Best basis for taxation

D H

Not if every other manufacturer is subject to the same tax increases. Every company will raise its prices, and in this case it won't be collusion.

You are right in one sense. I missed the case where a company cannot pass the cost increases on to the customers because its competition is largely foreign-based companies that are not subject to the domestic taxes on corporations. So, what happens to companies whose competition large comes from non-US companies?

• The US-based company will sell fewer products. Positive consequences: The evil, greedy, Repblican owners won't be quite so wealthy, and the company will not have quite the tax burden it would have otherwise. Negative consequences: The government will find that its plans backfired. Not only are the business taxes not producing the revenue as expected, income tax receipts are down. The evil, greedy Republican owners of companies are the ones who pay the lion's share of the taxes. Another negative consequence: The terminated employees will be in even worse shape than the owners. This last point has a bright side, however: Those unemployed people will likely vote Democratic.
• The company may simply go out of business, with all the workers becoming unemployed. At least this will result in a whole lot of Democratic voters.
• The company can relocate off-shore or be sold to its existing offshore competition, thereby escaping most of the taxes on domestic-based corporations.
• The company can look for other ways of cutting costs, such as moving its manufacturing facilities to a country with cheaper labor.

The US can't tax foreign companies the way it taxes domestic based corporations without violating treaties.

baywax

I don't mean to paint anyone as evil. I think taxes need to be fair in the sense that they don't hurt profit margins. If the government used the FIELDS formulae where you charge very little on a lot of products... thus huge volume creates huge income... then there would be an even spread of the burden.

Also, what is stopping government from making money on products it backs or invents?

CRGreathouse

I disagree. First, even if all widget manufacturers are in Brazil and Brazil raises the taxes on widget companies, people can buy whatsits rather than widgets. Second, people can reduce their consumption of all widget-whatsit class items (instead spending their money on cars, fresh fruits, or leisure, perhaps).

Yes, I would expect all widget manufacturers to raise their prices, but that doesn't mean they can pass along all the tax increase for the reasons already given: foreign widget competition, widget substitution, and sector substitution.

The widget companies' lower tax liability is not a benefit -- the only possible benefit is the government's tax revenue (which may increase or decrease).

This is often the case, though it's really just a special case of the first. Laying off half your workforce is just halfway to going out of business -- and if your sales go down 50%, you're going to have to essentially trim half your employees.

These are also essentially the same. The foreign branches may repatriate some profits to the parent (in Brazil, in my example, or in the US in your example) which could be taxed -- but often the overseas profits are used to develop the overseas presence instead.

CRGreathouse

But representing every industry will result in a large enough meeting that some will be ignored... taking us back to the starting point. And this doesn't even deal with the issue of things that are beneficial only to companies but not consumers -- legalizing collusion, for example.

D H

You must have missed the rolls-eyes smilely at the end of the paragraph. To make it very explicit: Any statements regarding the benefits accrued by the government forcing companies to go out of business were strictly tongue-in-cheek.

CRGreathouse

In what way should the burden be spread around?


I guess I'd like to split the problem of taxation into two parts: ethical and positive/non-normative. First we decide what would be fair to tax, then we decide (based on what fairness principles are accepted) what method of taxation would be least harmful.

baywax

Going back to the General Services Tax. This applied to every purchase of most goods with regulations stating things like buying a dozen buns or a loaf of bread or a jug of milk would be exempt from the tax... but the companies creating these items collects GST on most items... passing the Government's taxation along to the consumer in full view of the consumer. In fact each service company charges GST for the govt and hands it in quarterly. The cut to begin with was 7%. Now its been lowered for popularity issues to 5%... just as this economic throttling has taken place. This taxation technique helped take the burden of running a nation off the big producers to some degree. It was like the FIELDS model in that it applied across the board to every service and many items. Often only representing a few cents here and there for the low-middle income consumer.

Luxury tax is another item that works to a degree. It hands the responsibility of a person's choice back to them in the form of a tax that will pay for search and rescue, airports, polluting manufacturing clean up costs, smoother roads etc.... because the car or stereo or Cessna manufacturer can't build that tax into there pricing but they can blame the government for it. In fact the rebates of up to $2000 on gas efficient vehicles provide the manufacturer with incentives and a sign that the government gives back.. sometimes.

CRGreathouse

The purpose, presumably, of a luxury tax is to tax the rich more than the poor, especially when they're spending on 'frivolous' things instead of investing in the stock market or paying for their kids' college tuition.

My point about separating ethics from non-normative economic analysis applies here: I'd like to compare the efficiency of

• the current system
• the current system with higher lux taxes and lower income tax on the rich
• the current system with lower lux taxes and higher income tax on the rich

Car, stereo, and Cessna manufacturers do build the taxes into their prices. If car companies no longer needed to pay taxes, they could make more money by dropping their price (not by the full amount of the tax, but partway) in order to sell more units.

baywax

Sorry... what I was saying there was that the GST or Luxury Tax is alway added to the price of a luxury item... it shows up on the invoice as a government imposed tax... and is not hidden... unethically.... from the consumer.

CRGreathouse

Ah. I'm not talking about that, though; I'm talking about how prices really change. If a company makes luxury watches which sell for $500 (making a profit of $120 per watch) and suddenly there is a luxury tax of 10% on the watches, I expect the company to lower prices (perhaps to $480, lowering profit per watch to $100) to keep buyers from switching to alternatives that aren't taxed. This is because, in essence, the company can make the watch $22 cheaper by losing only $20 per watch, so there's more benefit from the 'increased sales' (relative to not dropping the prices post-tax) than from the higher margin.

stewartcs

IMO, I don't think the rich benefit from government services more than anyone else. In fact, using your truck example, passenger vehicles account for 93% of highway usage compared to the 7% of commercial vehicles. Plus commercial vehicles have higher associated fees than passenger vehicles, and the trucking company is providing a job for the driver (who isn't rich).

CS

stewartcs

The military (and police) protect the US as a whole, regardless of how much each individual person makes. I don't see a benefit for the rich here either. I mean, we all live in the same place that needs protecting don't we (i.e. the US)?

CS

DaleSpam

Yeah, I see your point. I guess the idea is simply that the rich have a bigger "slice" of the "US as a whole"-pie. So they can be considered to derive more benefit from the same protection. At the same time, that really brings up the issue of income vs. wealth, how do you best measure the slice?

stewartcs

Do they really have a bigger slice of the pie though as a whole? There are by far less "rich" people than "poor" people in the US. I think they make up something like 1% of the people in the US which would be a rather small slice.

CS

CRGreathouse

I think this is a valid point -- the rich do get more benefit. But assuming that the police/military protection applies to both the person and the property, and that both are of positive value (we prefer living to being killed, we prefer having our house to having someone burn it down), even a straight wealth tax (the property tax is a close relative) is 'too progressive', and that the tiered income tax structure is right out.

CRGreathouse

I don't know if that's relevant. DaleSpam was just suggesting that each rich person gets more benefit from government protection than each poor person, which seems reasonable to me. The government doesn't protect my vacation home because I don't have one.

But obviously how many rich people there are depends on your definition of rich. By Victorian standards I'd imagine the majority of people in the US are rich.

CRGreathouse

I don't know if they benefit a lot more or just a little more -- people have argued both on this thread -- but I do think that they (sensibly) benefit more. But I'm not saying that the total benefit to all rich people is greater than the total benefit to all nonrich people, just that the average rich person gets more gross benefit from the government than the average nonrich person does -- for some reasonable value of 'rich', anyway.