[FoRK] Dilemma

J. Andrew Rogers andrew at ceruleansystems.com
Tue Jul 14 18:52:37 PDT 2009

On Jul 14, 2009, at 6:01 PM, Stephen Williams wrote:
> Are you implying that the US "skims" 20% of gross revenue on all  
> business revenue?  Really?  "Skimming" means taking a chunk of gross  
> receipts.  The mob guy stops by Friday night and dips into the till  
> for a handful.

All the parsing aside, the US business taxes are not favorable by the  
standards of the industrialized world, and there are plans afoot to  
make them materially worse than they already are.

I think it is very reasonable to be concerned about the business tax  
structure in the US; we are starting out from a position of mediocrity  
and proposing the pathological.  It is fine that they want to raise  
revenue, but it seems to be more about political expediency and  
control than efficient revenue generation.

> Is that why some ad I saw for Mother Jones at the post office  
> yesterday (misleadingly) points out that "61% of corporations pay no  
> tax"?

That is because most corporations are tiny and the money is passed  
through to the individuals that own it, which as you point out is  
misleading.  Ideally, even large corporations could operate in this  
fashion if only to eliminate the perverse incentives corporate  
taxation creates. The 1990s dotcom boom-bust cycle was at least in  
part an artifact of perverse incentives created by the US tax structure.

>  Some counties do have a gross receipts tax.  The most I've seen is  
> 1%.

As an additional data point, I know the State of Washington has a 1.5%  
gross receipts tax for many businesses.

The major criticism of gross receipts taxes is that they compound  
rapidly to a significant percentage and create perverse incentives  
toward inefficient business structures.  Perhaps not 20% in the US,  
but far larger in reality than the trivial-looking 1-2%. It does not  
require taking an obvious "20% off the top" to create a de facto  
approximation of that. In most cases, a large VAT is a better idea  
than a small GRT.

> So, how is Obama being an idiot or hypocrite here?  I would raise  
> the same point.

The only point worth raising is that it is plainly an attempt to  
obscure a steep tax hike that will be paid by average individuals.  I  
have no problem with that as a mechanism per se except to the extent  
that it is very damaging to the US business environment to try and  
bury that large of an individual tax hike in the US business tax  
structure. That has consequences to average people far beyond paying  
more in (obfuscated) taxes.

If the US needs to raise revenue, the least the government could do is  
be intelligent about it. The Europeans are in many ways smarter about  
tax structures than the US government. It baffles me that the plan is  
to ignore the better features of European governments and to  
diligently emulate the parts where European governments reliably under- 


J. Andrew Rogers

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