Who the heck IS this and how did zie get catsittingstill's password?

[catsittingstill]

Okay, I know I've been posting a totally uncharacteristic amount today.  What can I say; things keep catching my eye.  The most recent?  This brief analysis of McCain's proposed tax policies.  Brief version: costs the Feds 210 / 400 billion a year (according to the Gordon/Kvaal report / the Wall Street Journal).  Only 180 billion paid for by any sort of spending cuts. Benefits heavily skewed toward the richest 1%. of taxpayers.

Wow.

Comments

[tigertoy.livejournal.com]

The new tax I propose in my second paragraph covers every dollar that passes through the corporation's hands/acconuts. (I *think* that's the same thing as "cash flow" but since the latter is an accounting term, I'm not quite sure.) I don't know if it could replace income taxes entirely without disproportionately hitting businesses with low margins hard enough to cause Unintended Consequences. Part of the more-than-one-paragraph justification of this tax is to have big companies pay a chunk of their total revenue to cover the cost of actually enforcing all the regulations on them -- to offset the fact that one of the main advantages companies get from being big is that they can afford to hire specialists in avoiding regulations in the first place. Most Fortune 500 companies pay proportionally much less in taxes than sole proprietorships, because the big guys would rather spend a million dollars having lawyers and accountants tap dance through the loopholes than pay a million dollars in taxes.

I tend to distrust the idea of taxing corporate profits (but exempting investment and expenses) because it's hard for the law to distinguish between real costs of production and crap like corporate jets and platinum fixtures for the CEO's bathroom. If we get to imagine scrapping our entire existing tax system and starting over, I think we should shift the burden to specific taxes on bad things (like pollution and marketing) rather than general taxes on good things like owning land and earning income.

[billroper]

Actually, that's a different thing than a cash flow tax. What this would be is a gross revenues tax, similar to what Blagojevitch wanted to introduce in Illinois before getting shot down. Ohio, I understand, has a very, very small one. (As in fractions of a percent.)

The problem with a gross revenues tax is that it does tax every dollar that passes through the hands of the corporation. Say, for instance, that you are a filk dealer. (Yes, I know the proposal would exempt us, but we make a good example.)

Let's assume a 5% tax on gross revenues. So if we sell a CD for $16, we have to send the state 80 cents. This is in addition to paying corporate taxes (actually, we pay at the individual rate, since we're an S-corp, but we'll pay those taxes instead). Now, if we started out with a 40% profit margin, then we would have had a $6.40 profit beforehand (before other expenses like paying for tables, memberships, gas, and hotel), but now we only have $5.60. We still owe 35% corporate tax, so that's another $1.96 we have to send the state. We end up with $3.64.

Before the gross revenues tax, we would have ended up with $4.16. So the gross revenues tax in this case is the equivalent of a total corporate tax rate of a bit more than 43%.

Of course, we may well have those other expenses. If we fully allocate them to each CD that we sell at Convention X, then we might end up actually clearing something like $1 per CD (for the sake of argument).

We still have to send the government the 80 cents for the gross revenues tax. And that leaves us with 20 cents, of which we send the government 35%, leaving us with 13 cents. This is equivalent to a corporate tax rate of 87%.

That's pretty ugly.

Alternatively, the gross revenues tax might be treated as an additional sales tax, which would effectively raise the price of everything that you buy by -- in this case -- 5%.

[billroper]

By the way, a gross receipts tax is even nastier than a VAT, because VAT is rebated at each level of the supply chain so that it ends up being charged only once in the end. If I buy something from Supplier X who has paid VAT, then the VAT that he paid is credited toward the total VAT to be collected on the finished product.

In contrast, a gross receipts tax of 5% would be charged (in the example above) to the company that pumps the petroleum, again to the company that converted the petroleum into plastic feedstock, again to the company that converted it into CD shells, again to the company that distributes the CD shells, and again to us as we assemble the CDs and sell them to the final consumer. So that's a 25%+ tax (since it compounds at each stage of the process).

A gross receipts tax encourages the formation of large, vertically integrated corporations so that you minimize the number of transactions and, thus, the number of times that the tax can be collected. This would seem to be exactly the opposite of what tigertoy wants.