Based on this thread on corporate taxation, it is clear that I think corporations should pay their taxes on revenue. In other words, treat tax like a cost of good sold and if your revenue is bigger than your expenses - congratulations. Note that to avoid double taxation, payroll would be deducted from revenue for tax purposes.
Why not? That way, companies that make enough $ to buy naming rights to stadium rights will pay their fair share, kind of like how it works (or is supposed to work) for individual taxes.
What about other things that companies have to pay for that are taxed. Phone lines, buildings, anything at all that they purchase. Does that count as double taxation?
Mainly, because we want businesses to be able to grow. Besides, out of what $$ would they pay these taxes if expenses = income? Are you proposing that business should borrow money to pay taxes?
You are neglecting important details about the difference between corporate and individual income tax:
People who make below a certain amount of money do not pay taxes. In fact, many get money from the government thru the Earned Income Tax Credit.
Personal income taxes are graduated so that if you don’t make much money, you don’t pay much tax. Corporate taxes are fixed at 35%.
Everyone gets a deduction, whether it’s the standard deduction or whether the person itemizes deductions. When you itemize deductions, you can write off huge amounts of income, just like corporations!
AMT*. Just as for individuals, there is an AMT for corporations. But just like some individuals, it’s possible to get around this for corporations.
There is a good argument against taxing corporations at all, since they generally are just going to pass that cost on to the consumer. But if we are going to tax them, and you think the current system is “unfair”, the best thing to do would be to get rid of many of the deductions and shelters. Taxing them on income would stifle growth.
Groceries stores, for instance, run on razor thin margins. If you tax them on revenue, the cost of food would soar. I don’t think payrol costs are very significant.
SaintCad, I take it that you have never run a business. Voyager, I heard the same thing, but I wonder why Albertson’s seems to be twice as expensive as my neighborhood ethnic market. I’ve only set foot in it to buy beer about 3 times since the strike.
I’m here in Park City, and the Park City Market (nee Dan’s foods) and the Mexican market are a ton cheaper than the Albertson’s. Thank God for competition.
The biggest problem with taxing on revenue is full taxation on multiple levels of product production, warehousing and delivery.
Take something like grain that goes from farmer to a grain concern, who ships it to a mill, who ships it to a bread company who ships the bread to a wholesaler, who ships it to a grocery store, that grain is taxed at nearly full value 5 times. Compare that with the grocery store that owns a bakery and a grain mill and hires their own farmers, that grain is taxed only once.
When you tax on profit, it doesn’t matter how vertically integrated a company is, there is always the same amount of profit to go around, though it may be broken up into 10 pieces instead of 1. Revenue is counted over and over again, profit only once.
The other thing to remember is that corporations don’t “really” pay taxes, their customers pay taxes. Sales tax is pretty much exactly equivalent to your revenue tax. Tack on 6% to the price of everything sold. Gasoline tax, cigarette tax, liquor tax, it’s just added flat out to the price of the product. It’s not as though the companies are bearing the weight of this tax and funding anything on their own, the tax is funneled so directly to the consumer that it barely registers on the corporate books.
Sales tax, though, only gets applied at the final consumer level, so that you don’t get this multiple taxation problem affecting how business gets done. The worst tax in the world is the one that forces companies to change their strategies to less efficient ones.
Darryl, I don’t know the exact financial situation your local Mexican market is in, but chances are fair that they just might have far fewer expenses that have to be covered than Albertson’s does.
Albertson’s employees may all be in a Union, with salary minimums, retirement, medical plans. Albertson’s may lease the building they are in, while your small shop owner may possibly own it outright. Albertson’s may have to pay higher taxes for zoning issues, due to the greater delivery truck traffic and trash removal, water/sewer use, and so forth…
Just off the top of my head.
(I live next to a family owned liquor store. The only employees are all related to each other. Not medical or retirement plans are really required there, since the owner, Dad, is gonna pay for whatever medical dental expenses come up out of his own pocket anyway…)
Interesting. 99 Ranch up here in the Bay Area, a (large) Asian market, is cheaper than Albertsons in things they sell a lot of, like fresh seafood, but more expensive in paper goods, normal frozen foods, and the like, which they don’t sell a lot of. How big is the ethnic market? Could it be family owned and run?
I always thought that corporate taxation is by nature double taxation.
Let me see if I remember it correctly. We’ll keep it simple. Let’s say I own store and at the end of the year I have a profit of $100,000. Let’s also assume a 50% tax rate to keep it simple.
Option 1. I pay myself a salary of $100,000. The company makes no profit for the year. I pay $50,000 in taxes and keep $50,000.
Option 2. I pay myself no salary. The company pays $50,000 in taxes and passes on $50,000 to me, the owner, as a dividend. I then pay $25,000 in taxes and keep $25,000.
Of course this is a dopey simple example, but I think that’s what happens if we tax both the corporation and the person who owns the stock.
I’d hate to be, for example, Ford, who is losing tons of money, but still has pretty high revenues, and would therefore be driven even closer to the brink of bankruptcy.
I’m still trying to figure out why you think it’s bad to buy naming rights for a stadium, or why a company that does this is not paying its ‘fair share’.
Do you think companies just do this for fun? Do you think they sit around thinking about what useless things to blow their money on, and someone goes, “I know! Let’s piss a few million away by putting our name on a stadium! That will be good for a laugh.”
As for taxing revenue instead of profit, that simply a ridiculous notion. Others have already explained why.
Unless the USA is very different from the UK, it works like this :-
Shareholders pay tax on distributed profits
Corporations pay tax on retained profits
I’m not convinced that it is a particularly good idea having corporation tax at all, as it is taxing money that would otherwise be re-invested and gives corporations a strong incentive to juggle around with leasing, capital allowances and offshoreing.
Obviously, if the corporation reinvests the money in more capacity, it’s not taxed.
In general, however, there’s some logic to what you’re saying. Taxing profits essentially amounts to taxing a business for the sin of having money in the bank overnight the day before the new fiscal year begins. Businesses generally try NOT to have a huge amount of money just sitting uselessly in the bank; sooner or later the money’s either doled out to shareholders (and is taxed) to employees (and is taxed) or is spent on the means of production (and is useful to society as a whole.)
On the other hand, not taxing profits would have warping effects on behaviour; tax laws always do. There’d be an intense motivation to keep all money on the company books rather than paying it to individuals. You’d see an explosion of one-man “corporations” used as fronts for executives, managers, and eventually even line employees, which the parents business would pay salaries into in an effort to avoid the tax hit of personal pay.
Any tax creates warping effects and perverse incentives; some might be worse than others but you can’t avoid there being some effect. If you want to reduce tax distortion you need to reduce TAXES, not just move them around.
As I said in the GQ thread:It is fair. In theory, Business expenses increase a Business’s income. More Advertising means more sales, more CoGS means more merchandise to sell, more Payroll means more dudes out there selling, and etc.
Exactly why your business expeneses are also deductable. If you are a Commissioned Salesman, more business meals means more sales, more milage means more sales and so forth. Education expeneses are deductable as they lead to more income.
But your personal expeneses do not bring you in more income.
But as many here have said- you can’t calculate an Income tax on Gross Income. Many business- even whole types of businesses would go belly up, while other would prosper. Your grocery bill would rise by 25% or so, for example.
Yes, but then again individuals get double taxed on the exact same things so why not corporations.
Let’s say for some bizarre reason my payroll manager doesn’t take my taxes out. My expenses for the year = my pay. What would I as an individual be expected to do to pay my taxes?
Believe me, I understand that most small corporations tie expenses directly into revenue and the argument of razor-thin margins and need for growth is completely understandable. However, I question these large corporations that use accounting practices and huge expendetures to run paper losses with real profit just to avoid paying taxes. How many of you bought a 3Com product because they sponsor the former Candlestick Park? How much did this advertising cost? If 3Com is worrying about razor-thin margins then that company is very poorly run indeed.
What about the added cost to consumers? Obviously, the tax code would need to be changed. I currently pay 30% of my luxurious teacher’s pay for taxes. I would be paying a lot less if corporations were paying a lot more. Let’s assume a flat tax of 10% for everyone. This would add slightly more than 10% to the price for the company to keep the same margin. So a 30% bracket making $5000 a month. Assuming like most Americans I live month to month so lets say $3000 in expenses giving a disposable income of $500. Under the new system, I pay 10% in taxes and cost rise 12% so now I pay $500 in taxes and pay $3360 giving a disposable income of $1140. :eek:
Now we could argue flat-taxes, tax-rates, credits for low income/revenue entities/ double taxation, simplifying accounting practices for tax purposes, etc. but I still contend that charging companies on revenue is a fairer system and workable in today’s economy. If a company can’t handle it, then maybe they need a new business model.
As long as you’re pulling numbers out of a hat, why don’t you just assume a flat tax of -100% for everybody? Double everybody’s salary! Whee, ponies all around!
Because it doesn’t work that way. It’s utterly wrong, in real-value terms, to say in general that “I would be paying a lot less if corporations were paying a lot more.” If corporations are paying more, they are passing all of those costs onto you. This isn’t some evil corporate thing, it’s plain economics. Corporations don’t have some magical reservoir of wealth that they can dip into to pay taxes; they will pay increased taxes by either (1) decreasing salaries, dividends, etc., or (2) increasing prices. (1) means that you, the worker/investor, get less money to spend; (2) means that your money is worth less.
Taxes take produced value out of the general economy for use by government. Whether paid by individuals or by businesses, that value is no longer present in the economy for you to use. Now maybe you’re paid by the government, and so you’re arguing selfishly that the taxes will fall disproportionately on the private sector, thus lowering your effective tax burden. This may be true in the short run, but of course increasing the effective salary of government employees will require higher effective taxes and will also result in more competition for your job.
But it doesn’t sound like that’s your argument. You seem to think that the business sector is a segment of the economy somehow completely divorced from whatever you do with your money, which is almost certainly wrong.
I still haven’t seen any evidence that you’ve thought about this at all. How do you respond to the example of kanicbird, that different goods have vastly different profit margins? Do you actually want to penalize the poor by increasing their grocery bills so that you can buy that yacht you’ve always wanted? How do you respond to Cheesesteak, who points out that this will tend to create vertically-integrated businesses that inhibit competition? Why do you propose to eliminate one instance of double taxation (payroll) while adding dozens of others (all other costs of goods and services used by any company in making a product)? How about the whole problem mentioned above, and also in the GQ thread, that taxing business is fundamentally no different from taxing people?
Seriously, I read your posts and they seem utterly unresponsive to all of the problems people have brought up. Do you have some actual reasons for this contention, or is it just intuitively obvious to you that taxing businesses will make everything right with the world?
You CAN deduct work-related expenses. Your ‘profit’ is the money you use for your own personal living. If you are self-employed, you can deduct tools, rent on space (or a percentage of a home office), auto expenses, work-related clothing, etc.
It seems to me that the root problem here is that you hate big companies, you don’t understand big companies, and therefore you think that somehow big companies must pay more. You seem to think that they all play shenanigans with accounting to avoid paying tax. You seem to think that sponsoring Candlestick Park is somehow illegitimate, or that advertising is bad, or something.
Companies do spend money on name recognition. They spend money on good will. They spend money on advertising. They do these things because they have a demonstrable effect on sales. If they didn’t, companies wouldn’t do them.
If a company sponsors Candlestick park, they do it because A) their name appears on a big sign that thousands of people drive by every day. B) They get their name included in television broadcasts for free. C) People think more of the company when they see it sponsoring their favorite baseball team. D) whatever other specific reasons the company has.
This is not a bad thing. In fact, that there is a mechanism that causes companies to spend money to support public infrastructure, give to charity, or in other ways make people feel better about them should be seen as a good thing.
No you wouldn’t. Your taxes would just be more hidden. In fact, your proposal is regressive because taxes now get levied when you consume things. This means that poor people, who currently pay little or no tax, would tax a huge tax hit. Unless you start coming up with loopholes for products that poor people use… But loopholes in the tax system are precisely what cause corporations to play games wiith the books to lower their taxes in the first place.
Really? Let’s look at the supply chain. Let’s say I sell bicycles. I buy the wheels from one company, the frame from another, the handlebars from a third, etc. Let’s stop and consider a wheel. Let’s say a wheel costs $10 from the wheel manufacturer. So now have to pay $11 for it to cover the tax bite. Then I have to charge an extra 10% on the bike to cover my tax bite. Suddenly the $10 wheel is $12.10. But it gets worse than that - because the wheel is made up of spokes, a rim, and rubber. The spokes are made from steel. The steel is made in a factory that manufactuers it from ore. The ore is purchased from a mining company and shipped in by a shipping company.
At each step along the way, a 10% tax is added. Let’s say that originally the ore for the steel cost 1, the shipping cost .50, the spokes then cost $2. With your tax, the ore cost 1.10. The shipping cost .55. So the spoke manufacturer sees his raw material cost go from $1.50 to $1.65. So he passes on that 15 cents, so the cost of the spoke is now $2.15. Plus 10% tax. So now the spoke is $2.37. So now the wheel manufacturer has to charge an additional 37 cents to cover the increase in spoke costs. Do the same thing for all the other parts, and suddenly the wheel’s cost goes from $10 to $13. Add 10% tax onto THAT. Now the bicycle builder is paying almost $15 for his wheels instead of $10.
Hopefully you can see the result - if you add a 10% tax to every point in the distribution chain, the tax bite at the end equals 10% X the number of intermediate manufacturing steps.
This distorts the market in favor of companies that make everything in-house. This in turn would push us away from specialization and make the economy MUCH less efficient. The result would be an economic disaster.
Or maybe we’ll wind up with a destroyed economy, lower income for everyone, and breadlines. But hey, those evil companies will PAY.
Wow!! I love how everybody distorts (or more correctly assumes) what my motivations are in this question. Here’s the bottom line: in this country, money is getting channeled from individuals to companies. I get $100 “from whatever sources derived” and I’ll pay around $30 on taxes. I give that $30 to a company and it ends up not getting taxed because that same company spends the $100 on something else to another company and so on.
But won’t that $100 get taxed somehow? Probably not, because very large corporations use accounting practices to minimize their taxes running paper losses with real profit. I’ve been accused of not understanding all this despite having a year of accounting and a year of economics in college. As for the stadium naming rights issue, I was using that as an example of a bona-fide advertising expense that is at heart questionable. Is spending $10,000,000 to have a stadium named after your company HONESTLY expected to generate $10,000,000 more in revenue or is it a ploy so that retained earnings is 10 million less at the end of the fiscal year?
Wouldn’t taxing revenue hurt small business. Yes it will, but that’s the problem isn’t it. Small companies do work on razor-thin margins and are interested in growth. So fine, I’ll concede that taxation on revenues may not be practical IF you can come up with a system that will tax a company on its revenue minus cost of goods sold and cost directly seen as a reinvestment in the corporation.
