Calvin H. Johnson (Texas), A Fair Income Tax on the Trillion-Dollar Behemoths (Apple, Amazon, Microsoft, And Google), 171 Tax Notes Fed. 1199 (May 24, 2021):
Johnson argues that $6 trillion can be raised by requiring Apple, Amazon, Microsoft, and Google to capitalize intangible investments that have value beyond the end of the tax year and by reversing into income the companies' prior deductions that are inconsistent with that value.
X. Too Much Revenue
The Big Four behemoths are not the only corporations that expense intangibles. The average ratio of value to book for the stock market as a whole is 3.91, which is not as high as, for example, the 32:1 price-book ratio for Apple. Still, the 3.9 price to book for the whole market means that on average or roughly a quarter of investments (1/3.9) are made with hard money and just less than three-quarters are made with soft money. The market capitalization of all publicly traded stocks is $49 trillion. The soft money roughly three-quarters fraction of that is approximately $34 trillion and a tax on that even at the lower 17.32 percent feedback rate would yield $5.9 trillion, either immediately or over 10 years. The Biden administration’s tax package would raise only $2.5 trillion and over 15 years. The embarrassing problem is that the roughly $6 trillion from income taxation of corporations under fair income tax principles would raise much more revenue than is now needed. It is a nice problem to have, as a matter of politics, but it is a problem that seems to require Congress’s decision on what to do with the excess revenue.
The proposal here would not require entities that are not publicly traded to capitalize costs of developing organization-wide intangibles nor to reverse into income prior expenses to reach basis equal to fair market value. Capitalization is the right result for both private and publicly traded firms. Yet, first, the public market for stock gives an extraordinary confidence that the expenditures for development of intangibles had value beyond the end of the tax year, and indeed tells how far to extend capitalization. For entities not traded on an established market, determining the investment value of the business is not the simple task of just looking it up on-line, but it can in fact be quite difficult. For start-up companies, the value of a firm depends upon speculation about the future, and the future can be very hard to predict. Once a firm goes public, its intangibles can be capitalized. Secondly, publicly traded companies can be asked to pay higher tax than non-traded companies do. A public market allows for a quick sale of stock. Owners can bail out when things turn out less than they hoped. Liquidity for owners is something that an entity would pay for to attract equity investors. A tax roughly equal to the value of liquidity is a defensible tax – as much as the government selling off off-shore drilling rights, national forest cutting rights or grazing rights, or broadcast band rights are defensible sources of government revenue. Finally, tax should not exceed tax needs. The $6 trillion extra revenue that can be expected from capitalizing costs of developing intangibles of publicly traded companies seems to be sufficient for now.