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France's digital tax

Discussion in 'BBS Hangout: Debate & Discussion' started by JuanValdez, Dec 5, 2019.

  1. JuanValdez

    JuanValdez Contributing Member

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    mikol13 and FranchiseBlade like this.
  2. FranchiseBlade

    FranchiseBlade Contributing Member
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    It is hard for me to look at it one issue at a time. Internet giants get away with avoiding and avoid paying their share on so many things that if someone slaps them with a tax that they can't evade, I have a hard time being upset by that.

    I'm 100% against erecting trade barriers from an economic standpoint but also from a personal one. I drink a significant amount of french wines that already aren't cheap(for me). I would drink more if they were less expensive. So this is an issue that would impact me personally. I know that I shouldn't let that prevent me from doing the right thing. I haven't been convinced that it is the right thing to do, however. I honestly try and be open to the idea that it might be, but I haven't seen it so far.
     
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  3. Major

    Major Member

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    I don't have an issue with France trying to correct loopholes in tax laws that companies use to avoid taxes. If Google doesn't like French taxes, they don't have to operate in France.

    That said, taxing revenues instead of profits is pretty much always a terrible thing to do - similar in principle to the flaws in a wealth tax. It taxes the wrong thing (money, instead of income/profit).
     
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  4. Ottomaton

    Ottomaton Contributing Member
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    It appears to me that these companies have been so skilled at loopholing taxes that they should look in the mirror.

    If you figure out a way to consistently beat the house at a Casino, the house is just going to change the rules of the game.

    This feels a little like, "Loophole your way out of paying these taxes, MF'er."
     
  5. DaDakota

    DaDakota If you want to know, just ask!

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    I think you are going to have to as revenues from brick and morters plummet.

    DD
     
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  6. calcium

    calcium Member

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    You mean they would need to pay 3% ON TOP of the taxes they are already paying....

    That would mean they would be paying a total of 3% in taxes.
     
  7. adoo

    adoo Member

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    fyi
    • the wealth tax, as proposed by Warren, is taxing on the net worth (what someone owns minus what's owe) of a tax entity
      • extremely difficult to implement, as no country has such a system
    • taxing on revenues is effectively a sales tax
      • probably every country already has some form of sales tax system
     
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  8. adoo

    adoo Member

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  9. Major

    Major Member

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    That's a very good point. I think there's a distinction in terms of how this is administered and who actually pays it vs a sales tax, but relative to the inherent fairness of the tax, it's a distinction without a difference.
     
  10. adoo

    adoo Member

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    wealth tax and sales tax are as different as day and nite.

    the cos are using the internet infrastructure in a country to sell good / services to its citizens.

    It’s only fair that they’re subject to the same sales tax burden had the sales been conducted in a “brick and mortar” fashion.
     
    #10 adoo, Dec 5, 2019
    Last edited: Dec 5, 2019
  11. JuanValdez

    JuanValdez Contributing Member

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    It seems to me that the only reason France is pushing this tax legislatively is to light a fire under the OECD to come to a multilateral agreement between all countries on how to tax internet companies fairly. The US appears to be trying to slow-roll this thing so they can get free ridership on EU customers for as long as they can get away with. Trump rightly sees France's move as an end-run to break our recalcitrance, so he wants to close that pathway by punishing any country that tries it. It's another episode of Trump's "tough negotiating." But, like with all such episodes, I think international diplomacy is not like running a business and it's not really our self-interest-properly-understood to maximize our benefit at the expense of our allies.

    My small business pays a franchise tax in Texas in which we essentially declare our balance sheet of inventory, tools, and physical plant and pay a tax on the value. There's a dozen states at least that have a tax like this. If the state can do this with businesses, why can't they do it with individuals?

    What is the inherent unfairness of a sales tax?
     
  12. Os Trigonum

    Os Trigonum Contributing Member
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    unfair in the sense of being regressive
     
  13. Major

    Major Member

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    Sorry - the unfairness, IMO, is with wealth taxes. As adoo pointed out, this revenue tax is more like a sales tax. They function differently in terms of the technicalities, but from a fairness standpoint, a revenue tax and sales tax are equally fair/reasonable. My original comparison of the wealth and revenue taxes was not right.

    Franchise taxes are almost as stupid as wealth taxes. Property taxes fit this as well to some extent - they are cash taxes on non-cash assets and are levied just for existing. There is an unfairness aspect (applies less to property taxes since you can argue that government is providing a service to the residence) and there's also a government interference aspect - it makes people do less-efficient things solely due to an arbitrary tax. That part applies to all 3 of these. For example:

    Property taxes lead to involuntary gentrification when people have to move solely because of a cash tax on an asset that has value but doesn't generate cash.
    Franchise taxes can create losses for a business that is not actually losing money, forcing them to alter their business strategy
    Wealth taxes are also a cash tax on someone who might be forced to sell assets to raise cash. For example, a Warren Buffett's wealth could be mostly in the value of his company, so he could be forced to sell parts of his company to pay the tax.

    All of these are just stupid things for government to do when there are so many simpler and less-disruptive solutions. If you don't like wealthy people, just tax the income at a much higher rate and collect the money upfront when they make it instead of in a small bits in perpetuity. Interestingly, I don't consider the Biden campaign to be a source for good policy, but his tax plan actually nails so many things really well (higher income tax rates, reducing deductions, high long-term capital gains rates on the wealthy, etc).

    But the other issue between wealth and franchise taxes is the Constitution. With a franchise tax, it's only applied if you voluntarily create a business enterprise so the state can regulate that. Wealth taxes are just imposed for being a US citizen, which may not fit the Constitution without an amendment.
     
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  14. JuanValdez

    JuanValdez Contributing Member

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    Is that all though? @Major says it's a bad idea to tax money instead of profit and I'm not sure why that is.

    Besides, I don't think taxing internet revenue is regressive. These are mostly ad revenues. Consumers can look at as many ads as they want for free. When Google's cost of doing business goes up by 3% of revenue, they can pass that cost to the retailers who want to buy advertising (who might then build it into their prices), but it'll shift ad-buying decisions on the margin to other ad platforms. It puts a small drag of "economic inefficiency" on the whole advertising value chain. So I don't think the costs go down to consumers and not in a regressive fashion anyway. It is just minutely more expensive to sell things. It's more likely to depress sales than to put upward pressure on prices.
     
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  15. JuanValdez

    JuanValdez Contributing Member

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    Thanks for the explanation. I still like the wealth tax, and property taxes. I even like the franchise tax even though I hate paying the franchise tax. But I understand better.
     
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  16. Major

    Major Member

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    Also, just to clarify, I think you're describing the Texas business property tax, which is a separate tax businesses pay on the value of all their property/equipment/etc. The franchise tax is a revenue tax, though it does include some mix of deductions to account for labor-intensive industries or reselling and things like that. It's only applied if net revenue is over $1 million-ish.
     
  17. JuanValdez

    JuanValdez Contributing Member

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    You're right, in Texas we call it a business property tax, and I suppose I talk informally about it being a franchise tax (you know, at cocktail parties when I regale my guests with stories about taxes). Elsewhere and more generally some states have something they call a franchise tax that is either a flat fee of a levy on the balance sheet.
     
  18. Major

    Major Member

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    Gotcha - yeah, Texas gets to have both that and a separate "franchise tax" based on revenues. I'd prefer just to have an income tax.
     
  19. geeimsobored

    geeimsobored Contributing Member

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    You'll see this start to happen in other countries. Tech companies have created a major problem for other countries. Unlike traditional businesses, when a tech company operates in your country, they do so with little local employment and in many cases form monopoloies.

    Take social media for example. Outside of TikTok, American companies form an oligopoly and no French company or startup has any hope of competing. And all the while, those companies generate minimal local employment. At least in the US, we benefit from the high paying jobs that those companies create. European countries get nothing out of this arrangement.

    American tech companies are simply too large and scaled too efficiently for local competitors to have a chance. Take something like digital advertising. There's a set of US companies that basically own the entire marketplace. So local French companies are forced to advertise on American platforms and there's little local benefit to France (other than some tax revenues).

    Even in the US, its a big problem as they're bordering on monopolies that should probably get whacked with anti-trust breakups. But its far worse in other countries. At some point, the rest of the world will turn on American tech companies and it'll probably happen in the US as well. France is probably ahead of the curve but the EU as a whole will probably start getting aggressive. At least with companies that manufacture goods, you can craft regulations to force local manufacturing. There is no equivalent for tech companies.
     
  20. adoo

    adoo Member

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    inventory, tools, and physical plant are tangible assets on the balance sheet; these items don't make up
    the entire balance sheet which also includes intangible assets. net worth = total assets minus total liabilities.

    the wealth tax, as proposed by Warren, would tax on the net worth of you business, meaning that your business
    will also be taxed on the increase in the value of intangible assets as illustrated below:


    assume that a business is 10 yrs old, and that its value has increased at least 5% each year.
    so, after 10 yrs, ur business is ~1.6 times its value 10 yrs ago.

    your business has to pay wealth tax on the ~60% realized gain in its value, even if you haven't sold the business

     
    #20 adoo, Dec 7, 2019
    Last edited: Dec 7, 2019

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