The way Google gets away by paying little corporate tax in USA is by loading up their US entity with tax-deductible expenses.
What is stopping IRS to say.... "Hold on. These tax-deductible expenses are bullshit, we don't accept them. Here is new tax assessment the way we see it"
IRS does this to small businesses all the time.
The alternative is arbitrary power, and that doesn't have a good history.
Side rant: The government shall keep public policy and tax policy separate. While we are at it, we shall prohibit state and local governments from doing these things as well. No, Maryland may not give a tax break to House of Cards. No, AnyTown USA may not give tax break to Walmart. If there is a reduction in tax, it should apply to everyone. Oh and yes, no special excise or stamp taxes either.
Yes, our tools in public policy will get blunt and there will be a very rough transition period. However, I think the end result will be worth it. It is definitely better than having these neo-cons in power while bitching and moaning about not being in power.
So if Walmart buys $1B worth of groceries and sells them for $1.05B they should pay $350 million in taxes on their $50 million profit???
Perhaps trying to simplify the tax code is fools gold just like rewriting production software from scratch. Sure it looks enticing but the devil is in the details.
What if we scale back my ambitions and limit the idea of no incentives, no deductions to individual income tax? Surely people would welcome a simplification that gets rid of all deductions and exclusions?
You can look at the Hong Kong tax system to see what simple looks like in this context (it's still not all that simple).
The basic problem here is not actually the details of the tax codes in different countries. The root problem is entirely political. Companies like Google, Facebook and Apple have lots of money and their products are sold in every country. Lots of governments very much want to spend more money without raising taxes on their own citizens, which means they need to raise taxes on foreigners instead. Thus it turns into a game where countries try to either find creative readings of their own tax laws, or try to publicly shame big companies into giving up more money. But played to its conclusion this game is zero sum: for one country to win, another must lose by an equal amount (once all the profits are being taxed).
That's a brilliant way to create a recession and also to destroy competition.
It would create a giant, massive subsidy to large corporations and heavily incentivize vertical integration. By taxing revenue at every stage, every company would scramble to move transactions out of the market (via mergers and acquisitions).
You'd also likely drive every small business in America out of business.
It also doesn't make any sense. Why should they local grocery store which made $10k profit on $10M in gross revenue pay way more taxes than a software company which made $450k profit on $1m in revenue?
My idea for no deductions and no exclusions was mostly directed at individuals.
If a shop buys something for $10 and sells it for $15, the value added is $5 and you pay a percentage of that as VAT.
What the parent proposes is that you pay a percentage of $15 as tax, and cannot deduct the cost of sales (no deductions, ever).
Each seller charges VAT rate on his output and passes the buyer a special invoice that indicates the amount of tax charged. Buyers who are subject to VAT on their own sales (output tax), consider the tax on the purchase invoices as input tax and can deduct the sum from their own VAT liability. The difference between output tax and input tax is paid to the government (or a refund is claimed, in the case of negative liability).
The compound effect of a revenue tax along a supply chain would result in huge inflation in products with long supply chains (food and consumer goods) and relatively little effect on things like services and high margin businesses.
So what about taxes themselves? My largest federal tax deduction is my state taxes.
No, you couldn't. The very point of deductions is that deducted costs are not earned dollars.
If you can't deduct cost of doing business, all taxation reverts to taxing sales, and the economy is really very, very different from now. No one has ever got that to work, anywhere.