"Michael Froomkin - U.Miami School of Law" <froomkin@law.miami.edu> writes:
I think there's some funny accounting here...
Creative accounting is the name of the game. Pay attention, IRS...
On Tue, 12 Nov 1996, Joseph M. Reagle Jr., for whom I have considerable respect and who ordinarily posts very sensible things but appears to have lent his account to someone else appeared to have written:
Another one of John Gilmore's electronic forgeries and fabrications (EFF)?
o TAXES THOUGHT EXPERIMENT
1) I generate $100 of productivity for my company
I will assume you measure productivity by "sales".
No, I think he understands that the cost of good sold and other costs are taken out of "sales" to compute his contribution.
Note also that it's debatable whether this $100 of sales is exactly "your" productivity. In some sense it's really the company's, ie a joint product of your labor, their capital, and the labor of other people in the production/sales chain:
And of course you use the infrastructure paid for with your taxes and other people's taxes (state and federal).
Note also that the analysis that follows is not really affected by whether you meant "sales" or "my contribution to the sale".
2) Company is taxed %30, $70 left
No. Company is NOT taxed on gross sales. Corporate income tax does not work like sales tax. With some minor exceptions relating to pass-through rules, foreign sales, and some complex timing issues, corporate tax is ordinarily levied on NET PROFITS. Thus, the company first deducts all the "costs" it can identify, even if those were not necessarily involved in producing that (or any) sales. E.g. advertising, your salary, corporate junkets, rent, etc. And lets not forget corporate tax sheltering too...
In Germany, a company can put practicially inlimited amounts of money into tax-deductible reserves. E.g., you can estimate that once in ten years you'll be unable to collect a debt of 10DEM. Every year you set aside 1DEM as a sort of self-insurance reserve. The revenue authorites don't bother you if the assumption of 10DEM every 10 years is overly pessimistic. Therefore German corporations generally pay little income tax.
3) Company pay shareholders and costs, $30 is left
Again, no. Shareholders come AFTER payroll and costs.
Dividends are NOT tax-deductible in the U.S. On the other hand, interest is. Therefore it's sometimes more profitable for a company to raise money by issuing bonds (debt) and paying tax-deducuble interest than by selling its stock (equity) and paying non-decuctible dividentds to stockholders.
5) I pay 40% in taxes, so $18 left
I'm afraid you are conflating the MARGINAL rate (and when you consider federal, state and local taxes varies by state) with the AVERAGE rate. Here in FL. for example there is no state or local income tax. With tax sheltering, mortgage deductions etc. no one pays 40% -- the middle class pay a lower average rate, the upper class pay a much lower average rate.
That varies with the locale - here I pay the federal income tax plus the New York State income tax plus the New York City income tax. I once had a job offer from IBM at $79K/year in Boca Raton (which I eventually didn't take anyway) - it's a ridiculous salary in NYC, but a decent one in Florida. --- Dr.Dimitri Vulis KOTM Brighton Beach Boardwalk BBS, Forest Hills, N.Y.: +1-718-261-2013, 14.4Kbps