[TheAdamAndChe]

They don't have to pay taxes this year because they didn't make money in previous years? How are previous years relevant to this year? I know what they're doing is legal, but it sure is silly. Their net loss over the last few years wasn't because they couldn't have been profitable. It was part of their business strategy.

[rhino369]

>>They don't have to pay taxes this year because they didn't make money in previous years? How are previous years relevant to this year?

If you don't allow a company to carry forward loses you get a capricious result:

Company A makes $20M in 2019 and $20M in 2020 which is $4.2M dollars tax each year or $8.40M total tax on $40M total earnings.

Company B makes -$30M in 2019 and $70M in 2020 which is 0 year and $14.7M or $14.7M total tax on $40M total earnings.

[TheAdamAndChe]

There's nothing capricious about those results. $70M annual profit should be treated differently than $20M. That was $70M that the company decided not to reinvest.

[ephextom]

Aside from the different handling of capital investment vs expenses, "deciding [not] to reinvest" is not the only factor that determines a company's net income.

Take a company that loses $100M one year because of a natural disaster (like a pandemic), just manages to stay afloat by taking out loans, then makes net income of $50M the following year.

The company has net-lost $50M over two years and incurred large debts, and now has a huge tax obligation on the $50M, before they can start paying their lenders back.

A company in that situation may be better off shutting down, leading to huge job losses for the employees and trading partners, and an overall loss of tax payments that the company could otherwise have generated long into the future.

Your line of argument seems to be that it's always important to get the most possible tax out of a company in any given year, no matter the overall net outcome for society over the long term.

[rhino369]

You only get to deduct expenses, not investments. They could have bought a 70 million dollar piece of farm equipment with that money to reinvest, but they'd only get to deduct a small portion that year.

Regardless, you can't tell based on the data given whether the companies re-invested the money or distributed to shareholders. The difference between those companies could just be whether they booked a $50M sale on Dec. 31 or Jan. 1. Or whether they wrote off a bad asset on Dec. 31 or Jan. 1.

It's totally capricious.

[TheAdamAndChe]

I guess there's something I don't understand here. You're telling me that if a company spends money to invest in itself or improve its infrastructure, that isn't considered an expense? That seems like it would disincentivize investment in company growth.

[ephextom]

Capital expenditure (infrastructure) and operating expenses are treated differently.

An investment in a new factory cannot be deducted as a business expense all at once; it must be depreciated over its useful life, so only a portion of it can be recorded as an operating expense against income for every year it is used.

For software companies it's fuzzy; if you have a team of developers constantly working on enhancements to the company's platform, should the staff wages be counted as expenses or capital investment? It comes down to accountancy technicalities:

https://www.wallstreetprep.com/knowledge/accounting-capitali...

[bkirkby]

A strategy that grew their capacity to provide value to the world.

The economy is more complex than "look, money, let's take it for government."

[TheAdamAndChe]

Yes, and they've been rewarded with profits and a soaring stock price. Why shouldn't they pay taxes for that? It's undoubtable that they used federal and public infrastructure in the process of making and growing the company.

[bkirkby]

The impulse to see "soaring stock price and valuation" as a reward that can be drained is exactly the kind of sophomoric economic view i was referring to.

it's quite obvious that if you took all of the value of a company the company would cease to exist along with the benefit they bring to society. you don't want to take all of their value? you just want to take the "fair share"?

how do you know what the "fair share" is that doesn't harm the capacity of the company to continue to provide value? fairness would be they pay for the public goods and services they use. do they employ trucks to deliver their product? then they should pay gas taxes on their deliveries. but, wait, they already do that so we want something _more_ fair than being treated the same as everyone else.

that still leaves us with the unknown of "how much more_than_fair_taxes we should require of a company and be sure not hinder it's ability to provide value?"

[TheAdamAndChe]

If stock price and valuation isn't a reward, then why is executive compensation often tied to stock price?

> how do you know what the "fair share" is that doesn't harm the capacity of the company to continue to provide value?

I don't know, but it should pass a smell test at least. I can tell you that a company that was recently net negative only because of reinvestment using those negative years to not pay taxes during positive years doesn't pass the smell test.

[ksec]

>If stock price and valuation isn't a reward, then why is executive compensation often tied to stock price?

It is a good question but a different point to the current discussion. Which is Tax Code.

[datavirtue]

Then again, why should the entity be punished for creating value and jobs and competition? Please tell.

I guarantee all the people involved were taxed. I would rest a lot easier knowing that the organization that employs me didn't have to worry about taxes. Instead it has to employ an army of people just pay them. Double taxed, everyone is.