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"Profit" is very easy to hide. Income, not so much. The difference is 'net' vs 'gross'. The horrid nature of current tax law is geared towards lawyers and acc

• 3pt14159 12y ago
  Taxing profit is silly because you care about the "pointer management" that companies do, which requires things like costing QA done in another country. It is far easier to just tax property, sales, dividends, personal income, and capital gains than it is profit. Roughly in that order too.
  • thomaskcr 12y ago
    To be fair -- taxing profit does encourage companies to spend their money. Also, taxable personal income and capital gains are taxes on profit -- I don't understand how that's easier. Any money spent on personal needs is taxable (see "The Situation" who tried to say tanning was a company expense) regardless of whether a person or company spends it. You're also able to write off business expenses whether you're a company or a person just the same too. Income tax is really a tax on profit, not total income. It just happens that people tend to have mostly profit (since they save their money or spend it on personal needs) and for most close to 100% of their income is taxable so they assume big bad corporations are getting some advantage they aren't entitled to which isn't really true at all.
    • _delirium 12y ago
      > Income tax is really a tax on profit, not total income. If you run a business, that's largely true, as your sole-proprietor income tax is calculated very similarly to how business profits is calculated. But individuals who earn their income via employment (which is most of them) more often pay a tax on their income rather than profits. Some expenses are deductible, but many of the most common ones are not. For example, commute expenses are typically not deductible [1], even though they are probably the most frequent cost incurred solely as part of earning income. Work clothes are also often not deductible: they are only deductible if they are both formally required by the company, and of a kind that is dissimilar from non-work clothing. So e.g. buying a suit for interviews and/or meetings is not deductible, even if you only bought it for and only wear it for income-earning purposes (I have personally never worn my suit in a non-work context). It's also difficult to deduct the cost of a computer, even if your field is computing and you use it mainly for work and skills development (though it's possible in some cases, if the employer formally requires you to have one at home and doesn't provide it). [1] "You cannot deduct commuting expenses (the cost of transportation between your home and your main or regular place of work)." http://www.irs.gov/publications/p17/ch28.html http://www.irs.gov/publications/p17/ch28.html
    • 3pt14159 12y ago
      I'm generally not a fan of income tax, since I think it creates a bunch of problems and economic inefficiencies, like the middle class cleaning their own houses while there is a sizeable unemployed section of the economy, but the huge difference between corporate profit and personal income is that a person has citizenship (generally), has to live somewhere, cannot expense the majority of his or her purchases, and cannot be financially controlled by a foreign entity with differing laws. Yes it does create problems like "is driving to work a work expense?" but those problems are generally solved.
• gioele 12y ago
  > In Canada we had a law called "The AutoPact" [1] which basically said that for every 3 cars that you sell in Canada, 1 must be built here. In our world of online services, how do you that? For every three subscriptions I sell to somebody in Canada, what should I do exactly?
  • rtpg 12y ago
    I think the law is specifically for cars, hence "AutoPact".
    • freehunter 12y ago
      Yeah, it sounds like this is specifically geared around a disincentive for moving jobs out of the country. I couldn't see anything like this being applied in the digital world, since it's not as easy to move your offices out of Toronto of Vancouver to Mexico or China as it is to move your factory.
  • ekianjo 12y ago
    So what's the direct effect of that Law ? Expensive cars?
    • dlss 12y ago
      That and a lack of consumer choice :p for example, my google searches didn't find mention of a Canadian Tesla factory.
    • scott_karana 12y ago
      Actually, I suspect the law was in place more to entrench existing Canadian factories than promote new ones. (eg, 1 or more of the 3 cars were already made in Canada) The bridge between Windsor, Ontario and Detroit, Michigan is likely the most-travelled on the continent, carrying 25% of US-Canadian trade, and $13Bn of assets, mainly due to the large auto industries of both countries. (The US domestic brands are predictably huge, and there's also Magna, the 3rd largest part supplier in the world http://en.wikipedia.org/wiki/Automotive_industry_in_Canada http://en.wikipedia.org/wiki/Automotive_industry_in_Canada)
• flexie 12y ago
  The devil is in the details but the principle of taxing money where it is made is sound. Taxing revenue instead of profits could be a solution for example by shifting all the tax to the VAT (and then having a single VAT rate in the EU). Then Apple and Google would start paying back on the property rights, patent rights, copyrights, trademark rights, infrastructure, rule of law and well educated consumers they enjoy in Europe.
  • jiggy2011 12y ago
    A single EU VAT rate would be very harmful because no gov would be able to boost consumption by reducing VAT rate, it would also force small business to collect VAT as soon as they sell their first product.
    • ajross 12y ago
      What exactly would be the argument for allowing individual small governments to play with their economies like that? The risk analysis gets completely skewed by the fact that the EU implicitly backs the economy anyway. That just sounds like a recipe for another Greece.
      • jiggy2011 12y ago
        The EU implicitly backs Eurozone countries because it has to, the UK is not a Eurozone country. The UK should definitely be able to control it's own taxes, the only alternative is fiscal union.
        • ajross 12y ago
          Sorry, I heard "Single EU VAT" and assumed you were talking about the Eurozone. Unifying taxation in the absence of unified monentary policy makes no sense to me anyway, so sure: I agree then. :)
      • sokoloff 12y ago
        Respecting the concept of sovereignty would be my primary argument.
• known 12y ago
  http://wh.gov/iCfVS http://wh.gov/iCfVS
• evanpw 12y ago
  Unfortunately, taxing gross income instead of profits simply won't work for corporate taxes. The cost of doing business varies wildly between industry, or even between different business models in the same industry. You'd end up putting low-margin industries out of business, and taxing (e.g.) software companies almost nothing. It's a hard problem that doesn't lend itself to simple solutions. See: http://www.bloombergview.com/articles/2014-07-16/we-don-t-need-a-corporate-income-tax http://www.bloombergview.com/articles/2014-07-16/we-don-t-ne...
• hkmurakami 12y ago
  Well, those practices for manufacturing have carried over into tech datacenters with all the kickbacks FB/Goog et. al. are getting from States like Iowa (iirc).
• ajross 12y ago
  Actually one of the strongest arguments against corporate taxation is the corruption/tax-break angle. Big organizations are always going to be able to lobby more effectively than small ones or individuals. A reasonably fair personal income tax or VAT can be implemented reliably (and has, in virtually all of the industrialized world). A fairly distributed corporate tax is nearly impossible (again, the existence proof being its absence basically everywhere). No matter how well the statutes are written, a big enough entity will be able to lobby the government into changing the law to its benefit.
  • dsfsdfd 12y ago
    Exactly, this is why you need to make lobbying a criminal offence. Seriously, jail time. Money must not be allowed to buy political power.
    • ajross 12y ago
      Congress shall make no law [...] abridging the [...] right of the people [...] to petition the Government for a redress of grievances. Yes, we're talking about a UK law, but the principle remains valid. "Lobbying" is just the advocacy for the government to do something. Most of the time it's a good thing, because governments on their own tend not to have many good ideas. Making that illegal in general is (quite literally) isomorphic to living in a totalitarian regime. I suspect what you really mean is that lobbying by "bad people" should be illegal. Well... good luck defining that in statute. You say banana and I say banana. Let's say you have a horse-and-buggy paratransit company (call it "Unter" for short) that you think is a great idea. But it turns out that existing cities have dumb, ancient laws that disallow horse-drawn carriages. But your users love your service and everyone agrees that it's a great idea. So you call up a legislator to pitch them on the idea of updating the law. ...and end up in jail, because you're a "corporation"?
      • jxjdjr 12y ago
        I think what he means is money should not buy you the ear of government. Using it for this purpose should be illegal, otherwise you no longer have a system where one vote buys you one unit of power, you instead have a system where one unit of wealth buys you one unit of power. Which in some people's opinion, is fascism.
• ams6110 12y ago
  Why are we paying companies so they have the privilege of taking our money? Companies don't pay taxes. Ever. Their money comes from customers buying their products and services. If they are not taxed, they can offer a lower price to the customers. If they are taxed, that simply means higher prices for customers. Ultimately, individuals always pay the taxes.
  • DanBC 12y ago
    Your argument fails when we see Starbucks selling expensive coffee while avoiding tax. Starbucks does not avoid tax to give me a good deal. Starbucks avoids tax so that Starbucks can make more money.
    • vixen99 12y ago
      I don't think it does. Any sensible business avoids tax i.e., minimizes its tax bill. If it gets up to what are perceived as evident shenagans to do this, governments can change the law (as has been announced today in the UK) and consumers can decide if they still want to do business with the company. 'Don't drink their coffee' would be the advice re Starbucks, would it not? Good deals usually but not always add up to good business which equates with making more money. If Starbucks offer a lousy deal then presumably they'll either have to change the deal or go down. Plenty of other places to drink coffee.
  • ja30278 12y ago
    It boggles my mind that otherwise intelligent people have a hard time grasping this simple concept. Taxes are simply another cost of doing business, especially if they are applied to whole categories. Even if they are applied to specific companies (to favor domestic companies, for instance), then they still have largely the same effect, since they allow the domestic competitors to compete in the market inefficiently, raising prices on the consumer.
    • mikeyouse 12y ago
      It's easy to understand that taxes are simply a cost of doing business, but intelligent people disagree that prices would decrease with any certainty if taxes were cut. Companies don't set prices for products to achieve some specific return, they set prices at the highest point the market can bear. Cutting their tax rate doesn't have any impact on the greater market, so it's unlikely that prices would move at all. The more likely outcome is that owners and shareholders would see higher profits -- which definitely isn't a bad thing, but it's a very different proposition than a general price decrease for consumers.
• pasbesoin 12y ago
  When, in naval-gazing films and TV, an entertainer character insists on x % of "gross" revenue, this is why. There've been many articles and posts cited on HN that go into the tortured, and very profitable, machinations of entertainment industry financing and accounting. Some argue towards making such finance, e.g. taxes, simple to the point where it can't be gamed. The tradeoff is that finance is used as much if not more so than overt legislation, to steer policy, investment, and ultimately -- imperfect as they are -- outcomes. I'm not saying simplification is wrong. But keeping your system intact while you do it, is... well, not as simple as it might seem. But there is a lot of potential benefit. How much further would clean(er) energy be, if we weren't propping up carbon fuels to the tune of billions in subsidies every year (including a substantial part of e.g. the U.S. military budget)? Would the Mid-East be quite such a mess, if no one was continually pouring money into its weapons systems and dictatorships? Anyhoo, I typed way more than I intended. When an outfit is doing fantastically well, to all appearances, yet the profit is missing, then start looking at / going after the gross. They have to pay their way, just like everyone else. Perhaps all the more so, the more they insist upon being a "corporate person" with "personal" rights (e.g. speech, et al.). ---- P.S. As an actual person, with a few policy-minded exemptions aside, I am taxed on my gross income. Not my net. (E.g. I don't get to deduct my groceries, nor my auto insurance, nor...) (Although, state sales tax in the U.S. does vary by state and is often, when lowered, meant to lessen the regressive nature of said tax for low income earners with respect to essential goods -- you gotta eat.) Home owners get to deduct mortgage interest, while renters get no such break even though a significant chunk of their rent may effectively be paying the interest on the landlord's mortgage for the property. Pushing home ownership in the U.S. as a policy that apparently veered into the extreme, providing lots of marginal loans as raw inputs into the financial machinations that propelled the 2008 Great Recession. Anyway... I'm taxed against my gross income. There's no magic rule that says businesses can only be taxed against their net. It's all policy -- not natural law. And when they game the system beyond all measure, they should expect that, sooner or later, policy will be changed. The problem is in good part that, if they can make it later enough, they become another "too big". They've captured their regulation.
  • judk 12y ago
    You are taxed on your net (Adjusted Gross Income, minus deductions). That's what deductions and exemptiona are for.
• AndrewKemendo 12y ago
  The fact that they wrote it as profit rather than revenue tells me that the people drafting it were either on the Banker's doll such that it is just window dressing, or the legislators are criminally inept. The incentives to give back don't exist unless you take a chunk of the money before it can be put back into their own pockets. Not that I think this should be done this way, but it's silly to think they are going to be able to recover significant profits from these banks.
• eggnet 12y ago
  It is literally impossible to charge corporations on income instead of profit. Let's walk through an example. I call a plumber to replace a water heater, which they provide. They charge me retail for that water heater. Plus sales tax. Now of course, they have to charge me corporate income tax for that whole amount. Including the sales tax, by the way, because that's income. The hilarity doesn't end there. The plumber bought the water heater from the manufacturer. Let's assume that was at some discounted rate, maybe a 20% discount off of retail. Ok, so 80% of the retail value of that water heater is income to the manufacturer. They have to pay corporate income tax on that whole amount now. But wait, corporate income tax was already paid for 100% of it by the pluming company. We're still not done. It turns out that water heaters are a commodity and there isn't much margin in the business. They already can't afford to pay the corporate income tax, but it still gets better. All the manufacturer does is assemble the parts. They buy the parts from other companies, and some components go through multiple companies. At each step, each of those components was income for the manufacturer or assembler of the part. Basically you end up triple taxing or more, the various parts of the system. Believe it or not, it gets worse!!! An astute observer would notice that the easiest way to avoid as much corporate tax as possible is vertical integration. In other words, if the plumber, water heater manufacturer, and all of the subcontractors and sub-manufacturers involved all worked for a single giant corporation, they'd only have to pay corporate income tax once on the water heater and all of the components within it. In short, companies would be forced to move to countries that did not implement corporate taxes. Companies that are unable to do that would be forced to combine into as few companies as possible to avoid corporate taxes. Remember, taxes discourage the behavior that is being taxed. Corporate income tax discourages the transfer of money between corporations. That just means there would be fewer, larger corporations. And of course, more expensive goods and services. Assuming the entire world implemented corporate income tax simultaneously. Without that, there would just be massive shifts of businesses away from countries with corporate income tax.
  • BerislavLopac 12y ago
    Actually, this problem has long been solved by VAT.
    • 12y ago
• rayiner 12y ago
  A flat-tax based on gross income would be unworkable. Wal-Mart has an operating income of $27 billion on $476 billion in revenues. A 5% flat-tax on gross would wipe out almost all of their profit. Apple, in comparison, has $52 billion in operating income on $182 billion in revenues. A 5% tax on their gross would leave them paying less than what they pay today. I recommend that everyone read up on the basic mechanics of the U.S. income tax: http://www.amazon.com/Chirelstein-Zelenaks-Taxation-Concepts-Insights/dp/1599419378 http://www.amazon.com/Chirelstein-Zelenaks-Taxation-Concepts... (this book is very approachable, and quite short). Things that seem like "creativity" if you're not actually thinking, actually fall out from the mathematics of what you're trying to tax: gains in wealth over time. Things that seem like unnecessary complexity arise naturally in response to the challenge of sampling a continuous function (the value of assets) at discrete points (yearly, or at the time of sale). The bones of the tax code are pretty elegant. It's complex, but it's complex because accounting is itself very complex. But nobody argues that the complexity of GAAP is a form of corporate welfare. Yes, there's nonsensical cruft layered on top in the form of tax breaks, but those are actually pretty simple in comparison.
  • humanrebar 12y ago
    Your main point is that there will be winners and losers no matter the tax system. That's a given. There is a point to be made that an abrupt and radical change in the tax code would be a net negative, but I don't think anyone is arguing for that. If a tax code becomes simpler and some businesses are no longer viable, why should I care? So Wal-Mart doesn't make sense anymore? So iPhones should be more profitable than they are now? I'm not sure why I should care about that.
    • rayiner 12y ago
      It's not a choice between two arbitrary systems with different winners and losers. It's a choice between one system that makes sense (taxing net income), and another system that's mathematically and rationally indefensible (taxing gross income). It's the classic programmer's dilemma: do you implement the complex algorithm that gets the right answer, or the simple one that gets the wrong answer?