There are some other issues with inventory taxation like how fast you can depreciate it (ie. for tax purposes, chips are treated like mechnical inputs even though chips depreciate MUCH faster).
This all strongly discourages holding inventory.
And even engineers running companies will come to that conclusion.
I admit to not being a CPA, but that... doesn't make a ton of sense to me. What sort of tax do you pay on inventory?
My understanding is that it's not tax that's the issue, but the tying-up of capital in inventory that's generally being minimized. If interest rates are 3% and you have $1M in inventory, that's $30k per year in interest you're paying in order to hold that inventory, plus the physical costs of warehousing it.
And the MBAs naturally look at cutting costs as the fastest and most direct route to improving profitability.
Has to push through friction for others. And plus, cost of goods of unsold inventory isn't that painful if you actually are making huge margins on it, like you ideally should, because you built a better mousetrap that was that much better that you could protect it from copycats with patents and therefore let everyone benefit enormously from it.
In the end, the businessman must be creative. Must be an inventor, basically. Or a leader. And so in order to overcome that friction for the sake of the orphanage, the businessman must resolve friction in nature, some inefficiency of some sort, something that could be much better than it is. Something ineffective that could be effective. Plant a seed and reap two.
Welcome to the US taxation system.
As I understand it, VAT solves a lot of this silliness. However, the US doesn't do VAT for a bunch of historical reasons.
Don't cheat the orphanage! Push through the friction!
The State of California gave me a huge break that I would have never gotten on my own. I did the math and the taxes I pay turn into that help at a 1/1000000 (one millionth) efficiency rate. That's awesome, that may be a high hurdle for everyone else but for me it's a great deal, because I can get speedups as great or greater, with just that help they gave me. So in fact a 1000000000x (one billion times) speedup was possible directly due to this break they gave me, so the ROI is already 1000x (a thousand times). And once they unlock that, hey that's just the beginning, sky's the limit! That 1Bx speedup (1 billion times) is actually an undersell, I could have kept going and gotten a 1000000000000x speedup (trillion times) and kept going and going beyond that, literally ad nauseam (numbers that would sicken you by looking at them, literally that). It's just a trillion-x speedup is too big, people get dizzy, there's no metaphors, people distrust the problem you're solving if you get that speedup, it's better to say a billion. There's metaphors for that (difference between wheelbarrow of dirt and a mountain, two seconds and the human lifetime, jumping a foot off the ground and going to the Moon). It's the biggest number that really fits in people's heads.
But they're both still big speedups that vastly overcome the meaningless 1000000x hurdle that taxation and redistribution impose.
Advice: value the taxes you pay at more than 0%. Fine, not 100% or more, but not 0% or less. Say 20%, to start with. Start by reducing what you deduct from your taxes, limit that to the things the State really doesn't want you paying taxes for. But on business lunches! Dude cough it up completely!
And in the process get rid of the tax lawyers and accountants who tell you to do contortions for tax reasons. Then you'll see your business with clarity.
I believe that VAT solves a lot of these issues (while trading off for others).