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Startup Economics 101, or, How Long Until We’re Dead?

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Re: Startup Economics 101, or, How Long Until We’re Dead?

#41

Post by coolgeek »

jacoblyles wrote: post #27
jbooth wrote: post #23

Earlier quoted context omitted.

I almost certainly know less about corporate taxes than you do. But how do you explain the gap between stated and effective tax rate? Maybe I'm oversimplifying by blaming the Cayman Islands but obviously big corporations are doing something to pay significantly lower taxes than the advertised rate.

Usually companies with a low effective tax rate have lost money in recent years. This is especially true over the last 3 years (I believe 3 years is the limit on a carry-forward loss credit, and 2008-2011 has been bad for business). The net effect is that US companies pay 35% taxes on their 3-year trailing average income rather than income in a given year. Occasionally you will hear another breathless claim on places…

Google paid 2.4% last year

http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-sho...

"Google’s practices are very similar to those at countless other global companies operating across a wide range of industries," said Jane Penner, a spokeswoman for the Mountain View, California-based company.

Re: Startup Economics 101, or, How Long Until We’re Dead?

#42

Post by petercooper »

markklarich wrote: post #35

This is my first post on Hacker News. Glad to join you guys and see that you're talking about finances. I'm an accountant who is also a tax and business lawyer, specializing in micro businesses and creative projects. Hopefully I can contribute to the discussion. This community is full of people who know how to hack code. I'd like to introduce the idea that it's possible to be equally creative with business entity des…

With advice like that, I hope this isn't your last post here too. Welcome to HN! :-)

Re: Startup Economics 101, or, How Long Until We’re Dead?

#43

Post by anamax »

jbooth wrote: post #28
jacoblyles wrote: post #27

Earlier quoted context omitted.

Usually companies with a low effective tax rate have lost money in recent years. This is especially true over the last 3 years (I believe 3 years is the limit on a carry-forward loss credit, and 2008-2011 has been bad for business). The net effect is that US companies pay 35% taxes on their 3-year trailing average income rather than income in a given year. Occasionally you will hear another breathless claim on places…

Well, so here's a study by the congressional budget office: http://cbo.gov/ftpdocs/69xx/doc6902/11-28-CorporateTax.pdf Puts the effective corporate tax rate a cool 10-15 points under the statutory one, depending on sector, and has some graphs illustrating that our statutory rate is one of the highest while our effective rate is one of the lowest. So it's not just the dirty hippies saying this. The dirty hippies tend…

If the dirty hippies had read the paper, they'd see that machinery depreciation is a huge part of that difference between the effective and statutory rates.

The really clever hippies would notice that different industries have different machinery needs.

The especially brilliant ones would understand that the value of an oil lease goes down as the amount of extractable oil goes down, such as happens when said oil is extracted. They'd see that said decrease is just like the expenses of other industries.

Re: Startup Economics 101, or, How Long Until We’re Dead?

#44

Post by anamax »

coolgeek wrote: post #41
jacoblyles wrote: post #27

Earlier quoted context omitted.

Usually companies with a low effective tax rate have lost money in recent years. This is especially true over the last 3 years (I believe 3 years is the limit on a carry-forward loss credit, and 2008-2011 has been bad for business). The net effect is that US companies pay 35% taxes on their 3-year trailing average income rather than income in a given year. Occasionally you will hear another breathless claim on places…

Google paid 2.4% last year http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-sho... "Google’s practices are very similar to those at countless other global companies operating across a wide range of industries," said Jane Penner, a spokeswoman for the Mountain View, California-based company.

Note that Google doesn't pay US taxes on profits that it makes overseas and doesn't bring into the US.

Me - I'd like Google to bring that money into the US but can understand why it isn't willing to pay taxes to do so. Many other countries tax repatriated profits differently, so their companies are more willing to bring said profits back to the mothership.

Re: Startup Economics 101, or, How Long Until We’re Dead?

#45

Post by [deleted] »

jacoblyles wrote: post #40
jbooth wrote: post #28

Earlier quoted context omitted.

Well, so here's a study by the congressional budget office: http://cbo.gov/ftpdocs/69xx/doc6902/11-28-CorporateTax.pdf Puts the effective corporate tax rate a cool 10-15 points under the statutory one, depending on sector, and has some graphs illustrating that our statutory rate is one of the highest while our effective rate is one of the lowest. So it's not just the dirty hippies saying this. The dirty hippies tend…

"The dirty hippies tend to get angry about stuff like the fact that Exxon apparently pays little to no corporate taxes (citation needed), and whatever else they have going on they certainly haven't posted a loss recently." Exxon Mobile paid $21 billion in corporate taxes on operating income of $53 billion in the fiscal year ended December 31, 2010 for an effective corporate tax rate of 40%. Do leftists not know where…

[deleted]

Re: Startup Economics 101, or, How Long Until We’re Dead?

#46

Post by jbooth »

anamax wrote: post #44
coolgeek wrote: post #41

Earlier quoted context omitted.

Google paid 2.4% last year http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-sho... "Google’s practices are very similar to those at countless other global companies operating across a wide range of industries," said Jane Penner, a spokeswoman for the Mountain View, California-based company.

Note that Google doesn't pay US taxes on profits that it makes overseas and doesn't bring into the US. Me - I'd like Google to bring that money into the US but can understand why it isn't willing to pay taxes to do so. Many other countries tax repatriated profits differently, so their companies are more willing to bring said profits back to the mothership.

Well, can we at least agree that the tax code is all kinds of crazy and needs to be reformed, regardless of total revenue take? I thought that was noncontroversial.

Re: Startup Economics 101, or, How Long Until We’re Dead?

#47

Post by gibybo »

coolgeek wrote: post #41
jacoblyles wrote: post #27

Earlier quoted context omitted.

Usually companies with a low effective tax rate have lost money in recent years. This is especially true over the last 3 years (I believe 3 years is the limit on a carry-forward loss credit, and 2008-2011 has been bad for business). The net effect is that US companies pay 35% taxes on their 3-year trailing average income rather than income in a given year. Occasionally you will hear another breathless claim on places…

Google paid 2.4% last year http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-sho... "Google’s practices are very similar to those at countless other global companies operating across a wide range of industries," said Jane Penner, a spokeswoman for the Mountain View, California-based company.

http://caps.fool.com/Ticker/GOOG/Statements.aspx?source=icas... shows that Google paid $2.3B on $10.8B pretax income, or 21%. That's far from 2.4%, but it's also far from 35% so I'm a bit lost.

Re: Startup Economics 101, or, How Long Until We’re Dead?

#48

Post by coolgeek »

gibybo wrote: post #47
coolgeek wrote: post #41

Earlier quoted context omitted.

Google paid 2.4% last year http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-sho... "Google’s practices are very similar to those at countless other global companies operating across a wide range of industries," said Jane Penner, a spokeswoman for the Mountain View, California-based company.

http://caps.fool.com/Ticker/GOOG/Statements.aspx?source=icas... shows that Google paid $2.3B on $10.8B pretax income, or 21%. That's far from 2.4%, but it's also far from 35% so I'm a bit lost.

woof... upon closer reading, the headline was misleading. the 2.4% rate is for overseas earnings. "Google’s overall effective tax rate [was] 22.2 percent last year".

it's not hard, however, to find evidence confirming the upstream point that large companies frequently pay a fraction of the 35% rate

http://www.forbes.com/2010/04/01/ge-exxon-walmart-business-w...

Re: Startup Economics 101, or, How Long Until We’re Dead?

#49

Post by Chocobean »

samratjp wrote: post #7

Great writeup! As I read it, it also reminded me of this poem "Dulce Et Decorum Est" - http://www.english.emory.edu/LostPoets/Dulce.html

Yes, it's quite refreshing to see great literature quotes in a "technical" or "business" kind of blog post. His reference to Owen's poem is incorrect though: the phrase originates from one of Horace's Odes, which Owen is quoting from. In Owen's poem, the phrase was used ironically: it's about as sweet and proper to die for one's country (or startup) as mustard gas and dead horses stuck in the mud. Perhaps the irony is intended....?

Re: Startup Economics 101, or, How Long Until We’re Dead?

#50

Post by kaib »

dotcoma wrote: post #14
kaib wrote: post #4

Salaries are hard. We are in a somewhat identical situation, seed funded 6 month old, and were grappling with salaries after we closed our seed round. We went with something slightly different but probably more appropriate for a Scandinavian or European country. Basically each founder has a fixed sum that they can cost the company each month. It's up to each founder to decide how they split that sum between salary, b…

you guys must be Swedes :) (it sounds smart and well thought out)

Very close, the company is Finnish. That said I'm a Swedish-Finn. :)
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