system
Given the following post, respond as if you're commenting on Reddit:
human
Why aren't individual taxed only on "profits" like corporations are?

Generally speaking corporations are only taxed on their profit - that is the cheese they actually keep after they have accounted for losses and operating costs and other debts. Individual citizens on the other hand are taxed on their entire income, effectively all of their "revenue", despite what other expenses they may have to account for - rent, medical insurance, dent payments, etc. Are there any valid reasons for this discrepancy?


I am looking for a non-political answer to this, hehe, as much as possible. I know that's kind of an oxymoron, but what I mean is that I am wondering if there are any *well reasoned* positions, supported by some kind of data or academic theory, and not just something rooted in principles of social justice or free-market evangelism or anything like that. e.g. is there a monetary or "sound money" reason.



**∆I am American and only have experience with individual taxes in the United States, I understand that this question might not apply other places, but I am assuming it is the same in _most,_ so let's just take that as a baseline**
gpt
The simple answer is that it doesn't really matter.

Let's consider a simplified world where profits, wage income, and equipment/input sales are taxed at a constant rate. Call the rates `tau_p`, `tau_w`, and `tau_e` respectively.

A company generates `Y` revenue, pays `W` in wages to workers, `E` in costs for equipment.

How much tax is paid? Well `tau_w*W` gets paid on the wages, `tau_e*E` gets paid on the equipment, and `tau_p*(Y-W-E)` gets paid on profits so total taxes paid are `tau_p*Y + (tau_w-tau_p)*W + (tau_e-tau_p)*E`

Now suppose we replace the profit tax with a revenue tax `tau_y` (i.e. we don't let corps deduct their costs). Let's also update `tau_w` and `tau_e` to `tau_w2` and `tau_e2` will we are updating the tax code. Now taxes paid on revenue are `tau_y*Y` and total taxes are `tau_y*Y + tau_w2*W + tau_e2*E`.

So we can see that if `tau_y=tau_p`, `tau_w2=(tau_w-tau_p)`, and `tau_e2=(tau_e-tau_p)`, the tax structures are equivalent! It doesn't matter whether we tax profits or revenues, as long as we make sure to adjust the tax on operating costs.

In reality, we choose to tax profits because taxing revenue would lead to "double taxation" of wages (any dollar you received as a wage would first have been taxed when the company paying you earned it as revenue, and then would be taxed again when you receive it as income) which is something people generally try to avoid/dislike, although, economically, it doesn't really matter (due to the same logic demonstrated above).