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Comment by prepend | Hacker News Reader

> As a result, families pay a disproportionate share of federal tax receipts

This is simply because companies pay money to individuals who then pay taxes. This is a feature not a bug as taxing companies is less efficient from just having employee pay as a deduction that gets taxed downstream. Trying to tax this money before it gets to employees would result in double taxation as the company would pay and the individual would then pay again.

Also, labor is an expense so it’s logical with the reasoning of only taxing profits.

People who complain about “companies not paying taxes” are like the “47% don’t pay taxes” people in that they don’t understand the principles behind taxation very well, or are trying to deceive, or for some reason care about a specific tax.

This article would be impossible to implement since even simple things like being able to deduct food would favor the rich deducting foie gras over the poor deducting oats.

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You’re talking about why we can’t treat corporations like families with higher tax rates. To me the more interesting question is more about treating families like corporations.

We had a nanny for a year. She made about $50k, but I had to pay her with after-tax income so the actual cost of the nanny was closer to $70k of my pretax income. This is the precise double taxation you’re talking about.

Yes, higher income people have more deductions, but that’s what AMT is for.

What if you don't earn income, would you say that the nanny's wage is lower?

Money doesn't magically appear. The money was earned at some point and likely went through some type of income or estate tax.

Fair. However, because marginal rate differs by year, now we need to know what year's money that nanny's wage is being paid out of to make that 50 vs 70 calculation.

This is a solved problem called accrual accounting.

I'm not familiar with that. Sounds like more complexity for my taxes. I'd rather things get simpler. My proposal is a flat federal value-added tax, its revenue distributed weekly in uniform amounts to each domestically-residing citizen's federal debit card account.

Exactly. I feel like a lot of people here either didn't pay attention to the article or are using it as an opportunity to go on a tangent about corporate/family taxes. The disconnect between the two is listed clearly in the second sentence of the article. Companies are predominately taxed on profit. Families are predominately taxed on revenue. That drastically decreases the tax burden for high revenue businesses and drastically increases the tax burden for families that are barely getting by (i.e. low profit).

I agree with correcting that discrepancy - but why stop at just families? I know society loves to say it's incentivizing family building - but it also creates scenarios adverse to society. Just make the tax code treat everyone the same and tax everyone on revenue minus costs.

I don't think we want that extreme either because not all costs are equal. It is entirely different equation for a family making $50k to write off their groceries versus Jeff Bezos writing off a $400m superyacht.

This is a summary of everything - well done. Taxing profits versus taxing revenues. So deductions and whatnot complicate that slightly, but not much.

The standard deduction seems like a nod in this direction. Perhaps it could be increased to be in line with the average expenses of a middle class family.

Personally, I don’t think people should be paying a cent of income tax until they’re well on their way to an upper-middle class income. Taxes should always be taken out of surpluses, and never make it harder to achieve a baseline level of comfort and stability. The same should apply to new businesses—not a cent of taxes or fees until revenue is sufficient to support its owner(s), and perhaps even a few employees. If you tax something, you get less of it, so we should be very deliberate about what we’re taxing. If we tax the road to the “American dream”, a lot less people will arrive there.

Whatever tax increases are required on the wealthy and larger businesses to accomplish this would be well worth it imo. A big, healthy middle class with lots of new business formation benefits everyone, including and especially the wealthy.

I'd abolish the standard deduction. Rather, move it into the tax brackets. At an absolute minimum the 0% bracket should extend to the poverty line, I think 150% of the poverty line would be a better fence. The standard deduction basically says you don't get to deduct many things you should be able to deduct. All the games we play with deductions are a shell game by Congress to stealthily raise taxes on the poor/middle class.

Good points. That’s probably a less complicated way of getting to the same result.

> She made about $50k, but I had to pay her with after-tax income so the actual cost of the nanny was closer to $70k of my pretax income. This is the precise double taxation you’re talking about.

That's just payroll taxes, which fund things like your nanny's social security and Medicare, and corporations have to pay them too.

If the nanny was on a corporation's payroll it would cost them 70k too, so if you paid the corporation for her services, you'd still have to pay more than 70k for that corporation to make a profit.

No, payroll tax is a separate issue. What the grandparent post is talking about is that a company can deduct its expenses and only pay tax on net income but a family can’t. I’m not sure there’s a way to fix that—the concept of profit doesn’t really apply to a family—but it isn’t a reasonable thing to point out.

Yes exactly. Thank you. Generally people should just assume that others with lived experience are not total idiots about it.

One way to fix it is simply to let families use their SSN as the EIN for the employee, and remove that from your adjusted gross income.

So you think hiring a nanny should have special tax benefits vs e.g. paying a daycare? You realize daycares also pay the same payroll tax, should daycare patrons be able to deduct the daycare's taxes too?

No this is just my own example. I’m sure you have some too, and it’s why the ideas in the article are powerful.

Also, everyone pays the daycare with post-tax dollars, caveat the spending account deduction, the same way they'd pay the nanny. The nanny is a red herring.

If you only tax money people don't spend, i.e. only tax savings, then you discourage saving.

Taxes aren't just about fairness, they're about setting the right incentives. Do you think discouraging saving is a good incentive?

I agree it would be problematic to tax savings. However, if you have a two earner household a nanny is arguably a cost of revenue. I could imagine a system that allowed cost of revenue expenses to be deducted but not, say, a trip to bora bora.

Okay, but saying there should be more tax incentives for childcare is different to saying you should be able to deduct all your workers' payroll taxes (which could equally apply to someone in a mansion whose staff includes a cook, a butler, and a pilot who flies them to Bora Bora every year).

You actually can deduct some childcare costs with a Dependent Care Flexible Savings Account. It's only up to 5k a year though which is lower than the cost of even the cheapest daycares in many areas.

How about domestic help/childcare/dogwalking etc is deductible up to 50% or perhaps 33% of what you would reasonably would make in the time it would take you to provide whatever service they are providing. (Divide your employment income by the hours you typically spend in a year doing that job to get an hourly rate. You can't deduct such expenses on days you aren't working except if the nature of their pay means it continues anyway. Your taking a day off work doesn't mean you get to not pay your nanny, thus that expense remains deductible.)

That’s because a nanny is a luxury, not a necessity. There’s lots of people who figure it out without a nanny.

There is a deduction for child care and it should be higher, but there’s no reason why your $50k nanny expenditure should be tax exempt.

This is what I meant by tax policies that would favor the rich. You’re trying to figure out how to deduct a larger amount than millions of people make. That wouldn’t be fair would it?

You don’t pay tax on your super cool vacation either. Even though it releases stress and is quite nice.

It would be impossible to figure out a fair amount. Instead they just give a standard deduction and incentivize certain things like charities.

If you look at it in the context of a company, then nanny is just an employee. If a company can have more revenue by employing a nanny then why not?

It’s like saying having an office janitor is a luxury.

It’s just a function, like any other, that leverages time.

And I was using it to illustrate the problem of treating individuals like corporations for this purposes. A company is not allowed to hire a nanny for an individual because it’s not essential, but an office janitor is.

The difference between childcare and nanny is huge. Treating individuals like companies for tax purposes would be super regressive and a benefit to the rich that would not apply to the poor.

Daycare costs $5-25k/year and that’s lots less than a nanny. Why should other taxpayers subsidize your nanny preference?

That’s one take.

So this is wrong on several fronts.

First, taxing companies is not "double taxation". Companies are taxed on profits. Paying taxes on behalf of employees and paying taxes on profits are mutually exclusive.

Second, not taxing companies allows the rich to disproportionately avoid paying any taxes.

Person A earns $50,000pa and gets taxed on all of it.

Person B earns $5m but is paid through a company but "only" spends $1m/year. So $1m is distributed as effectively as possible through dividends and income and the rest taxed as profits, deferring a portion of their taxes possibly indefinitely.

But it gets worse: getting paid in a company now allows the person to take advantage of transfer pricing and shift profits (and thus any corporate taxes) to a low or zero tax jurisdiction.

And it doesn't end there. Instead of distributing income, the company borrows against those profits and distributes that. Loan interest is near zero so this also defers taxes, possibly indefinitely.

Some argue it's inefficient to tax companies and we should just tax individuals. The flaw should be clear: at best, for the rich who have this option, you're now taxing their spending instead of their earnings (ie distribute what you need to spend, retain the rest as undistributed profits).

I'm a big fan taxing profits based on revenue, which is to say that if 60% of a company's revenues are sourced in the US, then the US gets to tax 60% of your profits. And I'm completely fine with every country doing this if they want.

I was comparing the issue of taxing companies on revenue instead of profits, like individuals are taxed on income instead of profits.

The current way is done to prevent double taxation.

I think a big problem is that the number of employees required to run many types of businesses has been steadily decreasing over time as technology improves. McDonald's for example went from 440,000 employees to 205,000 from 2012 to 2019 [1]. Multiply that out to include manufacturing companies and it's pretty easy to find the reason governments are strapped for cash. Maybe it's time to tax automation?

[1] https://www.statista.com/statistics/819966/mcdonald-s-number...

> Maybe it's time to tax automation?

1000% yes; I work in industrial mobile robots and it's obvious that governments need to find a way to capture some of the value which is being created there, particular when it's a more-or-less direct trade of a wage-earning employee for a one-off capital investment.

Are there are any major proposals yet for how this might work, or has already worked? The "existing" section on this suspiciously-OR Wikipedia article is pretty scant:

https://en.wikipedia.org/wiki/Robot_tax#Existing_laws

> Are there are any major proposals yet for how this might work, or has already worked?

I don't know of any direct proposals, but I know of one thought: if you look at it, tax on fuels is partially a tax on automation already - machines use energy (be it electricity, heat or pressure), so there's a tax here that is proportional to use of machines. Of course it seems very low if treated as "tax on automation", and it's going to be easy to work around with off-the-grid, local power generation.

Interesting idea, but I don't think that's a realistic proxy, particularly when you look at the automation-per-dollar "efficiency" of computers relative to other industrial processes— like, how much compute do you get for the power that it takes to boil water or weld together a car or something? Or what about a case like a self-serve till at the grocery store? The power those consume is probably actually comparable to the power consumed by a till with a person operating it.

There are good reasons to tax energy and carbon, but critics are right that it ultimately is a tax on everything. An automation tax needs to find a way to specifically tax the gains made by putting humans out of a job, similar to what organized labour achieved for a generation of longshoreman when containerization killed their industry in the 60s and 70s (as documented in Marc Levinson's excellent book The Box).

UBI is the only one that makes sense to me.

There has to be a domestic market of people buying stuff for the rest of the economy to exist. If all the people are automated out of jobs, then that domestic market has to be provided by UBI. The funds for that provision have to come from corporate taxes. Probably a tax on capital spending or depreciation - if you're replacing labour with capital and the government relies on taxes on labour for its revenue, then the government has to switch to taxing capital.

If there was a way of not involving the government in this, that would probably work better. The dream, of course, being The Culture - no government at all, just people acting in their enlightened self-interest in a post-scarcity world.

Is that the McDonald's headcount or the McDonald's plus franchisee headcount?

If it is direct employees, some of the explanation would be that they sold locations to franchisees https://www.wsj.com/articles/mcdonalds-revenue-falls-as-comp...

Maybe not automation, but it is reasonable to tax the externality, which is disruption. Taxing the speed of change of number of employees commensurate to the difficulty those employees have in finding new employment. Then pump the proceeds of that tax into unemployment benefits and training.

Tough to implement.

There could easily be a tax for eliminating someone's position entirely. i.e. Incentivize having way more people than needed to watch the machine do its thing.

Ok radical idea - I'm starting to think of these ever larger/automated companies as having "won" the capitalism game or discovered a fundamental solution to some problem. But the economy doesn't have a great endgame scenario for such entities. One option might be regulating them as public utilities instead of corporate entities. i.e. The point of making a huge corporation changes from eternally extracting rent to becoming so ubiquitous that society adopts it as a fundamental exercise like Fire Departments or roadways.

McDonalds employs fewer people but now we have jobs making and maintaining that automation and those jobs pay an awful lot better than do-you-want-fries-with-that. I don't believe taxing automation is a good thing in the long run.

> Maybe it's time to tax automation?

Special taxes are dumb because of the overhead and externalities.

Automation is already covered in that it results in either greater profits or greater payroll through higher wages, so either way it’s already taxed.

The incentive is for companies to be efficient by increasing productivity. This productivity is taxed through existing means. So unless you want to disincentive automation a special tax for it is bad.

>This is a feature not a bug as taxing companies is less efficient from just having employee pay as a deduction that gets taxed downstream. Trying to tax this money before it gets to employees would result in double taxation as the company would pay and the individual would then pay again.

So the corporation gets to enjoy low tax obligation, and push that obligation onto their employees. And that's a feature?

The system is truly fucked.

Yep....the claim is companies create jobs thus should have tax benefits. But I'm pretty sure the only reason that company can create job is because I purchased items from them.

If a company creates jobs because good/services were purchased, then why not empower the purchaser with more purchasing power? In a supply/demand economy, the supply side is reaping the benefits...if you give benefits to the demand side then that's labeled as making people lazy LOL.

70% of the GPD is driven by personal consumption but we're often told that we are meaningless to the economy and should give tax benefits to companies to "create" jobs.

(https://www.thebalance.com/personal-consumption-expenditures...)

The main problem with today's society is the power imbalance. If we can solve that, we'll flourish.

Companies are owned by people. The idea is companies push all profits to shareholders and employees. It’s fucked that people don’t understand this and think that taxing companies is somehow different than taxing people.

As long as taxes are paid the calculus should be in what’s most efficient. I don’t care if the company pays it directly or indirectly through people.

What’s actually stupid is that dividends are taxable. Since they are after tax the company pays taxes, sends the remaining money to shareholders as dividends. Then then the dividends are taxed at the individual level.

What’s even stupider is that is a company is a shareholder. It pays taxes on that dividend income, then distributes to shareholders.

It’s not the system that’s fucked, it’s your understanding of the principles of the system. I suggest a microeconomics 101 MOOC.

And note that taxing companies is inherently a regressive tax. America would be better served by abolishing corporate tax entirely.

On the individual side I would expand schedule C to all income-producing activities--what it cost to make the money comes off the top rather than the current mess (especially as unreimbursed business expense isn't even deductible at present.) This would include all hobby activities, the only difference being a zero floor for hobby "income"--you can't write off hobby losses against other income.

Obviously, individual tax rates would have to go up, but so long as it was revenue neutral I think America would benefit.

> This is simply because companies pay money to individuals who then pay taxes. This is a feature not a bug as taxing companies is less efficient from just having employee pay as a deduction that gets taxed downstream.

So if a company has a large revenue that it mostly reinvests and pays low salaries, very little tax would be paid on this revenue, and that seems okay to you?

> People who complain about “companies not paying taxes” are like the “47% don’t pay taxes” people in that they don’t understand the principles behind taxation very well

Are you sure about that? Amazon paid a federal income tax of 1.2% in 2019 on 13B of U.S. income. I think this is what people complain about when they talk about companies not paying taxes.

13B in revenue or profit? That is, after paying their employees, the cost of buildings and equipment, capital costs, etc. how much was left over? What percentage of that did they pay in taxes?

Are you suggesting that Amazon's revenue from customers in the United States was $13 billion in all of 2019? That's a fraction of AWS revenue, let alone their retail business.

How should I know? It could be anywhere between $13 million and $13 trillion for all I know. I’m not even sure how much I have in my own bank account.

> So if a company has a large revenue that it mostly reinvests and pays low salaries, very little tax would be paid on this revenue, and that seems okay to you?

Certainly, of course. If they reinvest then they are spending capital on something so that company so taxes are eventually paid.

This is meant, I think, to encourage growth with the intent that there will be an eventual taxable event at a higher amount than if tax was paid earlier in the stream. I think this is why tax revenues continue to grow. The intent is to maximize tax revenue. There’s no reason to worry about companies like in your scenario because it doesn’t negatively impact taxes.

What might be good is to setup thresholds for deductible expenses to prevent corporate expense that are clearly luxuries. For example, meals are only 50% deductible. I could see setting up different classifications for private jets over commercial, country club dues, luxury hotels, etc.

It doesn’t seem fair that taxpayers subsidize corporations claiming expenses and offsetting taxes on country club dues and whatnot. Pretty bizarre and there are lots of setasides that clearly benefit rich people who work for corporations.

>People who complain about “companies not paying taxes...” don’t understand the principles behind taxation very well

It's true that people don't understand the principles or details very well, but it's also true that the principles are just a starting point on a convoluted road to a working understanding.

Corporate income taxes are paid on profits. Individual income tax is on revenue. That's the principle. Square that principle with the amount of tax paid over time by the most profitable companies, say amazon. Square the idea of individual income tax with the actual amount paid by Bezos.

Wealth is different from income.

Don’t non-US national owners of companies doing business in the United States benefit from goods and services provided by US governments? Ought they contribute? How do you tax them if the system only taxes individuals?

This article is another conservative puff piece that doesn't belong on Hacker News. They are pushing for a flat tax which is a regressive tax.

Combined with UBI, it could have merit.

However the combination will never happen as it doesn’t allow politicians to play favorites and reward their buddies.

A flat tax with an tax free income threshold would actually be great.

For example:

- Exclude the first $50,000

- Tax the rest at 25%

- Eliminate deductions (this will never happen). This includes the standard deduction.

- Make efforts to also stop companies to shift profits to low or no tax jurisdictions.

- Get rid of double taxation on dividends.

And we'd all be a lot better off.

I don't think the flat tax is a good idea, but I would love a simpler tax code.

But I remember having a long conversation with a friend who was an economist on why corporations were able to deduct things they needed to provide their services, but I as an individual couldn't do the same. It's a valid and interesting topic to discuss, imo.

How is a flat tax regressive?

How far from flat does it have to be to stop being regressive?

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