Re:You Can't Engineer Around Taxes
by rdl on Monday June 11, 2012 @06:17PM
(#4097348)
While I'd say I'm quite libertarian, I don't see how this affects a startup all that much, at least directly.
1) Corporate income tax is a (slightly progressive) tax on profits. Most tech startups aren't immediately profitable (nor are most businesses), and even then, profits are relatively low as a percentage of total revenue, especially early on.
2) Higher taxes do prevent capital accumulation/formation, but that's more an effect of personal income taxes. A rich consultant/engineer/etc. paying 40% income taxes (state+fed) plus inflated cost of living, making $150k/yr, won't realistically be able to save the $100k/yr he would potentially otherwise be able to. Being able to use your work to accumulate capital, then invest that capital in starting a business, is key for income mobility. At least in tech the cost in capital of starting new businesses is falling dramatically, so $5-10k in savings to the business, plus a low personal burn rate, is probably enough.
3) Capital gains rates are generally low enough that they don't substantially disincent investment.
4) The overseas earnings repatriation issue is an issue, but most large and international US corporations are sitting on huge amounts of capital both inside AND outside the US. The low interest rate environment makes issuing US bonds to fund US operations, while sitting on huge amounts of international pre-tax cash, also an option.
In short, taxes are an issue, but definitely not the low hanging fruit. There are many regulatory issues to fix first, and systemic problems with the economy (it's absurd that we have 10-40% unemployment and underemployment, while at the same time we can't hire anywhere near enough qualified engineers -- THAT is the big structural defect which 100% of the society's effort should be going to fix.)
1) Corporate income tax is a (slightly progressive) tax on profits. Most tech startups aren't immediately profitable (nor are most businesses), and even then, profits are relatively low as a percentage of total revenue, especially early on.
2) Higher taxes do prevent capital accumulation/formation, but that's more an effect of personal income taxes. A rich consultant/engineer/etc. paying 40% income taxes (state+fed) plus inflated cost of living, making $150k/yr, won't realistically be able to save the $100k/yr he would potentially otherwise be able to. Being able to use your work to accumulate capital, then invest that capital in starting a business, is key for income mobility. At least in tech the cost in capital of starting new businesses is falling dramatically, so $5-10k in savings to the business, plus a low personal burn rate, is probably enough.
3) Capital gains rates are generally low enough that they don't substantially disincent investment.
4) The overseas earnings repatriation issue is an issue, but most large and international US corporations are sitting on huge amounts of capital both inside AND outside the US. The low interest rate environment makes issuing US bonds to fund US operations, while sitting on huge amounts of international pre-tax cash, also an option.
In short, taxes are an issue, but definitely not the low hanging fruit. There are many regulatory issues to fix first, and systemic problems with the economy (it's absurd that we have 10-40% unemployment and underemployment, while at the same time we can't hire anywhere near enough qualified engineers -- THAT is the big structural defect which 100% of the society's effort should be going to fix.)