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Markup is not profit. Markup can increase while profit can decrease… I am not sure why we should care much about markup in this context.

by Scea91 4y ago

geraldhh 4y ago
you are right. thou imho the point is that this increase in markup has to go somewhere it didn't before, which in turn suggests a decrease in efficiency.
pg_1234 4y ago
Actually the profit margin might be worth looking at. Corporations typically are charged a flat percentage tax rate. One could charge corporations a progressive tax rate, just like people. You continue to tax corporations just on profits, but the higher the margin (profit/revenue) the higher tax rate. It disincentivises gouging and could even bring in more revenue for the state (less need to over tax people). It would also make it harder for the wealthy to dodge tax by billing what should be personal income via corporate shell structures as in most cases that revenue would appear as > 90% profit, attracting a very high tax.
- kgwgk 4y ago
  And it incentivises vertical integration and conglomerates to dilute the high margins and reduce the overall tax rate. Not necessarily a good outcome - even if it’s funny to see the companies of the future in Upload or Idiocracy.
  - pg_1234 4y ago
    Conglomerates are already incentivised to minimise profit to reduce overall tax rate. They do so to the limit the law allows. The only extra control they have here is the "revenue" part of profit/revenue. And the only way they can change that is by charging their customers less. Which is the objective of this entire article/thread.
    - kgwgk 4y ago
      If Microsoft and Walmart pay a fixed tax rate on earnings they don't have a tax incentive to become Walsoft: if their earnings are simply added their tax won't change. Unless I completely misunderstood your point you want Microsoft to pay a higher rate because its margin 67/205 = 33% is higher and Walmart to pay a lower rate because its margin 14/573 = 2% is lower. How much would Walsoft pay on its $81bn profit given its 10% margin? It depends on the link between margins and tax rates. However, one may imagine that it could be less than what Microsoft alone pays on its $67bn profit given its 33% margin.
      - pg_1234 3y ago
        It's up to the state what you charge at each percent. You don't need to give a discount for lower margins, you can't simply up the rate at higher margins i.e 1% above current base for every 10% margin above 0. Also the point is to disincentivise gouging, Walmart doesn't need to be given a lower rate just because Microsoft is charged more. As to corporate mergers, if the state feels it is a tax dodge it can either veto the merger, or stipulate that each part be taxed as an independent entity. Not to mention that Microsoft would probably prefer to reduce it's margins by just charging less (slashing revenues by 20% should more than halve the tax burden and likely strengthen it's market hold) or pour profits into R&D than to merge with a less profitable company. And that's before you get into the mess that a giant tech/retail merger would entail.
        kgwgk 3y ago
        > As to corporate mergers, if the state feels it is a tax dodge it can either veto the merger, or stipulate that each part be taxed as an independent entity. It's ad-hoc regulations all the way down... > And that's before you get into the mess that a giant tech/retail merger would entail. Why? That seems less problematic from a regulatory point of view than a tech-tech or retail-retail merger. If a tech-retail entity is problematic in itself maybe they should force the break up of Amazon - or at least tax each part separately, right?
- HPsquared 4y ago
  That all depends on how you count initial investment. Software for instance (and most intellectual property, which is the basis for much of our economies here in the West) has basically zero marginal cost, it's all up-front development cost. The tax rate would depend on how you amortize the up-front costs, and much accounting trickery/complexity would inevitably result.
  - pg_1234 4y ago
    Nope. You are already doing this to determine profit (for the existing tax regimes). All that is required is to take gross revenue (a more basic, simpler value that is already known to determine the current profit calculation), and divide profit/revenue. There may be an incentive to amortize more evenly, but that is typically what you should be doing (amortizing is meant to spread a one-off cost over the period of the resultant benefit) ... currently the incentive is to book costs early to postpone apparent profit and the resulting tax, which is usually both trickier and less moral/honest.
    - deleted 4y ago
      [deleted]
- FooBarBizBazz 4y ago
  This might be a good idea, but it might have an issue: Whereas people can't merge, companies can, and this might incentivize mergers. It'd have to be thought through. The tax paid is an increasing, convex function f of some measure x of "profit". I'm not sure how to normalize by company size (or if you should). First, let's say x is per-capita profit, "capita" being the number of employees. Let's also say that the tax f(x) is also per-capita. Now say there are two companies, 1 and 2, and for simplicity say they each has a single employee, the owner. They would pay a total tax f(x1) + f(x2) to the government, on a before-tax profit of x1 + x2. If those companies merged, then they'd pay a tax 2 f((x1 + x2)/2), again on a before-tax profit of x1 + x2. You can just divide both sides by 2, the total number of people involved, to get the usual statement of Jensen's inequality: (f(x1) + f(x2))/2 > f((x1 + x2)/2) Thus, with my choice of per-capita normalization, this tax scheme incentivizes mergers. Probably it also does so for other normalization schemes. (What are other reasonable denominators?) This incentive goes away if the tax isn't normalized at all. In fact, then it mostly just disincentivizes largeness. Which, on the surface, might be a good thing, given that we have too many monopolies. On the other hand, it might incentivize some kind of artificial splitting of corporate structures (not that this isn't a common thing already, what with "Double-Irish Dutch sandwiches" or whatever they're called). Possibly anything that isn't linear will be gamed in some way. And, not to sound like an apologist for the capitalists, but it's true that when they take their profits out of their companies, then they will be hit by convex taxes which are a little harder to game (though there is still marriage and other things). And that doesn't prevent companies from amassing stockpiles of cash -- representing power for their owners -- without paying out. I like this general direction, but it needs some "red-teaming".
- seanp2k2 3y ago
  All the big companies already offshore profits to a ridiculous degree to avoid the existing taxes altogether. Their effective tax rates are disgustingly low. Fix tax offshoring first and we probably wouldn’t need to do anything else.

Markup is not profit. Markup can increase while profit can decrease… I am not sure why we should care much about markup in this context.

by Scea91 4y ago

Markup is not profit. Markup can increase while profit can decrease… I am not sure why we should care much about markup in this context.

geraldhh 4y ago

you are right. thou imho the point is that this increase in markup has to go somewhere it didn't before, which in turn suggests a decrease in efficiency.

pg_1234 4y ago

Actually the profit margin might be worth looking at. Corporations typically are charged a flat percentage tax rate. One could charge corporations a progressive tax rate, just like people. You continue to tax corporations just on profits, but the higher the margin (profit/revenue) the higher tax rate. It disincentivises gouging and could even bring in more revenue for the state (less need to over tax people). It would also make it harder for the wealthy to dodge tax by billing what should be personal income via corporate shell structures as in most cases that revenue would appear as > 90% profit, attracting a very high tax.

kgwgk 4y ago
And it incentivises vertical integration and conglomerates to dilute the high margins and reduce the overall tax rate. Not necessarily a good outcome - even if it’s funny to see the companies of the future in Upload or Idiocracy.
- pg_1234 4y ago
  Conglomerates are already incentivised to minimise profit to reduce overall tax rate. They do so to the limit the law allows. The only extra control they have here is the "revenue" part of profit/revenue. And the only way they can change that is by charging their customers less. Which is the objective of this entire article/thread.
  - kgwgk 4y ago
    If Microsoft and Walmart pay a fixed tax rate on earnings they don't have a tax incentive to become Walsoft: if their earnings are simply added their tax won't change. Unless I completely misunderstood your point you want Microsoft to pay a higher rate because its margin 67/205 = 33% is higher and Walmart to pay a lower rate because its margin 14/573 = 2% is lower. How much would Walsoft pay on its $81bn profit given its 10% margin? It depends on the link between margins and tax rates. However, one may imagine that it could be less than what Microsoft alone pays on its $67bn profit given its 33% margin.
    - pg_1234 3y ago
      It's up to the state what you charge at each percent. You don't need to give a discount for lower margins, you can't simply up the rate at higher margins i.e 1% above current base for every 10% margin above 0. Also the point is to disincentivise gouging, Walmart doesn't need to be given a lower rate just because Microsoft is charged more. As to corporate mergers, if the state feels it is a tax dodge it can either veto the merger, or stipulate that each part be taxed as an independent entity. Not to mention that Microsoft would probably prefer to reduce it's margins by just charging less (slashing revenues by 20% should more than halve the tax burden and likely strengthen it's market hold) or pour profits into R&D than to merge with a less profitable company. And that's before you get into the mess that a giant tech/retail merger would entail.
      - kgwgk 3y ago
        > As to corporate mergers, if the state feels it is a tax dodge it can either veto the merger, or stipulate that each part be taxed as an independent entity. It's ad-hoc regulations all the way down... > And that's before you get into the mess that a giant tech/retail merger would entail. Why? That seems less problematic from a regulatory point of view than a tech-tech or retail-retail merger. If a tech-retail entity is problematic in itself maybe they should force the break up of Amazon - or at least tax each part separately, right?
HPsquared 4y ago
That all depends on how you count initial investment. Software for instance (and most intellectual property, which is the basis for much of our economies here in the West) has basically zero marginal cost, it's all up-front development cost. The tax rate would depend on how you amortize the up-front costs, and much accounting trickery/complexity would inevitably result.
- pg_1234 4y ago
  Nope. You are already doing this to determine profit (for the existing tax regimes). All that is required is to take gross revenue (a more basic, simpler value that is already known to determine the current profit calculation), and divide profit/revenue. There may be an incentive to amortize more evenly, but that is typically what you should be doing (amortizing is meant to spread a one-off cost over the period of the resultant benefit) ... currently the incentive is to book costs early to postpone apparent profit and the resulting tax, which is usually both trickier and less moral/honest.
  - deleted 4y ago
    [deleted]
FooBarBizBazz 4y ago
This might be a good idea, but it might have an issue: Whereas people can't merge, companies can, and this might incentivize mergers. It'd have to be thought through. The tax paid is an increasing, convex function f of some measure x of "profit". I'm not sure how to normalize by company size (or if you should). First, let's say x is per-capita profit, "capita" being the number of employees. Let's also say that the tax f(x) is also per-capita. Now say there are two companies, 1 and 2, and for simplicity say they each has a single employee, the owner. They would pay a total tax f(x1) + f(x2) to the government, on a before-tax profit of x1 + x2. If those companies merged, then they'd pay a tax 2 f((x1 + x2)/2), again on a before-tax profit of x1 + x2. You can just divide both sides by 2, the total number of people involved, to get the usual statement of Jensen's inequality: (f(x1) + f(x2))/2 > f((x1 + x2)/2) Thus, with my choice of per-capita normalization, this tax scheme incentivizes mergers. Probably it also does so for other normalization schemes. (What are other reasonable denominators?) This incentive goes away if the tax isn't normalized at all. In fact, then it mostly just disincentivizes largeness. Which, on the surface, might be a good thing, given that we have too many monopolies. On the other hand, it might incentivize some kind of artificial splitting of corporate structures (not that this isn't a common thing already, what with "Double-Irish Dutch sandwiches" or whatever they're called). Possibly anything that isn't linear will be gamed in some way. And, not to sound like an apologist for the capitalists, but it's true that when they take their profits out of their companies, then they will be hit by convex taxes which are a little harder to game (though there is still marriage and other things). And that doesn't prevent companies from amassing stockpiles of cash -- representing power for their owners -- without paying out. I like this general direction, but it needs some "red-teaming".
seanp2k2 3y ago
All the big companies already offshore profits to a ridiculous degree to avoid the existing taxes altogether. Their effective tax rates are disgustingly low. Fix tax offshoring first and we probably wouldn’t need to do anything else.