August 11, 2023 at 7:12 am #142Jonathan BuhacoffKeymaster
The primary purpose of taxes is to fund government operations. A secondary purpose of taxes is to promote a certain economic activity or behavior (by lowering taxes on it) or deter undesirable economic activity or behavior (by raising taxes on it).
Tax laws for example are entirely too complicated. Sales tax for people who buy things, and tiered revenue tax for all businesses. Non-profit and public benefit corporations must still be taxed, possibly with a lower flat revenue tax than for-profit business — but they still need to be taxed, because it still costs money to keep track of them and make sure they are not cheating in some way, being used as a “tax shelter” for wealthy people, giving extravagant “benefits” to their officers or board members, etc. basically not cheating the public by pretending to be one thing and really being something else.
Government tax revenue would be a lot higher than today, and we would eliminate a lot of wasteful paperwork, if we simply impose a flat tax on corporate gross revenue.
This will not change the dynamics of “narrow margin” businesses — their margin will still be narrow, and since all of them will be required to pay tax the same way, prices will adjust as needed and their cut-throat competition will resume with the new normal.
To help startups and small business, while ensuring that really large business pays their share (they used to depend on externalities, now their tax will go up to compensate the public for this behavior). We can also do gradual tax brackets on corporations to that startups and small business will get a break, while large established businesses will need to pay more. For example, pay 1% of revenues up to $1 million (this also means the IRS can drop the stupid rules about “S-Corporations”, because paying an additional 1% tax on top of personal income tax won’t be much, so this will help with having less exceptions and less paperwork), then 3% of all revenues above $1 million and under $10 million, then 6% of all revenues above $10 million and under $100 million, then 9% of all revenues above $100 million and under $1 billion, then 12% of all revenues above $1 billion and under $10 billion, then 15% of all revenues above $10 billion. This easy system means revenue x10 but incremental tax only x3 for each subsequent bracket.
Looking at some of the wealthiest companies, Apple paid $9.68 billion of income tax in 2020, which is an effective tax rate of 3.5%. With the revenues in $274 billion, the taxes they pay on their first $10 billion dollars are in the lower brackets, and then 15% of revenues above $10 billion so that’s at least $26 billion in taxes. Their taxes would nearly triple under the new scheme. In comparison, Sleep Number, with an effective tax rate of 20%, would pay less because it only has $1.8 billion in revenue so it would be paying the lower brackets up to $1 billion then 12% on the next $800 million.
No special tax deals
In the United States, some localities or states make deals with corporations to lower their taxes for investing in the state. This is generally abused by wealthy corporations to shop around for the locality that will offer the lowest tax and governments end up bidding against each other to attract corporations and “jobs” that might end up adding to the total workforce in that area but also might end up driving smaller businesses out and won’t be paying their fair share of taxes. Furthermore, the correct impression of favoritism and inequality, where wealthy corporations get special advantages that small businesses don’t, hurts the people’s trust in government and violates the right to equal opportunity. This practice needs to be prohibited to protect fairness in taxation, the integrity of government, and the people’s trust in government. The problem is made even worse when a corporation reaps the tax benefit but then doesn’t bring the promised benefit to the local government. In some cases the deal is structured in a way that if the corporation doesn’t deliver, then it also doesn’t get the tax benefits, but in other cases the local government didn’t structure the deal that way and the locals were essentially defrauded but without legal recourse.
The rule should be that there are no special deals for individual corporations. If a local or state government desires to encourage investment and attract more companies to operate there, it needs to set the conditions to attract companies but treat all of them equally. If it’s going to offer lower tax rates or any other benefits, those should be available to companies already there in addition to any new companies that move in to get those rates or benefits.
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