Humans are taxed on their income. Corporations are taxed on their profits (they deduct their expenses).
Corporations can be taxed on the money coming in, that would look like a sales tax or VAT. The problem with that tax is it falls on the consumer (since what really matters is which transaction you tax, not which side pays the tax).
But this brings me to a solution to the corporate tax avoidance issue that has already been figured out by economists, but rarely gets discussed.
This is a simplification, but basically corporations have one place money goes in, and two places it goes out, like this:
sales = expenses + profits
If you tax the sales, but deduct the expenses, this leaves the incidence of the tax on the profits. Unlike profits, it's usually much clearer where the sale takes place so it's much harder to avoid than the existing corporate tax. It's called a border adjustment tax. [1]
Where this gets complicated is international trade - how this works is only domestic expenses are deductible. At first glance that seems protectionist, but apparently the currency exchange rates adjust which balances is it out and although it's not obvious it ends up trade-neutral.
It was actually seriously proposed as part of US tax reform in 2017, but some big companies were against it so it got killed.
Sure, I believe Ohio has something similar. More significantly I think (in percentage terms), there are already sales taxes and VATs.
But when people are discussing the corporate tax and corporate tax avoidance, usually they're talking about the corporate income tax, which is also what the article is about.
With a VAT, the total taxed amount is $10, which is divided up among the companies based on how much value they added (so if they move from $8->$9, they pay tax on $1).
With a gross receipts tax, the total taxed amount is $7+$8+$9+$10=$34. Goods that are produced by many small companies working together will pay a lot more taxes than those produced by huge vertically-integrated ones.
There's some good reasons to use a VAT if you want to tax revenue, and one of them is to avoid problems like this.
With a VAT each layer deducts the tax they pay. The net tax is only on the the value added. The company in the middle pays tax on $7 and collects tax on $8, and forwards the difference.
It's very elegant and fair, but imposes a lot of accounting. Sales tax is easier in that it only collects at the end, but it's actually hard to define "end". (Buy a screw and you pay tax, buy a manufacturer buying the same screw usually does not.)
There are still problems about regressive taxation (are stock profits value add? Services? Plain old labor? What's the difference? Usually poor people end up paying the taxes on everything while rich people buy things that aren't subject to the system). Still, if you want to tax profits on consumables, it's remarkably straightforward.
It does add more accounting, but one advantage of involving the companies in the middle is it makes cheating harder and less lucrative, since a bunch of companies have to coordinate to avoid paying the VAT instead of just one company at the end.
Agree that VAT/sales taxes are regressive and shift more of the tax burden to lower-income people. Although the only US political candidate I can remember recently proposing a VAT was Yang in which case his UBI proposal would probably more than balance out the effects on after-tax income.
I don't know if Yang's math checks out, but I think his proposal was $1000/mo and a 10% VAT. So the breakeven point would be $120k spending on taxable items/yr for an individual, or $240k spending/yr for a couple, with people below that coming out ahead and above coming out behind.
Where you draw the line for "middle class" is somewhat arbitrary - I think you could be middle class and still earn over $120k, especially in a high cost of living area - but probably most people who consider themselves middle class would fall under that. Especially because people who earn $120k are probably not spending $120k/yr once you factor in retirement contributions, income taxes, etc.
A relatively high-profile economist wrote positively about the UBI idea last year. [1]
Not that you couldn't make it more progressive. I think I've seen proposals for a progressive individual consumption tax, which would look something like a progressive income tax but then removing the limits for IRA contributions. The theory being you would put money you want to save in the non-taxable account, then you would only withdraw what you want to spend in a given year, which could be taxed at a progressive rate.
>Where you draw the line for "middle class" is somewhat arbitrary
It’s a convention so, yes, it’s arbitrary (and people tend to change that definition to fit their points, and of course it’s relative to COL) but the most widely used definition is the middle quintiles. I believe this puts the upper bound around $120k for a household (not individual) in the US.
And you’re right, most people do consider themselves middle class. Some studies show as much as 90% of people think they are middle class which, unless we use a very loose statistical definition, is obviously false. The problem is people subjectively compare their life to their own peer group rather than society as a whole, so they are misled about defining the societal norm.
I only meant to say the majority of the middle class would fall under $120k no matter how you (reasonably) draw it (so with respect to that specific VAT/UBI proposal, most of the middle class would see a gain).
For how higher incomes could end up middle class I wasn't thinking of a different threshold, but ways of defining social class that are more qualitative than quantitative.
For example you could define middle class as people who live a modest lifestyle financed by selling their labor to a company, and upper class as people who can live off wealth. So someone from a wealthy family living off a trust fund and going to an elite graduate school might count as upper class despite being low or middle income, and an engineer making $120k in the bay area might still count as middle class that way.
Defining it like that would probably produce a small upper class relative to the size of the middle class, but in historical societies where social class was a bigger issue what's considered upper class is usually a pretty small percent of the population, so it wouldn't seem too crazy to me to define it like that.
Corporations can be taxed on the money coming in, that would look like a sales tax or VAT. The problem with that tax is it falls on the consumer (since what really matters is which transaction you tax, not which side pays the tax).
But this brings me to a solution to the corporate tax avoidance issue that has already been figured out by economists, but rarely gets discussed.
This is a simplification, but basically corporations have one place money goes in, and two places it goes out, like this:
sales = expenses + profits
If you tax the sales, but deduct the expenses, this leaves the incidence of the tax on the profits. Unlike profits, it's usually much clearer where the sale takes place so it's much harder to avoid than the existing corporate tax. It's called a border adjustment tax. [1]
Where this gets complicated is international trade - how this works is only domestic expenses are deductible. At first glance that seems protectionist, but apparently the currency exchange rates adjust which balances is it out and although it's not obvious it ends up trade-neutral.
It was actually seriously proposed as part of US tax reform in 2017, but some big companies were against it so it got killed.
[1] https://en.wikipedia.org/wiki/Border-adjustment_tax