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Response to former9thward (Reply #1)

Sun May 26, 2013, 06:53 PM

8. Harder than it sounds

Today, we tax companies based on their profits, not their revenue. That seems fair. If you eliminate all deductions, you are eliminating the deduction for expenses, which means that you are taxing revenue instead of profits.

Let's take two examples. I run a business in which I buy two parts for $1 each, fasten them together, and sell the set for $10. My profit is $8. You are my distributor. You buy them from me for $10 and sell them for $12. Your profit is $2. In the current tax system, I pay a tax on my $8 of profit and you pay a tax on your $2 in profit. If we can't deduct our expenses, I pay a tax on my $10 in revenue and you pay a tax on your $12 in revenue. This change doesn't hurt me much, but it completely kills low margin businesses like yours.

Obviously, we need to allow companies to deduct business expenses. But what constitutes a business expense? That's where the trouble starts. It gets tricky fast when you start trying to define those things.

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