First off, American corporations are taxed on profit and not revenue. It may make since to expense out such things as payroll, COGS, factory depreciation etc, but it also allows the company to expense out buying naming rights for stadiums, lear jets for the CEO, etc. Some of you will argue that by buying those things, tax gets paid on it by the company making the money and so it should be expensed out to avoid double-taxation, but why can’t I expense out my grocery bill simply because Safeway makes money off my frozen pizza rolls.
Some others of you may argue that by not expensing out the materials and labor, it’s not really fair to tax the end product. I agree with that and have no problem with expensing that out, but I do have a problem with expensing out advertisement costs, consultant fees, company cars, etc. For me it is a simple cost benefit analysis: spending $100million on naming a stadium should generate more that $100million in revenue AFTER TAXES so at a 20% tax rate for example, the cost should return 125% return on investment to break even.
But that’s not fair others may claim. Hey guess what! Many Americans (me included) pay 20% OR MORE in taxes on every dime we take in. If I get a job that’s further away, I have to pay the extra cost for gas but I do it because I net more income that way. So looking here, I see that personal income tax makes up 43.46% of the revenue the US takes in. 40.42% is payroll tax (half employee and half employer) which means that for all of the money corporations make, they only pay just over 16% of the total taxes in the US.
The reason companies are taxes on profits, not income, is because if a company takes in 100 million dollars, and spends 98 million dollars, sure, they’ve made 2 million dollars, but unless their tax rate is less than 2%, they’ll work at a loss (and trust me, their tax rate isn’t less than 2%).
Sure, you might say “Well, they shouldn’t run their business so poorly,” yeah, you’re probably right. But it’s not your place to decide how they should run their business. Maybe they have much higher paying jobs, are you saying that they should cut the pay of their employees so they can pay more in taxes? Or are you saying they should raise the prices of their products, so they can pay more in taxes?
And what if either of those things was to run this company into the ground, eliminating the jobs that this company provides? Is that fair?
Because now, instead of taxing 2 million in profits, plus the payroll, plus the property tax, plus every other tax that’s associated with those employees, their land, etc. you now have more people unemployed, less tax revenue, and a lot of explaining to do to your constituency.
How unusual is this? AFAICT, corporate taxes on profit rather than on total revenue are the norm in at least many other developed countries, including the UK and France.
Well, as BrightNShiny notes, you do have the standard deduction and exemptions, as well as a zero tax rate below a certain income threshold. AIUI, these features of the tax code are supposed to constitute a rough one-size-fits-all approximation to not taxing the basic “operating expenses” of your life, just as companies are not taxed on their operating expenses.
Whether it makes sense to treat the purchase of stadium naming rights as an “operating expense” is another question. But changing the whole structure of corporate taxation to discourage such practices might be overkill.
Taxing revenues would have a gigantic host of other problems.
Perhaps more to the point, the OP is making the implied assumption - always the same in these threads - that “Corporations” are all great big conglomerates that own private jets. That is just not the way the world works. Most corporations are SMALL. The typical corporation is a machine and welding shop with 19 people, or a small independent distributor with eight employees that specializes in bearings and gaskets. A major marketing initiative for such a company is paying a student $400 to do a web site, or getting some calendars printed. In lean times, like these, taxing revenues would put those types of companies out of business. It simply could not possibly work.
As has been said on this thread, “fairness” is a meaningless concept when it comes to taxation, simply because there can never be concensus on what that means. What’s fair to one person will be unfair to another.
One can’t renounce citizenship if they will become stateless. No matter how long I live in the UAE or Czech Republic (where I have residency), I can never become a citizen. The UAE has no taxes at all so a tax treaty is fairly meaningless. When I got my Czech residency I had to provide a letter from the “UAE tax department” proving the the Czechs that I owed no tax in Dubai. It took a lot of convincing to get it into their heads that there is no UAE tax department.
The US is the only country to tax expats like this. Once Brits, Aussies, Kiwis etc leave, they no longer pay tax to their country of citizenship. Canadians have to sever all ties to Canada, but are still able to stop paying Canadian tax once they leave.
Every dollar of overall income should be taxed, at a rate equal ot everyone else but varing with your situation, so that everyone pays an amount which is both equal to everyone else and proportionate to their income, at the same time.
Yes, that was tongue in cheek, although it also perfectly accurate.
Even assuming it’s as easy as that, most countries don’t want people not of their nationality as citizens. And Said individual might not want to be a Czech citizen: he simply doesn’t want to pay taxes which do not in any way benefit him for a nation which has jack-all to do with him. That may or may not be admirable, but it is perfectly sound reasoning.
I have no way to get permanent residency… since I am already married and thus can’t marry a Czech. I have “long-term” residency in the C.R. but that doesn’t lead to citizenship. It was hard enough just to get the simple residency in the first place… including a trip from Prague to Dubai to Abu Dhabi and back for a piece of paper that was “absolutely needed” but then never asked for.
From the U.S. government webpage on citizenship renunciation:
“Also, persons who wish to renounce U.S. citizenship should also be aware that the fact that a person has renounced U.S. citizenship may have no effect whatsoever on his or her U.S. tax or military service obligations (contact the Internal Revenue Service or U.S. Selective Service for more information).”
From a non-government website:
“Former citizens, moreover, can be nailed for income tax on U.S. income, including capital gains from real estate situated here and from stocks in U.S. corporations. This exit tax may apply for ten years after you leave, unless the Internal Revenue Service decides that tax avoidance was not one of the “principal purposes” of your departure.”
In principle it shouldn’t actually make much difference if the government starting taxing corporations income, rather than profits, as long as the corporate sector as a whole is paying about the same amount of tax. I would imagine this is likely to benefit small firms at the cost of multinationals (who can afford to employ armies of tax advisers to game the tax system). It would certainly make the system easier and cheaper to enforce, and make tax avoidance much more difficult.