Uh… isn’t that what we have?
Revenues-(COGS+depreciation*+interest*+taxes**)=Net Income
*Depreciation and interest is accured because of good-faith decisions regarding corporate investments in new processes and capital equipment.
**And I assume, even though you don’t mention it, that a company shouldn’t be taxed on taxes paid… right?
[QUOTE=SaintCad]
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?
[/QUOTE]
What conceivable benefit could a corporation derive by paying $10 million for something that isn’t worth anything? So they pay less tax; they’re out ten million bucks! The taxes on $10 million would have been a lot less than $10 million, unless you’re talking about a company in PsychoLand where the tax rate’s above a hundred percent.
It kind of sounds like you are talking about a Value Added Tax.
[QUOTE=SaintCad]
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.
[/QUOTE]
You know who works for companies? Individuals. When you take money away from companies, they can’t afford to hire as many people or pay them as much.
[QUOTE=SaintCad]
I’ve been accused of not understanding all this despite having a year of accounting and a year of economics in college.
[/QUOTE]
Having taken a course does not = understanding.
[QUOTE=SaintCad]
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?
QUOTE]
This has already been covered but I want make sure I understand. Do you think that a business is going to end up with more money at the end of the yeard by a)spending 10 million for no apparent reason or b) paying a tax that is a fraction of that 10 million dollars?
Slee
[QUOTE=SaintCad]
I’ve been accused of not understanding all this despite having a year of accounting and a year of economics in college.
[/QUOTE]
I say this in all honesty and with a completely straight face…you should ask for a refund. Its clear you DON’T understand what you are debating here. A good indication to you should be that there is a pretty wide spectrum of posters in this thread…and none of them are taking up your side in this debate. If nothing else, it should tell you something about your reasoning and perhaps your grasp of the issues involved in your proposal.
I don’t really have anything else to add to the debate that hasn’t been said by other posters up thread. You might try addressing their specific points directly if you want to continue the debate.
-XT
[QUOTE=RickJay]
Obviously, if the corporation reinvests the money in more capacity, it’s not taxed.
[/QUOTE]
I would check that out RickJay, check it out very carefully indeed.
If the USA is anything like the UK then you are in for a nasty surprize.
[QUOTE=RickJay]
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.)
[/QUOTE]
Businesses behaviour vary dramatically, some try to pull profts forward, some try to defer them. Incidentally they are not taxed on ‘money in the bank’, they are taxed on booked profits calculated according to the rules of the Revenue. They can get a whopping tax bill, be thriving, yet have pennies ‘in the bank’.
[QUOTE=RickJay]
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.
[/QUOTE]
You already have that in the UK, although after IR35 it is not that easy for an employee to get paid as if they were a corporation. Even ‘Red’ Ken Livingstone the Mayor of London has a ‘service company’.
[QUOTE=RickJay]
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.
[/QUOTE]
While I agree that any tax creates warping effects, moving them around can reduce or increase the warp. Reducing taxes can reduce the warp, as tax avoidance (not evasion) can be complicated and expensive.
[QUOTE=FRDE]
I would check that out RickJay, check it out very carefully indeed.
If the USA is anything like the UK then you are in for a nasty surprize.
Yes, I understand depreciation and how profits are calculated. I’m not trying to repeat the entire tax code here.
You seem to think that these “paper losses” are real, permanent losses. They’re not. They are accounting fictions. Accounting can’t make money appear and disappear, by it’s very nature, it can only shift money from one period to another, unless you’re talking accounting fraud. If some company engineers a paper loss, they will shift revenue to the next period, or bring future cost into this period, that’s all they can do. Every dollar that comes and goes has to be dealt with, either reported this period or deferred to a future period. If more money comes than goes, you can’t legally keep deferring more and more to the future.
[QUOTE=Cheesesteak]
You seem to think that these “paper losses” are real, permanent losses. They’re not. They are accounting fictions. Accounting can’t make money appear and disappear, by it’s very nature, it can only shift money from one period to another, unless you’re talking accounting fraud. If some company engineers a paper loss, they will shift revenue to the next period, or bring future cost into this period, that’s all they can do. Every dollar that comes and goes has to be dealt with, either reported this period or deferred to a future period. If more money comes than goes, you can’t legally keep deferring more and more to the future.
[/QUOTE]
And this was exactly my point. I called them paper losses with real profit. A company can shift money to avoid having a paper profit (at least for a while) and can thus avoid paying taxes.
So, you want to turn the tax system on it’s head because companies can shift their tax burden a few quarters? If you can prove that it’s a big problem, then you’ll get people to listen, but I don’t think you’ll find this is really an issue if you research it.
Corporations, especially big corporations, are under enormous pressure to show profit and revenue grown every quarter. Very strict rules are in place to ensure companies don’t show phony revenue or fail to recognize revenue over time, the way they’re supposed to. There isn’t a whole lot of worry that companies are going to fake low profits, the worry is falsely high profits.
Yes, you’ll find the occasional company that has zero profit, you’ll also find some with huge profits (Exxon) and some with huge losses (Ford).
[QUOTE=SaintCad]
And this was exactly my point. I called them paper losses with real profit. A company can shift money to avoid having a paper profit (at least for a while) and can thus avoid paying taxes.
[/QUOTE]
And most of this tax shifting is absolutely correct. For example, if this wasn’t allowed, consider the case of a company that orders $1 million in inventory in 1996, then sells it for 1.2 million in 1997. If they can’t carry losses forward and such, they wind up with a 1 million loss in 1996, and a 1.2 million profit in 1997. If you tax them on that 1.2 million profit at 25%, they lose ALL their profit, and then some. But if they can carry forward their 1 million cost from 1996, then the true profit picture emerges, and they pay the correct amount of tax.
The same thing occurs when companies undertake improvement projects or other capital expenditures. If they can’t make some adjustments and spread the cost out over time, then it’s hugely distorting to their tax situation. They would wind up doing things like putting off capital improvements until they have a year of big revenue so they can offset it, or whatever.
A lot of corporate tax law is designed so that the taxes have a minimal impact on daily company operations. You call them loopholes for avoiding tax, but I would call them intentional aspects of the tax code that allow companies to function more efficiently.
And of course there are true loopholes - usually put there by politicians as a form of policy. If a government passes a tax break for ethanol production, is it a ‘loophole’ if a company moves some of their assets into ethanol production to secure the tax break? Almost all these tax ‘loopholes’ have constituencies behind them that think they are a good thing. Tax breaks for local hiring, tax breaks for upgrading to cleaner emissions technologies in factories, etc.
Sometimes all these tax breaks and accounting ‘tricks’ can lead to a company not paying tax in one year. But that’s only because they’ve either done what the government wanted them to do with the tax break in the first place, or they’ve carried losses forward from previous years or something like that.
And if you can’t carry forward losses, imagine a situation where you make 1 million in profit in year one, and lose 1 million in year two. Net result over two years - no profit. Should a company have to pay tax on the million in profit? If so, why?
Often, when some demagogue screams about a corporation making ‘obscene’ profits yet paying no tax, this is why.
[QUOTE=SaintCad]
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?
.
[/QUOTE]
As pointed out by others, the company is still out the 10 million dollars, paying taxes on that 10 million would “cost” the company much less.
Here is a very simple version of what happened in my town. The univerisity decided they wanted to take football to the next level. To do that they needed a new modern stadium that could hold more people. The idea being, more people coming to the games = more money. More money=being able to get better coach. Better coach=better players coming in. Better players coming in= more games won. More games won= more money being made.
So that all sounded good, but who would pay for the new stadium? The school asked the local/state politicians for the money. Politicians didn’t want to take it from any existing programs. So they considered raising taxes. The people in the city didn’t want their taxes raised just for a new stadium.
So Papa John “says, I will fund the new stadium if you call it Papa John’s Stadium.” That was seen by all as a win-win. All the fans start ordering Papa John’s pizza as a thank you. A few years later we are quite happy with our Orange Bowl winning team, happy to a have another nice venue in the off season for wedding receptions, corporate events, etc. It would be really hard to count all the benefits to both our city and Papa John’s by having that stadium. Many jobs building it, staffing it. Increased out of town guests helping the tourism which employs many people. Papa John now has many in demand luxury boxes he can use to reward venders. He is extremely well thought of here. That will = more sales for him.
There is no way the taxes he would have paid on the money he spent to build the stadium would have been able to do all the good that the money did by building the stadium.
I also see the same thing happen with charitable donations. I am on the board of several local charities and I have seen first hand what the money and items the big corporations in town donate does for our community. I don’t mind at all that the money and items they give us is not taxed. It goes much farther when given directly to those who know best how to help those who need help.
And it isn’t just the big corps that can help this way because of the way the taxes are structured. I went into a little shop of a woman who made jewelry. We talked for a bit and she told me of her first year mistakes, and how she was worried if she could stay open and fulfill her dream of supporting herself by her art. It had been a very slow first year for her. She was learning from her mistakes, but she wasn’t sure she would last long enough to benefit from what she had learned.
Somehow the subject came up, and I mentioned I was doing a silent auction to raise money for retired racehorses that needed homes. She went into the back of her shop and gave me a bunch of horse earrings, necklaces, bracelets etc. that she had made. She explained she had made all these things for a “horse fair.” Bad weather cancelled the fair and now she had way too many horse things, she would never be able to sell them all. By donating them to my non-profit, she could right off some of the loss, which would help keep her afloat until her next big event where she would know better to make things that would sell after the event as well.
So she got a break which helped her on her taxes, and I was able to auction off her items and give the money directly to the farm that fed, housed and retrained horses in need. I also handed out her cards and listed her in our program which I know resulted in her getting a few more sales which will help her as she builds her new business.
So from my experience, I like that business has incentive to do non-traditional things with their money and goods. Things look different when you can see how the current set-up helps not just the business, but many other people as well.
You also seem to think that somehow money is better spent in the hands of governement than reinvested by businesses. I, for one, would rather see the government spend the money it already has more efficiently.
I’m firmly in the camp that agrees with the current tax structure, but the naming rights issue is a sore spot with me, as it can result in some very shady deals. For example, when the University of Maryland built a new basketball arena, they sold the naming rights to Comcast Cable for a non-negligeable sum, but in exchange Comcast got to wire all the dorms, and every student gets, and pays for, cable TV, whether they want it or not.
I don’t get it. What’s wrong with that? The University had a valuable asset, and they traded for infrastructure improvements.
Would it have been any different had they sold the rights to someone else, then used the proceeds to buy the upgrades from Comcast?
[QUOTE=SaintCad]
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. l.
[/QUOTE]
About 1/3 of what you pay is for Social Security, and Corps can’t collect it, and thus don’t directly pay it.
But in any case, any reasonable “Flat tax” proposals have the “flat tax” about 20% not 10%. So, that’s about what you are currently paying in Income taxes. Every flat tax program I have seen has the rich paying less tax and thus (if the proposal is “revenue neutral”) the Middle class has to pay more.
However, if your taxes went down, and the big bad evil Corps taxes went up, they’d just raise their prices accordingly, which would be in effect a “regressive” tax on the Middle and Poor classes.
**
SaintCad**, I hate to say this, but xtisme is correct. Certainly we can debate the morality of shifting more of the Tax burden to Corps and less to Individuals. Various Economists debate this all the time. But your proposal is just plain nonsensical, and shows no grasp of real world economics and how the tax systems really work. Sorry.
[QUOTE=Emilio Lizardo]
I’m firmly in the camp that agrees with the current tax structure, but the naming rights issue is a sore spot with me, as it can result in some very shady deals. For example, when the University of Maryland built a new basketball arena, they sold the naming rights to Comcast Cable for a non-negligeable sum, but in exchange Comcast got to wire all the dorms, and every student gets, and pays for, cable TV, whether they want it or not.
[/QUOTE]
Sounds like your beef should be with the University for not negotiating the deal the way you think they should have. Of course Comcast is going to want the best deal it can get.
[QUOTE=FRDE]
Unless the USA is very different from the UK, it works like this :-
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.
[/QUOTE]
Corporations here fo not get a deductions for paying dividends.