Amazon; the world’s most valuable company, $280 billion in revenue, and $162 million in corporate taxes. How does this happen with a 21% corporate tax rate? The answer is simple: large amounts of available deductions coupled with a tax on income. Off the $280 billion in revenue, Amazon made a net profit of around $14 billion. One would expect that Amazon would pay 21% on that, but due to deductions given from years when Amazon did not make any money, large investments in R&D, and large stock-based options for employees, Amazon ended paying an effective 1.2% tax rate.
The United States is losing billions in potential tax revenue by offering vast amounts of corporate deductions and only taxing profits. That is why I am proposing taxing corporations by revenue, not income. This would lead to more revenue for the government that could be used to help fund services and lower the national debt. Additionally, corporations would be forced to be more fiscally responsible.
Currently, large companies are incentivized to spend more to lower their tax burden. A tax on revenue instead of profits would end this, as their tax bill would stay the same. This would lead to the government raising more money through the corporate tax. In 2019, corporate tax revenues accounted for 1.1% of the GDP in the United States, while the OECD average is 3.1%. In 2011, corporations generated $19.2 trillion in revenue and paid $181 billion in taxes with a 39.6% corporate tax rate. If there was a 3% tax on revenue, the government would have collected $570 billion. This would triple the money raised, allowing the government to either cut taxes for other groups such as the middle class or tackle the growing national debt. Additionally, while corporate profits can fluctuate and are subject to manipulation. On the other hand, the total revenue is harder to manipulate and is steadier. This leads to more consistent and larger revenues.
There are further benefits to switching to a tax on revenue. Currently, corporations are incentivized to spend more to avoid taxes. In some cases, the out-of-control spending led to corporations failing entirely and collapsing. This results in widespread economic damage through job losses and other businesses losing revenue. One notable example was Enron, who spent too much and then used various illegal practices to hide losses. A tax on revenue would have forced Enron to be more fiscally responsible, preventing the crisis. Similarly, many startups generate large amounts of revenue but spend even more, lowering their tax burden and sometimes causing them to collapse. With a tax on revenue, they would be forced to save more to pay for the tax.
Thus, the new type of corporate tax would both help the government raise more money and help companies survive for longer.