation, but it is what it is. It's assumed that corporations spend as little as possible on operations. Individuals obviously don't. Whereas a corporation wouldn't rent employees 500 sqft / person, individuals regularly rent/purchase that density for themselves. Similarly, while a corporation might buy a Camry and run in into the ground, some individuals will buy a new BMW every 3 years. Corporations also don't have a motive to exist beyond profits. If you tax revenue and make profits untenable, then corporations simply will not exist. Individuals on the other hand try not to die.
- cwkoss 4y ago
  With progressive taxation of corporations, we could disincentivize the existence of trillion dollar corporations, opening up the market for thousands more million to billion dollar businesses to exist. Regulatory capture would be much harder to coordinate which would lead to much less corruption. Greater marketplace competition would lead to better quality services and products for consumers. The curve used to shape the tax rate as company size grows could be tuned to mitigate many of the potential negative side effects of this.
  - KMag 4y ago
    > With progressive taxation of corporations, we could disincentivize the existence of trillion dollar corporations In my misspent youth, I worked on a 10% project that helped consolidate and free-up racks of servers so that they could be physically forklifted between space leased/owned by different subsidiaries of one of the world's 5 largest corporations (by market cap). I heard through the grapevine that the main reason for this arrangement was so that these subsidiaries qualified for small business discounts on electricity, and they wanted to keep physical separation in different parts of the datacenters to bolster the case that the various subsidiaries were in fact separate entities. When you adjust taxes and rates based on company size (or things correlated with company size), you need to be careful about subsidiary loopholes.
  - dannyw 4y ago

Not really. If you imagine a supply chain with raw materials at one end and finished products at the other, if every step along the chain is taxed even a small amount on their total revenue, the cumulative effect would completely dwarf the value of the final product. To solve this, in most countries, companies are taxed VAT instead, so intead of taxing the total value of product at every step, you are only taxing the value the company adds in the process. Effectively the government is taxing the total value of the product at a fixed rate once but that tax is being split among the companies which helped supply that product proportionally to the value added by each company.

2Gkashmiri 4y ago
i would explain this in this way. there are 2 taxes. direct and indirect. direct taxes are paid by recipient themselves. (income tax is an example. a person/corp pays a tax on "net income after deductions" at whatever percentage) indirect taxes are "collected" by the taxpayer but the person who ultimately buys a product pays it as the cost of product is inclusive of this indirect tax. VAT or GST or whatever. a business who is registered for indirect tax collects it from the customer and pays it to government. this indirect tax is not shown in their profit and loss account because for a business, they are just an intermediary. direct tax OTOH, is shown in p&l because it there is PBT>tax>PAT.
isitmadeofglass 4y ago
> Not really. If you imagine a supply chain with raw materials at one end and finished products at the other, if every step along the chain is taxed even a small amount on their total revenue, the cumulative effect would completely dwarf the value of the final product. Yes, and that’s why it’s weird that the most important resource for most big corporations is taxed like that. All the human labor gets taxed based on revenue and not profit, unlike all the other raw materials.

hollerith 4y ago

How would you define how much profit an individual made last year?

ErikVandeWater 4y ago
Income minus basic living expenses would be one way.
- prawn 4y ago
  In Australia, there is a tax-free threshold of $18,200. Not sure about other countries.
  - pardon_me 4y ago
    IMO when UBI becomes a global standard country by country the tax-free threshold should be the UBI amount.

anonuser123456 4y ago

Individuals (in the US) have standard deduction, which approximates the minimum value to sustain one's person. It's a bad approximation, but it is what it is. It's assumed that corporations spend as little as possible on operations. Individuals obviously don't. Whereas a corporation wouldn't rent employees 500 sqft / person, individuals regularly rent/purchase that density for themselves. Similarly, while a corporation might buy a Camry and run in into the ground, some individuals will buy a new BMW every 3 years. Corporations also don't have a motive to exist beyond profits. If you tax revenue and make profits untenable, then corporations simply will not exist. Individuals on the other hand try not to die.

cwkoss 4y ago
With progressive taxation of corporations, we could disincentivize the existence of trillion dollar corporations, opening up the market for thousands more million to billion dollar businesses to exist. Regulatory capture would be much harder to coordinate which would lead to much less corruption. Greater marketplace competition would lead to better quality services and products for consumers. The curve used to shape the tax rate as company size grows could be tuned to mitigate many of the potential negative side effects of this.
- KMag 4y ago
  > With progressive taxation of corporations, we could disincentivize the existence of trillion dollar corporations In my misspent youth, I worked on a 10% project that helped consolidate and free-up racks of servers so that they could be physically forklifted between space leased/owned by different subsidiaries of one of the world's 5 largest corporations (by market cap). I heard through the grapevine that the main reason for this arrangement was so that these subsidiaries qualified for small business discounts on electricity, and they wanted to keep physical separation in different parts of the datacenters to bolster the case that the various subsidiaries were in fact separate entities. When you adjust taxes and rates based on company size (or things correlated with company size), you need to be careful about subsidiary loopholes.
- dannyw 4y ago