Newfie wrote:mousepad wrote:Newfie wrote:If a factory lays off 10 employees because it bought a robot then their income tax goes away. Shift to a production tax and it stays. And the IRS only has to chase the manufacturers, not every single one of us.
If the factory can produce the same output with 10 less employees, then its INCOME will increase, which will automatically result in more taxes paid.
OK educate me. How is a factory taxed on income? And what part of that income tax goes to social security and Medicare?
Not sarcastic, much I don’t know here.
A company is taxed (just like you) on income. But the company is taxed on income AFTER expenses. Where you are taxed on income before expenses (mostly, there are a few exceptions).
Example.
The company sells widgets for $1000.
The company employs 1 person and pays $900 in salary.
The income therefore is $100.
The flat corporate tax rate currently is roughly 20%. So the company pays $20 in income taxes.
The employee (assuming he's a minimum wage employee) get's $900 in salary. This is taxed at a minimum bracket of approx 15%. So he pays $135 in income taxes.
The total tax income therefore for the tax man is $135 (from the employee) + $20 (from the corp) for a total of $155.
Now the company fires the employee and buys a robot instead. It still makes the same widgets for $1000. But the expense is now the operation of the robot which is let's say $100.
So the income of the corp is now $900. The corp now has to pay 20% on $900 which is $180.
So the corporation wins by having more cash at the end of the year. And the tax man wins by having $180 instead of $155. The guy that lost is the employee who doesn't have a job anymore.
So where's the "companies don't pay taxes" idea come from?
The easiest thing to do for a company to avoid income taxes is to invest in its growth. That is what amazon and all those other companies that get the lefty "they don't pay taxes hate".
In the above example the corp had $900 of income using the robot. How can this be reduces? Simple, invest in expansion. New building, new computers, new robots, new markets, new software, new people, and and and. Those are all expenses that are deducted from the income.
So although amazon makes billions in raw revenue, they simple invest a huge amount of it right back into their business, essentially lowering their income to a very small number, hence reducing their tax burden.
So don't blame the companies. They don't do anything illegal. The intention of the tax law is to encourage growth, encourage spending, encourage investment. That's what all those companies are doing.