Scale Ruins Everything

It’s not that scale ruins everything, it’s the pursuit of scale that ruins everything.

I have thought a lot about antitrust recently and realized that it’s an overlapping problem with the VC unicorn problem. People get so hung up with being bigger/biggest, faster/fastest, that they minimize or ignore pathological side effects.

What if we have a progressive tax structure on business based on scale? Partly on size, partly on market power?

For example, what if corporate income tax were tied to the logarithm of the number of employees+contractors? What if the corporate income tax increased with the market share in markets served?

These kind of ideas have very low impact at small scales, but after a certain scale they start to have such a huge effect on bottom line that they disincentive growth for its own sake.

And they’re self-regulating and largely objective, unlike our current antitrust laws in the US.

>For example, what if corporate income tax were tied to the logarithm of the number of employees+contractors?

Unemployment would increase.

>What if the corporate income tax increased with the market share in markets served?

More companies would register in Panama or some other tax haven.

I would be wary of the Law of Unintended Consequences.

You're making it sound as if registering in Panama is some "gotcha" that can't also be easily closed via legislation.

Indeed. Change from corporate tax to VAT, and then no such trickery is possible (tax charged at point of sale)

> what if corporate income tax were tied to the logarithm of the number of employees+contractors? What if the corporate income tax increased with the market share in markets served?

Is there a reason for choosing those rather than the simpler alternative of the corporate income tax rate increasing progressively with revenue (as it does for individuals)?

VAT is a much better tax. Tax the flow of money, not the intermediate holding of money by a company.

I dunno. I have a natural affinity for continuous vs discrete functions. But I also think thresholds cause bad behavior when you are near a threshold; you try to game the system by exceeding the threshold while trying to appear to be below it.

Corporate accountants are sophisticated enough to deal with formulae, and small businesses would be unaffected as the function changes very slowly at small numbers so even an error would likely not materially affect your return.

Calculation of market share would be more problematic.

And of course if you don’t like logarithms then choose your favorite exponential function.

Uh, I doubt it.

At the companies that would be affected, they would simply divest. Shareholders would not tolerate the destruction of value so new companies would be created, spinning off parts of the original company (products and employees) into new companies.

In fact employment might increase as these new companies would need administrative functions that were previously shared in the larger original company (HR, accounting, etc)

A funny alternative: If a company is deemed large (and stale) enough the government prints money against and purchases it. If you buy a 100 bl company you can write the 100 bl IOU no problem. Innovative departments should be split off into separate companies that start out with a good size government contract.

Government can then immediately start "mis"-managing the company to make it less profitable (while theoretical profit stays the same)

You would get for example a government google search and a government adsense department.

Do you have revenue confused with income? VC-funded startups don’t pay income tax when they don’t have income (expenses exceed revenue).

Though, that’s less often true recently, now that they can’t expense software engineering salaries the same year.

A single human is a non-fungible entity, but a corporation is a wibbly-wobbly entity whose boundaries can shift at will. Any progressive tax scheme on a corporation will be immediately met with 100,000 smart accountants figuring out how to optimize against it. Expect lots of crafty maneuvering to turn one giant corporation into a thousand tiny corporations, yet somehow all under the same umbrella, all anti-competitive, and all benefitting the same original owners.

That doesn't mean we shouldn't try, but these are very difficult issues to address.

Large corporations would become a constellation of tiny independent companies who agree to provide goods/services in exclusive agreements with the “controlling” company.

Absolutely nothing would change except for an increase in paperwork and a few more lawyers.

Yes, you are right.

Most of the US already has sales tax (it varies by State, county, and city; some have no sales tax).

VAT is regressive. Poor people spend a higher fraction of their income on vat-applicable goods. I'm against it on that basis.

Not all goods are VAT-qualified for that reason. We have that safety valve already.

That sounds a bit like "VAT can't be too bad because we can just not apply it", which I don't find convincing.

I agree that it's an easy tax to collect, and I think that's very important.

I fundamentally disagree with the grandparent that holds that we should tax flow rather than holding. That's a handbrake on activity. But I suspect we won't reach agreement as it's a question of personal values. If you think that billionaires are great and we need more of them, then I can see how you'd be in favour of vat.