Hacker News Reader

Comment by ABCLAW | Hacker News Reader

>I do not understand how people can not understand that a percentage tax, by it's definition, does have the largest companies pay more.

They don't understand it because it isn't true on a proportional basis (and in some cases on an absolute dollar value basis, too).

Larger companies have access to tax avoidance strategies which are unavailable to smaller companies[1] which substantially changes the calculus.

I've gone through the books of plenty LargeCos. The playing field is not even.

[1] issues include inability to finance high-end tax structuring advice, writing of grants or negotiate valuations, lack of ability to amortize risk associated with an unfavourable tax ruling, lack of capital to access directorship services in tax havens etc.

View on HN

There seems to be a repeated response to what I said, so I'll just respond once. The fix for companies using loopholes to avoid taxes is not to raise the tax rate. The fix is to remove the loopholes.

A decent chunk of the tax savings from loopholes is channeled back into preventing those loopholes from closing.

Why not both? People selling physical goods bake a certain percentage of shrinkange into the price of their goods whilst also finding new ways to prevent theft.

>The fix is to remove the loopholes.

Is it, though? This is a situation where Chesterton's Fence is important to consider.

No single government regulates tax worldwide, and each is iteratively attempting to balance a multitude of concerns, while remaining competitive to capital.

Additionally, many of the loopholes aren't legislative tax exemptions on the books. They're determinations regarding how and when certain things are recognized on the books. 'Fixing' those problems doesn't 'remove' loopholes. It just creates new rules which are then exploited.

Finally, with respect to tax simplification in general: Simplifying the tax code is akin to refactoring code. Sure, there are some areas where it could be engaged in without causing problems (and which would result in efficiency gains!), but much of the appeal of refactoring code lies in how we ignore the tricky edge cases when designing a new utopic system in our heads.

The legal project of re-digesting a highly complicated body of law and producing a more functional version would take, at the very least, a decade of work. So now we're hitting the complexity limits of an administration's compute ability too. Shit.

All in all: it's a bit harder than that. I wish you were right, though.

Chesterton’s Fence would apply to tax rates and new taxes as well.

Why is that important?

I have two taxpayers, Roy the rich ($1000 / month) and Peter the poor ($100 / month). Today we will have a 10% flat tax. Peter pays $10. Roy pays $100. The total tax take is $110 and Roy is paying 91% of it.

If we imagine a 'comfortable' lifestyle costs $200/month then there is an argument against using this flat tax system, but it is difficult to escape from the fact that Roy is doing almost all the heavy lifting from the who-is-funding-society perspective. Even if Roy has a very good team of accountants and is managing to only pay 5% of his income in tax (grossly unfair!) he would still be paying 83% of the total tax take (50 / 60). If we use percentages, the rich are going to be paying for most of what the government does, whether they pay personally or through corporate tax.

Most people overestimate how profitable companies are, the economics of business tend to squeeze margins. I've seen a lot of arguments in Australia whinging that not enough taxes are paid by companies like Quantas because they don't understand concepts like depreciation and carrying losses forward. Those concepts are quite fair once it is accepted that maybe assets take a few years life in them before they need to be replaced.

EDIT Bit slow this morning, I figured out what you meant by proportional basis.

There's multiple glaring problems with your example, but the main issue for the economy is that Peter the poor spends a much larger proportion of his income as a necessity to survive.

Society as a whole benefits from Peter the poor paying proportionally less in taxes because Roy the rich simply does not consume the same proportion of his income (let's keep in mind, that in real life, Roy is 100,000 times richer than Pete, not 10x). Taxing Roy proportionately more is not only the ethical thing to do, but also the rational thing to do if you want a strong economy.

These policies aren't about what you find fair, they're in place because they are what make society prosperous.

Reply on news.ycombinator.com