Meh. "Tax rich people" is not a tax plan. How do you tax them? VAT? Property tax? Income tax? Capital gains tax?
All taxes are distortionary. It's their nature. If you ignore the benefits gained from programs that tax dollars buy, all taxes are bad for the economy.
The problem with capital gains and corporate income tax is not (just) that they're bad for the economy, it's that they're de facto optional for multinational entities because of transfer pricing. Cash doesn't have a country, so anyone with more than one country just puts their cash in the country that takes the smallest piece of it.
Now we hear the cries of "but they made the money here" -- OK, sure. So make that the rule then, if that's what you care about. If you sell your product in a country, you pay its taxes. That's sales tax or VAT. If you make your money employing a country's workers, you pay its taxes. That's personal income tax.
If you like you can specify that the product tax will be paid by the seller and the labor tax will be paid by the employer. That may actually provide some amount of leverage to buyers and employees in price negotiations (to the extent it doesn't push sellers and employers toward other countries), but at the end of the day it is what it is: A tax that makes products more expensive or reduces the amount that employees bring home, but can't be avoided by sly accountants and tax lawyers if you still want to sell products or hire workers.
Those taxes are hard to avoid, but they are bourne by workers/consumers, regardless of who you collect them from (i.e. the economic incidence of a tax is not the same as the legal incidence). I.e. foreign entity Google profits doing business in your jurisdiction, but your citizens (both consumers in your country and workers in your country) bear the whole tax burden.
Even assuming corporate taxes were perfectly collectible (they're not, that's the primary problem with them). Why would it make sense to disincentive profit than to disincentize wages or sales.
(Taxes are at heart, a disincentive, or more properly, a Price, to do the a certain thing.)
Arguably the least distortionary thing you can do, if you must have taxes, is to disincentivize labor and profit by the same amount. Otherwise, you drive people to engaging in one sort of activity over the other.
Then given the difficulty in measuring taxable profit effectively, it sounds like you should be in favor of a consumption tax that doesn't distinguish the source of the money being used to make the purchase.
No, because consumption taxes don't reach profits that aren't spent on goods and services. They are massively regressive. It over-incentivizes "investing" money. There are three assumptions by economists in this regard that don't reflect reality: 1) the world is open, resources are unlimited, and growth is always possible; 2) that investment is always good; 3) distribution doesn't matter. None of those assumptions are true.
>No, because consumption taxes don't reach profits that aren't spent on goods and services.
Nothing lasts forever. Eventually the profits will either be spent or escheat to the state when the last heir to a fortune dies without any descendants. And you can't very well benefit from having money if you never spend it.
>They are massively regressive.
This is trivial to fix. Send everyone a check for a fixed amount every month as a "tax refund" and the effective tax rate of those with less money to spend drops or becomes negative.
>It over-incentivizes "investing" money.
All taxes are distortionary. If you tax income then you under-incentivize investment. Why is over-borrowing and over-spending better than over-investing?
Would you care to elaborate as to what bearing your list of assumptions has on the issue? It wasn't clear from your post.
>Those taxes are hard to avoid, but they are bourne by workers/consumers, regardless of who you collect them from (i.e. the economic incidence of a tax is not the same as the legal incidence).
Yes and no. Nominally imposing the tax on the seller or employer is better for the buyer or employee -- it doesn't necessarily mean the seller won't be able to pass the tax on, but it helps. For example, if the employee is making minimum wage, the employer can't reduce their compensation by law, so imposing a labor tax on the employer will force them to eat it because they're not allowed to take it out of the employee's compensation. If the tax was nominally on the employee then it would instead come right out of their minimum wage paycheck. And the same goes for any other mechanism that tends to prevent employers from lowering wages: If you have an employment contract that specifies your compensation, you keep getting paid what you were agreed to be paid even if your employer now has to pay more taxes instead of you. If you have a trade union, the union is going to have a better shot at preventing a wage reduction than demanding raises to counteract a new tax, etc.
In the longer term, as employers have time to hire new employees with new contracts or refuse raises etc., the free market catches up with the tax changes. But that doesn't mean the tax is paid entirely by consumers and employees. If sellers could raise the price of their goods by the amount of a newly imposed VAT without reducing their sales then they would have done it already regardless. When the VAT is imposed industry-wide it allows some cover for price increases, but not by 100% of the tax amount except for in rare cases (such as where the profits in that industry were already legitimately non-existent and passing on the full tax is the only alternative to going out of business). In non-collusive markets the existing players will be fighting to keep prices close to where they were in order to retain as much of their existing sales volume as possible to keep their sunk cost infrastructure utilized, which will require them to eat a sizable chunk of the tax burden.
More to the point, how is that possibly worse than it is now, with international corporations nominally paying a tax on profits but then arranging to not have any profits in jurisdictions where taxes are high, and then subjecting local small businesses to the taxes avoided by their larger competitors?
All taxes are distortionary. It's their nature. If you ignore the benefits gained from programs that tax dollars buy, all taxes are bad for the economy.
The problem with capital gains and corporate income tax is not (just) that they're bad for the economy, it's that they're de facto optional for multinational entities because of transfer pricing. Cash doesn't have a country, so anyone with more than one country just puts their cash in the country that takes the smallest piece of it.
Now we hear the cries of "but they made the money here" -- OK, sure. So make that the rule then, if that's what you care about. If you sell your product in a country, you pay its taxes. That's sales tax or VAT. If you make your money employing a country's workers, you pay its taxes. That's personal income tax.
If you like you can specify that the product tax will be paid by the seller and the labor tax will be paid by the employer. That may actually provide some amount of leverage to buyers and employees in price negotiations (to the extent it doesn't push sellers and employers toward other countries), but at the end of the day it is what it is: A tax that makes products more expensive or reduces the amount that employees bring home, but can't be avoided by sly accountants and tax lawyers if you still want to sell products or hire workers.