Initially I too thought this was a bad idea, but if you think about it and set the tax rate really low - like a handful of percent, say 1% or 2%, not more than 5% - it might actually work.
Because even if the corporate tax rate is 30%, but we only collect it on profit, which ends up being only 5%-10% of revenue. So in actual fact, if the corporation was honest, we're really only collecting 30% of 5% or so, which is about 1-2% of revenue.
The thing which I think works with this "revenue tax" is that it removes the ability of the corporation to do clever accounting tricks to reduce the amount of profit. For example moving the IP offshore to a lower taxed country. It is something that could work for a lot of countries and would satisfy a lot of people.
The one place where it might not work is where margins are already razor thin and the business makes up on volume. But then again the business would have to charge more to cover the extra expense.
Seems like that would lead to massive vertical consolidation.
If you have a retailer buying from a distributor buying from manufacturer buying from a raw material producer, the revenue flowing from each to the next would be taxed again and again, but a single company doing everything would only pay once.
Is that something you want to encourage?
A VAT might make more sense, since you can deduct the VAT you paid to your supplier from the amount charged to your customers.
A VAT, GST, or sales tax always affects only the final consumer, where as a revenue tax would dig into every stage whenever goods or services are moved between companies.
There is nothing inherently wrong about taxing the revenue at each stage as material flows between companies. Right now we tax those companies profitability instead, and at a much higher rate. So there is an incentive for companies to minimise profitability in terms of how much tax they have to pay. If instead we tax revenue directly it could simplify things and mean that they could optimise profit to some degree. It could lead to more vertical integration but it would also lead to the dissolution of accounting schemes between companies like the double Dutch Irish sandwich (or whatever it's called). Because every time a company makes revenue it would be taxed in that country.
In general you could think of a revenue tax as more of a land tax for companies. Real-estate owners generally pay government an amount per year which is just because they own that property. So think of a revenue tax as one which is applied to businesses.
In my country, my company has to pay 21% VAT. For a dollar in sales we have to add 21% in taxes. But we deduct the VAT paid, so if we had to buy stuff for 95 cents, we'd get back the VAT paid on that, resulting in having to pay taxes only on the difference, being 5 cents x 21%, approx 1 cent. Hence it being called "value added tax".
I think this is a better tax than income taxes because it taxes consumption, not labor (although if you do work to add value this does get taxed).
Except then it affects poor people more as consumption of things that people need makes up more of their income than the rich who have more disposable income, savings, capital and investments. Thus driving even more wealth inequality. But HN readers are more of the "Temporarily Embarrassed Millionaire" types...
So you don't apply VAT to inelastic commodities. We have in fact figured this shit out. Austrian or Keynesian are not the only two choices available to us, despite what some would try to lead you to believe.
Many companies explicitly pass VAT to the consumer. For example, I have to pay VAT as a line item on the rent for my coworking space.
VAT is the reason a MacBook is hundreds of dollars more expensive to buy in Europe than in the US.
I’m an American living in UK. I bought a jacket here, wore it home, and then forgot it, so I had my mom send it to be in the UK (where I bought it). She declared its value and so I had to pay £35 in VAT for a jacket I bought in the UK for £150.
VAT also makes it difficult for companies in a VAT jurisdiction to compete on price with companies in other jurisdictions, and for small businesses to sell internationally.
I’m not sure I’ve ever heard someone talk about how great VAT is. It’s a system you implement when your country fails to innovate and instead siphons off the innovation of others.
I don't like paying taxes either, but we have to fund our government and the services it provides somehow, right?
If you rent a space and buy a Mac for work you can probably get the VAT you paid back, deducting if from the VAT you add to your own invoices.
Income tax and VAT are the biggest taxes here, what I am saying is that income tax is worse because it hurts jobs directly. VAT does distort pricing internationally, as you say. If all countries would have the same it would be better for everyone.
It would be even better if we could tax capital and corporate profits more, but powerful forces work against that.
Of course we can also not sufficiently fund the government and gut it. We'll see in a decennium or two how that works out in the US.
I don't get your point. Are you suggesting that Amazon alone should pay a tax on revenue (steering business to its competitors and reducing consumption slightly), that every company should pay a tax on revenue (steering business from more expensive and less vertically-integreated competitors to Amazon, but reducing overall consumption) or something else entirely?
Im saying all tax is paid by consumers in the end. But what is being taxed is still interesting.
I'm suggesting Amazon is currently doing what it does because of taxation law. It simply complies/optimizes. Profit taxed? Dont make profit. Pollution free, dont worry about pollution.
This assumes tech giants aren't the giant colluding monopolies that they are, and actually need to be competitive in quality or price to survive. The tax will be payed by consumers, and shareholders aren't going to see a difference in their dividends.
Because even if the corporate tax rate is 30%, but we only collect it on profit, which ends up being only 5%-10% of revenue. So in actual fact, if the corporation was honest, we're really only collecting 30% of 5% or so, which is about 1-2% of revenue.
The thing which I think works with this "revenue tax" is that it removes the ability of the corporation to do clever accounting tricks to reduce the amount of profit. For example moving the IP offshore to a lower taxed country. It is something that could work for a lot of countries and would satisfy a lot of people.
The one place where it might not work is where margins are already razor thin and the business makes up on volume. But then again the business would have to charge more to cover the extra expense.