The public has a right to know how companies that pay no taxes pull it off(larrysummers.com)
larrysummers.com
The public has a right to know how companies that pay no taxes pull it off
http://larrysummers.com/2020/11/02/many-companies-pay-nothing-in-taxes-the-public-has-a-right-to-know-how-they-pull-it-off/
418 comments
This is a case of economies of scale. A fairly wealthy person could save maybe $50,000 per year with the advice of the smartest tax lawyers and accountants in the world. But it would cost them $500,000 per year to pay for the structure to be created/updated.
When I worked as a tax lawyer, we created structures and defended cases that saved our clients hundreds of millions of dollars. At this scale, paying for our services was a no-brainer.
On top of that, big companies lobby lawmakers to make the tax system favorable to them. This makes sense for the same reason: paying a couple million dollars to create/maintain a provision that saves $100M/yr is a no-brainer.
I'm not saying any of this is right or good (and I am no longer a tax lawyer; I now build tools that help people with disabilities). I'm just saying this is why it makes sense that companies can walk a fine line on taxes, save tons of money, and you and I cannot.
When I worked as a tax lawyer, we created structures and defended cases that saved our clients hundreds of millions of dollars. At this scale, paying for our services was a no-brainer.
On top of that, big companies lobby lawmakers to make the tax system favorable to them. This makes sense for the same reason: paying a couple million dollars to create/maintain a provision that saves $100M/yr is a no-brainer.
I'm not saying any of this is right or good (and I am no longer a tax lawyer; I now build tools that help people with disabilities). I'm just saying this is why it makes sense that companies can walk a fine line on taxes, save tons of money, and you and I cannot.
>this is why it makes sense that companies can walk a fine line on taxes, save tons of money, and you and I cannot.
Nope, these are the reasons that cause the situation. This outcome does /not/ make sense nobody sane without a huge vested interest would design a system to achieve less tax paid when you earn more. It's entirely contrary to the intent and spirit of the tax code. This is not sensible. How to fix it? That's harder. Start with its a problem and morally and ethically wrong. It's really the only place to start from. I would say keep in mind two wrongs is not an improvement and unchecked government power is far worse than tax cheats but that does not change where this discussion should start.
Nope, these are the reasons that cause the situation. This outcome does /not/ make sense nobody sane without a huge vested interest would design a system to achieve less tax paid when you earn more. It's entirely contrary to the intent and spirit of the tax code. This is not sensible. How to fix it? That's harder. Start with its a problem and morally and ethically wrong. It's really the only place to start from. I would say keep in mind two wrongs is not an improvement and unchecked government power is far worse than tax cheats but that does not change where this discussion should start.
It seems like the comment (from a former tax advisor) you are responding to is explaining that the high cost of gaming the system is cost effective for large companies, but not for individuals. In that respect, it "makes sense" that individuals cannot take advantage of these loopholes that companies use.
In contrast, you seem to be arguing a different point--that, to you, it "doesn't make sense" that the system is designed poorly.
In contrast, you seem to be arguing a different point--that, to you, it "doesn't make sense" that the system is designed poorly.
I don't think so. I interpreted the comment the same way probably because the comment was replying to one disputing the morality of it, not the feasibility of it.
What would happen if we did away with the income tax, sales tax, estate tax, property tax, and all other taxes?
The government could simply finance itself by printing money / inflation. Let’s say the government total expenditures were 5% of GDP each year, then you would simply have 5% inflation.
This would solve all the problems we have with income inequality, worthless heirs of the wealthy hoarding riches, and of very complex and expensive IRS and CPA work.
Everyone would need to invest their money rather than stuff it under a mattress so they could keep it growing rather than allowing inflation to shrink it.
Thoughts?
The government could simply finance itself by printing money / inflation. Let’s say the government total expenditures were 5% of GDP each year, then you would simply have 5% inflation.
This would solve all the problems we have with income inequality, worthless heirs of the wealthy hoarding riches, and of very complex and expensive IRS and CPA work.
Everyone would need to invest their money rather than stuff it under a mattress so they could keep it growing rather than allowing inflation to shrink it.
Thoughts?
Why would anyone invest in your currency? Why would anyone hold your currency? What would your interest rates be? What would that do to businesses making decisions on borrowing for CapEx etc etc.
I've said that paying for CoronaVirus will probaby be done by inflation rather than taxes, but I'm not sure that as the only source of revenue it makes any sense
I've said that paying for CoronaVirus will probaby be done by inflation rather than taxes, but I'm not sure that as the only source of revenue it makes any sense
> How to fix it?
Make a tax code as simple as possible. So simple there is no room for interpretation.
Make a tax code as simple as possible. So simple there is no room for interpretation.
Or do like Europe is finally starting: just tax revenue.
They can suppress their 'profit' whichever way they want, they can't suppress their revenue in a given country.
The digital services tax is imposed at a rate of 3% on the gross revenues derived from digital activities of which French “users” are deemed to play a major role in value creation. The law not only affects digital companies but, more generally, digital business models.
https://home.kpmg/us/en/home/insights/2019/07/tnf-france-dig....
They can suppress their 'profit' whichever way they want, they can't suppress their revenue in a given country.
The digital services tax is imposed at a rate of 3% on the gross revenues derived from digital activities of which French “users” are deemed to play a major role in value creation. The law not only affects digital companies but, more generally, digital business models.
https://home.kpmg/us/en/home/insights/2019/07/tnf-france-dig....
> Or do like Europe is finally starting: just tax revenue.
That rapidly turns into a disaster of consolidations and monopolies. You don't want that.
Think about the difference between big company $BIG selling you the consumer a million Widgets for 10^9 currency units, versus 26 small companies $a..$z each selling to the next in a long supply chain which results in a million Widgets.
In revenue taxation, big company $BIG pays 10^9∗$TAX_RATE.
Whereas the 26 small companies pay something more like 26∗10^9∗$TAX_RATE because each time a company pays the next company, that's revenue for the next company.
The difference in tax between those two scenarios is so enormous, that it would create enormous pressure for companies $a..$z to consolidate into a single company.
Repeat this across the entire economy, and you have enormous pressure to consolidate everything into as few companies as possible.
That rapidly turns into a disaster of consolidations and monopolies. You don't want that.
Think about the difference between big company $BIG selling you the consumer a million Widgets for 10^9 currency units, versus 26 small companies $a..$z each selling to the next in a long supply chain which results in a million Widgets.
In revenue taxation, big company $BIG pays 10^9∗$TAX_RATE.
Whereas the 26 small companies pay something more like 26∗10^9∗$TAX_RATE because each time a company pays the next company, that's revenue for the next company.
The difference in tax between those two scenarios is so enormous, that it would create enormous pressure for companies $a..$z to consolidate into a single company.
Repeat this across the entire economy, and you have enormous pressure to consolidate everything into as few companies as possible.
You adjust the tax curve to address this situation. More revenue, even higher tax rate.
And now you've solved one problem and have created a bunch of others. Welcome to tax design!
Indeed. I believe that pretty much applies to any financial regulations.
The obvious solution to that is to make it more difficult to consolidate companies. Disallow at will M&A's,and also force anyone that still goes down that route and manages to succeed to justify their continued consolidated existence.
In short the market/regulatory environment should support disaggregated business as a first class citizen, mergers and vertical integration as a very second-class construct. To the tune of if you merge, you must maintain 3 sets of accounts. The original accounts separately, and a combined set. You must gain more capability or utility to create value for the public as the combined company than by being separate. The capacity to measure the utility amplification being facilitated through the extra set of books. As more companies are bought and merged, the audit workloads would increase very quickly. Failure to make a good case for why you should continue to run as a merged company kicks in an orderly spin-off of the previous acquisition to get operated by someone else. M&A's should not be one and done. This greatly complicates hostile takeovers, makes the business model by which large entrenched entities buy out and kill up and coming competitors, at best, a stalling tactic, but more often a worthless waste of time to the perpetrating company as much as it is to the public.
If you let M&A's have their cake (the capital assets of another company) while giving them the option to cut fat without insisting that they "compensate" the public for the decrease in competition, only one side will ever benefit, and it won't be the public.
In short the market/regulatory environment should support disaggregated business as a first class citizen, mergers and vertical integration as a very second-class construct. To the tune of if you merge, you must maintain 3 sets of accounts. The original accounts separately, and a combined set. You must gain more capability or utility to create value for the public as the combined company than by being separate. The capacity to measure the utility amplification being facilitated through the extra set of books. As more companies are bought and merged, the audit workloads would increase very quickly. Failure to make a good case for why you should continue to run as a merged company kicks in an orderly spin-off of the previous acquisition to get operated by someone else. M&A's should not be one and done. This greatly complicates hostile takeovers, makes the business model by which large entrenched entities buy out and kill up and coming competitors, at best, a stalling tactic, but more often a worthless waste of time to the perpetrating company as much as it is to the public.
If you let M&A's have their cake (the capital assets of another company) while giving them the option to cut fat without insisting that they "compensate" the public for the decrease in competition, only one side will ever benefit, and it won't be the public.
It's not an obvious solution, because in that regulatory environment people will avoid creating small companies in the first place.
They won't avoid it to get some minor edge.
They will avoid it because every company formation and financial advisor will point out that it's commercial suicide to start your own company in that environment, and that instead you should take your idea to an existing company which specialises in opening "nearly autonomous departments", for an instant 30% or so increases in post-tax income, or 30% edge over competition on prices, or 30% edge on salaries you can pay, for exactly the same kind of business. (30% representative of some countries not others... adjust for your locale).
The few real companies specialising in that would love your M&A and tax regulations, as they could take a few % of every small business' profits, and have some levers of control, effectively government mandated.
After that, the millions of small companies which already existed, who cannot consolidate due to your M&A restrictions, will gradually either go out of business due to competition, or find a way, though contracts, deeds etc, to transfer their activity into these "autonomous department" companies without actually merging. It's not uncommon to transfer some of a company's activity this way already, so that would just be scaling it up.
You can try restricting all of that, but it will be very difficult as you would have to do it restrict what sorts of things people can agree to in contracts in a very significant way, and in doing so, restrict what are currently effective business arrangements for some companies to make them less effective. That would be an enormous change to business culture, and I suspect even if you did restrict what can be agreed in private contract terms, alternative ways to transfer what gets done where would be found very quickly and easily.
They won't avoid it to get some minor edge.
They will avoid it because every company formation and financial advisor will point out that it's commercial suicide to start your own company in that environment, and that instead you should take your idea to an existing company which specialises in opening "nearly autonomous departments", for an instant 30% or so increases in post-tax income, or 30% edge over competition on prices, or 30% edge on salaries you can pay, for exactly the same kind of business. (30% representative of some countries not others... adjust for your locale).
The few real companies specialising in that would love your M&A and tax regulations, as they could take a few % of every small business' profits, and have some levers of control, effectively government mandated.
After that, the millions of small companies which already existed, who cannot consolidate due to your M&A restrictions, will gradually either go out of business due to competition, or find a way, though contracts, deeds etc, to transfer their activity into these "autonomous department" companies without actually merging. It's not uncommon to transfer some of a company's activity this way already, so that would just be scaling it up.
You can try restricting all of that, but it will be very difficult as you would have to do it restrict what sorts of things people can agree to in contracts in a very significant way, and in doing so, restrict what are currently effective business arrangements for some companies to make them less effective. That would be an enormous change to business culture, and I suspect even if you did restrict what can be agreed in private contract terms, alternative ways to transfer what gets done where would be found very quickly and easily.
VAT is literally tax on revenue and it works fine. You tax the added value, so each company pays tax only on (sell_price - purchase_price).
Yes, VAT is tax on revenue of the entire supply chain as a whole (not individual companies), so long as it is within a group of countries using VAT.
But it didn't look to me like that's what the GP comment meant. I assumed they meant tax on revenue taken by each company. No need to account for expenses...
I'd hoped that would be obvious from my comment, but if not I hope I've clarified that now.
ps. It looks like other commenters here are confused about this language, and arguing over the semantics of what "tax on revenue" means.
VAT doesn't solve all tax fairness problems unfortunately, which is a shame because it's a fairly well administered system, and good at catching fraud.
There are good reasons why VAT is not the only tax on businesses. One of those reasons is that immediate revenue and expenses are a poor model of many business accounts. Accountants use more sophisticated models (there are professional standards they have to adhere to), and despite their quirks and loopholes, these are generally better, fairer, more representative models of the state and value of a business and the money flowing through it, and as a result, for most "ordinary" businesses (i.e. not international corps gaming the system heavily), that ends up making taxation fairer.
Someone mentioned using a higher rate for higher revenue. That suggests an example where the better models which incorporate time and stored value results in fairer, more appropriate taxation. If you have a higher sustained revenue, year on year, it makes sense to use the higher rate if that's the policy. But if you make zero in year $X and twice your normal in year $X+1, then back to normal in years $X+2..., all just because you had a big customer pay late for the first year, fairness says you ought to end up paying the appropriate tax rate for your steady normal in the long run, not twice as much tax thanks to your late-paying customer!
The accountants' model handles that just fine, as it says you earned the money fair and square in year $X even though you didn't get paid that year. And that's generally better for limiting tax avoidance too, because it reduces the ways in which co-operating companies can game the system by timing their payments to each other to cheat. (VAT doesn't show this problem because it's a fixed percentage, but it occurs with progressive taxes, meaning variable percentage.)
But it didn't look to me like that's what the GP comment meant. I assumed they meant tax on revenue taken by each company. No need to account for expenses...
I'd hoped that would be obvious from my comment, but if not I hope I've clarified that now.
ps. It looks like other commenters here are confused about this language, and arguing over the semantics of what "tax on revenue" means.
VAT doesn't solve all tax fairness problems unfortunately, which is a shame because it's a fairly well administered system, and good at catching fraud.
There are good reasons why VAT is not the only tax on businesses. One of those reasons is that immediate revenue and expenses are a poor model of many business accounts. Accountants use more sophisticated models (there are professional standards they have to adhere to), and despite their quirks and loopholes, these are generally better, fairer, more representative models of the state and value of a business and the money flowing through it, and as a result, for most "ordinary" businesses (i.e. not international corps gaming the system heavily), that ends up making taxation fairer.
Someone mentioned using a higher rate for higher revenue. That suggests an example where the better models which incorporate time and stored value results in fairer, more appropriate taxation. If you have a higher sustained revenue, year on year, it makes sense to use the higher rate if that's the policy. But if you make zero in year $X and twice your normal in year $X+1, then back to normal in years $X+2..., all just because you had a big customer pay late for the first year, fairness says you ought to end up paying the appropriate tax rate for your steady normal in the long run, not twice as much tax thanks to your late-paying customer!
The accountants' model handles that just fine, as it says you earned the money fair and square in year $X even though you didn't get paid that year. And that's generally better for limiting tax avoidance too, because it reduces the ways in which co-operating companies can game the system by timing their payments to each other to cheat. (VAT doesn't show this problem because it's a fixed percentage, but it occurs with progressive taxes, meaning variable percentage.)
My comment actually wasn't in relation to the GP comment, I meant that revenue taxing in the form of VAT works fine for certain situations.
My current biggest gripe with taxation is that it's mostly paid in the countries where the corporation lives, not where the revenue is made. Facebook sells 10 mil worth of ads in France? Facebook should pay (some) taxes for the 10 mil in France.
My current biggest gripe with taxation is that it's mostly paid in the countries where the corporation lives, not where the revenue is made. Facebook sells 10 mil worth of ads in France? Facebook should pay (some) taxes for the 10 mil in France.
I liked the the idea of taxing profits via taxing revenue (with a VAT) and deducting domestic expenses that was proposed a while back. I think it was called a border adjustment tax, and the idea was that the incidence of the tax was on the profits and it was apparently trade neutral because the currency values would adjust (which would cancel out foreign expenses being non-deductible).
It seemed like such a simple solution to the often complained about problem of multinationals shifting profits to tax havens, since it’s much easier to determine where revenue is from, but I almost never see it discussed when corporate taxes come up. I wonder if it will ever go anywhere.
It seemed like such a simple solution to the often complained about problem of multinationals shifting profits to tax havens, since it’s much easier to determine where revenue is from, but I almost never see it discussed when corporate taxes come up. I wonder if it will ever go anywhere.
VAT is a tax on revenue from the last purchaser, but not on revenue for each company.
That's literally tax on profit.
There are multiple definitions of profit.
For example, if you sell something before you have paid for it (this is very common), and then put the money from selling into a bank where it earns interest, and then withdraw that money and pay for the thing you sold:
You will have made sale_price - purchase_price + interest.
In a VAT system, you will pay VAT on sale_price - purchase_price (or your customer will, depending on how you sell things), but not on the extra interest you earned.
So that's already a loophole. You can game the tax system by selling things before you buy them and earning interest.
If you're smart enough, you might even sell things for exactly the same as you pay for them, and still make a profit due to the interest while you hold the money. You could get even smarter, and hold that money on behalf of your upstream supplier to withdraw when they need to spend it. Before you know it, you're paying zero VAT, and all your profit looks like interest.
But you have to pay an accountant to make sense of all these for you. The cost of the accountant isn't a direct cost of making the thing you're selling.
So that gives you the difference between gross profit (sales price minus costs associated with the thing you're selling) and net profit (what you have after paying for everything needed to run the business).
For example, if you sell something before you have paid for it (this is very common), and then put the money from selling into a bank where it earns interest, and then withdraw that money and pay for the thing you sold:
You will have made sale_price - purchase_price + interest.
In a VAT system, you will pay VAT on sale_price - purchase_price (or your customer will, depending on how you sell things), but not on the extra interest you earned.
So that's already a loophole. You can game the tax system by selling things before you buy them and earning interest.
If you're smart enough, you might even sell things for exactly the same as you pay for them, and still make a profit due to the interest while you hold the money. You could get even smarter, and hold that money on behalf of your upstream supplier to withdraw when they need to spend it. Before you know it, you're paying zero VAT, and all your profit looks like interest.
But you have to pay an accountant to make sense of all these for you. The cost of the accountant isn't a direct cost of making the thing you're selling.
So that gives you the difference between gross profit (sales price minus costs associated with the thing you're selling) and net profit (what you have after paying for everything needed to run the business).
Hum... I suggest you take a look on how taxes on profit work.
That's literally a tax on value added.
That's literally a tax on value added.
The definition of "value added" is price minus costs, aka profit.
https://www.investopedia.com/terms/v/valueadded.asp
https://www.investopedia.com/terms/v/valueadded.asp
"Purchase price" is not the same thing as costs and "revenue price - purchase price" is completely different from profits.
With a broad enough definition and inclusion of other, unrelated prices at that negative part, one can claim that in a time-frame of several years, both average to nearly the same. But that doesn't make them equal, and if you go read those tax-codes, you will discover the ones being discussed add to very different figures even on the long term.
I'll just add here another encouragement to go out and get an understanding of tax codes. Odds are they will be relevant for everybody that frequents here at some point on their lives, and odds are that if you don't know them, you'll only discover their relevance after the fact, when they have already caused you some problem.
With a broad enough definition and inclusion of other, unrelated prices at that negative part, one can claim that in a time-frame of several years, both average to nearly the same. But that doesn't make them equal, and if you go read those tax-codes, you will discover the ones being discussed add to very different figures even on the long term.
I'll just add here another encouragement to go out and get an understanding of tax codes. Odds are they will be relevant for everybody that frequents here at some point on their lives, and odds are that if you don't know them, you'll only discover their relevance after the fact, when they have already caused you some problem.
Yeah. To be pedantic maybe we should say "a tax on gross profit". Regardless, it's closer to taxing profit than what most people mean when they propose a revenue tax.
VAT is not tax on revenue. Only the end customer pays VAT.
Although true, that seems moot because all tax on business (whether VAT or not) is, one way or another, passed along to the end customer (or not passed on according to business pricing decisions).
No matter which company in the supply chain pays it!
With VAT, it's raised prices and shown on the receipt.
With other business taxes, it's raised prices and not shown on the receipt.
Customer pays either way.
Of course, competition and other factors also govern prices. It's not a given that changing business taxes always causes a business to change its prices by a related amount.
But that is the same for VAT and other business taxes too.
No matter which company in the supply chain pays it!
With VAT, it's raised prices and shown on the receipt.
With other business taxes, it's raised prices and not shown on the receipt.
Customer pays either way.
Of course, competition and other factors also govern prices. It's not a given that changing business taxes always causes a business to change its prices by a related amount.
But that is the same for VAT and other business taxes too.
There's no receipt if it's a bank, for example.
You can always address that, like VAT (and other commentators have said), by allowing refunding of tax on purchase (for example) for business purposes.
GGP comment (apexalpha) proposes that would could tax revenues instead of what we are currently doing.
GP comment (me) points out that the proposed change is not a good idea.
P comment (riknox) points out we can always address that problem by doing what we currently do already (VAT).
I agree, we can solve the problem of the proposed change by continuing to do what we are already doing :-)
GP comment (me) points out that the proposed change is not a good idea.
P comment (riknox) points out we can always address that problem by doing what we currently do already (VAT).
I agree, we can solve the problem of the proposed change by continuing to do what we are already doing :-)
Or you just tax the end result (per country).
Ie, you buy through 1000 transactions, and you sell through 1500 transactions for a net total of +€5k within the country.
Tax that €5k, not the individual transactions.
Unless I'm missing something.
Ie, you buy through 1000 transactions, and you sell through 1500 transactions for a net total of +€5k within the country.
Tax that €5k, not the individual transactions.
Unless I'm missing something.
“Transfer pricing” is why this doesn’t work out.
Could you elaborate? Reading up on it it's not clear what you mean.
Companies buy a combination of goods and IP (patents and trademarks). The goods come from a developed country and the IP is licensed from a tax haven. The goods are sold at near cost with the markup being in the IP. The result is a supply of goods between countries that causes a significant diversion of the revenue to the tax haven. This is used by most big companies in tech, pharma, etc. The government can’t challenge these schemes because there is no open market for IP (because they’re monopoly rights) so there’s no way to argue that the price paid wasn’t the open market price.
Sure, but this was a discussion about taxing revenue produced within a country. What you are describing is avoiding for example profit tax, is it not?
I'm still not seeing how it applies to the proposed example.
I'm still not seeing how it applies to the proposed example.
So, the reason that people want to tax revenue is to negate the benefits of transfer pricing.
For instance, Google France makes 1bn euro in revenue, but purchases Google services from Google Ireland for 999mn, thus almost no profit and thus no tax. Google Ireland make 20bn but pay 19.99bn to Google Bermuda, which is the exclusive licensee of Google IP worldwide (even though the IP is almost exclusively produced in the US).
Taxing revenue means that these shenanigans do not reduce the tax paid in a particular country to zero.
For instance, Google France makes 1bn euro in revenue, but purchases Google services from Google Ireland for 999mn, thus almost no profit and thus no tax. Google Ireland make 20bn but pay 19.99bn to Google Bermuda, which is the exclusive licensee of Google IP worldwide (even though the IP is almost exclusively produced in the US).
Taxing revenue means that these shenanigans do not reduce the tax paid in a particular country to zero.
Simply swing the antitrust hammer judiciously, in that case.
I'm suddenly hit with the image of a child whining that having to do homework AND chores is too hard, and their parent telling them to suck it up.
Besides, tax revenue doesn't just disappear into some govt hole, it gets redistributed as services and grants and the like. The loss in operating revenue is likely made up in increased business. Your low margin goods get fked but people are more willing to purchase the higher margin value-adds.
I'm suddenly hit with the image of a child whining that having to do homework AND chores is too hard, and their parent telling them to suck it up.
Besides, tax revenue doesn't just disappear into some govt hole, it gets redistributed as services and grants and the like. The loss in operating revenue is likely made up in increased business. Your low margin goods get fked but people are more willing to purchase the higher margin value-adds.
Given that we are all using fiat currency, an interesting way to think about taxation is that the Government is destroying money through taxation, and creating money from via spending.
With this thinking, you can very much say that tax revenue does just disappear into some hole. The effect of taxation in this thinking is that it applies brakes upon the accumulation of wealth and causes existing wealth to be worth more (via deflation). This is counteracted by the inflation from created wealth via govt spending.
A weird alternative to taxation could be to print more and more money without taxing any of it. This would be functionally a flat tax on all existing wealth in that fiat currency via inflation.
With this thinking, you can very much say that tax revenue does just disappear into some hole. The effect of taxation in this thinking is that it applies brakes upon the accumulation of wealth and causes existing wealth to be worth more (via deflation). This is counteracted by the inflation from created wealth via govt spending.
A weird alternative to taxation could be to print more and more money without taxing any of it. This would be functionally a flat tax on all existing wealth in that fiat currency via inflation.
> With this thinking, you can very much say that tax revenue does just disappear into some hole.
It doesn't just disappear into the misty fog of the central bank though. It goes onto some government ledger.
This ledger has some considerable effect. It greatly constrains what the government can spend.
If the ledger meant nothing, you would not see government needing to borrow via issuing bonds when it needs to spend more. The cost to government of borrowing goes up and down according to circumstances, and is outside of government's direct control.
In other words, all the parts are related, partly by design, and this strongly affects the consequences of issuing (or destroying) currency at the central bank to the point where it's not really meaningful to think of taxation as destroying currency.
If the government did issue enough currency to go on a spending spree, before long not only would inflation harm other parts of the economy, it would also find that the prices of its spending spree went up, so it would have to issue more, and...
Ultimately no matter how much currency it issues, there's a strong drag in real terms on how many things the government can obtain from others and cause others to do via commerce.
That limit on its spending power makes the ledger balance something much stronger than a hole into which tax disappears.
It doesn't just disappear into the misty fog of the central bank though. It goes onto some government ledger.
This ledger has some considerable effect. It greatly constrains what the government can spend.
If the ledger meant nothing, you would not see government needing to borrow via issuing bonds when it needs to spend more. The cost to government of borrowing goes up and down according to circumstances, and is outside of government's direct control.
In other words, all the parts are related, partly by design, and this strongly affects the consequences of issuing (or destroying) currency at the central bank to the point where it's not really meaningful to think of taxation as destroying currency.
If the government did issue enough currency to go on a spending spree, before long not only would inflation harm other parts of the economy, it would also find that the prices of its spending spree went up, so it would have to issue more, and...
Ultimately no matter how much currency it issues, there's a strong drag in real terms on how many things the government can obtain from others and cause others to do via commerce.
That limit on its spending power makes the ledger balance something much stronger than a hole into which tax disappears.
I live in Argentina and we have a revenue tax. It's a shit show and basically any marketplace / fintech business that operates on low margins is either economically unviable or needs some flaky loophole to operate.
Its interesting as many people have a revenue tax on people -- it's called income tax. Your expenses (rent, food, commute, power) are generally not removable -- some expenses can be taken off before tax, but most can't.
Most people operate on low margins economically, saving 5% of your paycheck would be an outstanding achievement for many.
Most people operate on low margins economically, saving 5% of your paycheck would be an outstanding achievement for many.
Taxing revenue makes companies with high capital and/or labor overhead non viable, like banks, oil companies. Only companies with high profit to revenue ratios could survive in an environment like that, I’m sure even France has lots of exemptions.
Better to tax value adds than revenue, which is simply money flowing through the economy.
Better to tax value adds than revenue, which is simply money flowing through the economy.
I know this isn't exactly parallel to the digital service tax, but for the larger debate: The huge obvious revenue tax is VAT. On (almost) anything sold in France they get 20%, and it's very hard to dodge. It does not depend on where you claim your headquarters to be.
All these arguments about which country gets to collect a few percent tax, of a few percent profit, are dwarfed by this much larger slice. Which every country is free to adjust as they wish.
All these arguments about which country gets to collect a few percent tax, of a few percent profit, are dwarfed by this much larger slice. Which every country is free to adjust as they wish.
Maybe, but there are several arguments against using it in this context:
- Collection can be reduced by deducting VAT on company purchases, meaning the company only pays the difference between the VAT charged to the customer and the VAT they've incurred on purchases.
- It's regressive. It primarily affects poorer consumers since it is effectively a tax on the end user rather than the company.
- Some countries aren't free to set their own rates. For example, in the EU the standard rate cannot be set below 15% without first changing EU law (and convincing a majority of Member States to agree to do that) so it's not very competitive.
- Collection can be reduced by deducting VAT on company purchases, meaning the company only pays the difference between the VAT charged to the customer and the VAT they've incurred on purchases.
- It's regressive. It primarily affects poorer consumers since it is effectively a tax on the end user rather than the company.
- Some countries aren't free to set their own rates. For example, in the EU the standard rate cannot be set below 15% without first changing EU law (and convincing a majority of Member States to agree to do that) so it's not very competitive.
Sure, it's not the same as a revenue tax. But compared to a profits tax, money spent on company purchases also never makes it into the profit column. But money the company later spends on salaries, is taxed by VAT.
There's an argument that VAT is regressive but this isn't it. Who effectively pays (meaning economic incidence) is complicated. But sometimes it works out that poorer people pay a larger proportion of their income in VAT than do richer people. It seems entirely OK to have a mixture of regressive and progressive taxes.
And sure, not completely free within the EU, but the range of acceptable rates is pretty wide, maybe 17-27 exist today? I haven't done the numbers but France could surely raise an order of magnitude more money from VAT than they collect from corporate profits, if they wished.
There's an argument that VAT is regressive but this isn't it. Who effectively pays (meaning economic incidence) is complicated. But sometimes it works out that poorer people pay a larger proportion of their income in VAT than do richer people. It seems entirely OK to have a mixture of regressive and progressive taxes.
And sure, not completely free within the EU, but the range of acceptable rates is pretty wide, maybe 17-27 exist today? I haven't done the numbers but France could surely raise an order of magnitude more money from VAT than they collect from corporate profits, if they wished.
VAT is not a tax on business revenue. Only end-customers pay tax, that's why it's called "value-added" tax.
Well, who pays tax is kind-of a complicated question. VAT is collected at many points along the supply chain (and sales tax typically at just one). But who pays economically depends on a bunch of elasticities: if the consumers will buy X at any price, then the tax lands on them, whereas if they will only pay at maximum Y (otherwise they go without) then the tax lands on the seller. (But in reality, nothing is at either endpoint.)
It's called "value added" because it's a tax on profit, and everyone in the supply chain pays it.
The companies in the middle of the supply chain can reclaim any VAT they paid on goods/services used in the business [1], so effectively they don't pay it.
VAT is definitely not a tax on profit, that's usually called "corporate tax" [2] which is a completely different thing.
[1] https://www.gov.uk/reclaim-vat
[2] https://en.wikipedia.org/wiki/Corporate_tax
VAT is definitely not a tax on profit, that's usually called "corporate tax" [2] which is a completely different thing.
[1] https://www.gov.uk/reclaim-vat
[2] https://en.wikipedia.org/wiki/Corporate_tax
Revenue tax is charged in the same location as VAT though, you just cannot offset it with the VAT you pay (or between two companies, it’s never zero).
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And end up with a situation where you can owe taxes and be in the negative even without making profit? No thanks.
I would highly recommended reading "A Fine Mess: A Global Quest for a Simpler, Fairer, and More Efficient Tax System." It compares tax systems around the world, unpacks common issues and suggests a fix (in short a "broad base low rate" strategy).
https://www.amazon.com/Fine-Mess-Global-Simpler-Efficient/dp...
https://www.amazon.com/Fine-Mess-Global-Simpler-Efficient/dp...
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The problem with (too much) simplification is that it removes political steering capability. For example, governments may want to promote having children (by reducing the tax load for people having children), or incentivize small businesses like shops, or domestic R&D spending...
This is another problem that would simultaneously be solved with simpler tax. Government pays for things by paying for things, and also effectively pays for things by giving tax breaks hidden in the 50,000 pages of tax code that now simultaneously how the government collects revenue and pays for things, and is completely incomprehensible to most people.
See ~26 minute into this interview for a more in depth proposal that makes a lot of sense. Separate collecting money and spending money. https://www.econtalk.org/john-cochrane-on-economic-growth-an...
See ~26 minute into this interview for a more in depth proposal that makes a lot of sense. Separate collecting money and spending money. https://www.econtalk.org/john-cochrane-on-economic-growth-an...
> The problem with (too much) simplification is that it removes political steering capability.
This is not a problem, this is a benefit. If you separate tax collection from tax policy you are still able making economic and social policy via other tools.
This is not a problem, this is a benefit. If you separate tax collection from tax policy you are still able making economic and social policy via other tools.
Simple tax policy is a very tough political sell.
Basically tax policy is a low bar to entry way to get the laws you want but in a lossy capacity. Instead of making something legal/illegal outright you can just make it "illegal unless you jump through hoops and/or pay money" or you can provide a tax incentive for something you like (easier to sell than a subsidy). This lets you get dumb policy that would otherwise never pass. Big business benefits from this by getting carve-outs that make them more money or by getting policy that lets them use scale to their advantage. The authoritarian upper middle class benefits from this by using tax policy to create a carrot/stick system to kinda sorta make the poors act the way they want. And of course the government and politicians benefits from the current system because it gives them influence and power.
So right now we've got big business, the top ~30% or so of society and politicians/the government benefiting from the status quo. In order to remove politics from taxes big business is going to have to pay more (or everyone else will have to pay less, an equally large pill for a lot of people to swallow), the upper middle class will have to lose a set of carrots/sticks to kick the poors around and the government will have to accept a net decrease in power. The only way to get these groups to accept this is to spend a century boiling the frog. I don't think we'll ever get simple tax policy overnight.
Basically tax policy is a low bar to entry way to get the laws you want but in a lossy capacity. Instead of making something legal/illegal outright you can just make it "illegal unless you jump through hoops and/or pay money" or you can provide a tax incentive for something you like (easier to sell than a subsidy). This lets you get dumb policy that would otherwise never pass. Big business benefits from this by getting carve-outs that make them more money or by getting policy that lets them use scale to their advantage. The authoritarian upper middle class benefits from this by using tax policy to create a carrot/stick system to kinda sorta make the poors act the way they want. And of course the government and politicians benefits from the current system because it gives them influence and power.
So right now we've got big business, the top ~30% or so of society and politicians/the government benefiting from the status quo. In order to remove politics from taxes big business is going to have to pay more (or everyone else will have to pay less, an equally large pill for a lot of people to swallow), the upper middle class will have to lose a set of carrots/sticks to kick the poors around and the government will have to accept a net decrease in power. The only way to get these groups to accept this is to spend a century boiling the frog. I don't think we'll ever get simple tax policy overnight.
They could do that by direct subsidies. That would be transparent. Or should transparency be required only of the corporations, but governments could get a pass?
It is more efficient to let people keep money than it is to take it from them and give it back. Even if the laws that allow the former would (/might) be simpler.
I don't think we can take that as a given. Moving money has its overheads, of course, but so does every added complexity in law.
Ok let’s do away with withholding then. Instead of just letting the government keep the money we will all take it from the government and give it back at one time on tax day. Much simpler.
I believe you severely underestimate the complexity of actually administering a complex tax system.
Especially because the way a lot of deductions end up working in practice is that you withhold the money from people in the first place and cash it out in the end of the year when you calculate your actual tax burden.
Especially because the way a lot of deductions end up working in practice is that you withhold the money from people in the first place and cash it out in the end of the year when you calculate your actual tax burden.
It is not a problem. Just give subsidies as a tax credit.
That's still a problem, if you think companies minimising their tax is a problem. The game shifts to creating the correct structure to qualify for tax credits.
Uhm, I am not sure what you are talking about. Frictions that arise from taking money and giving them back by design don’t arise if you don’t take anything because you provide a tax credit.
I'm talking about the fact that this doesn't address the base problem.
Sure, I simply addressed this point
>It is more efficient to let people keep money than it is to take it from them and give it back
Direct subsidies in the form of tax credit don't incur any costs of moving money because no money are moved, but functionally it is almost the same.
>It is more efficient to let people keep money than it is to take it from them and give it back
Direct subsidies in the form of tax credit don't incur any costs of moving money because no money are moved, but functionally it is almost the same.
The base problem being that tax law is gameable. That's what the article and comments are about.
How would be more transparent than tax deductions?
If the tax law gets complicated enough, the incentives might not work because people don't know about them. I personally don't optimise my taxes to government incentives because figuring out what they are is too difficult.
The complexity doesn’t come from the tax code per se. It comes from accounting rules which are reflected in the tax code.
LOL the simpler tax code or laws are, the more open they are to interpretation. You've got things backwards here.
If only there was a website where people who automate things congregate. They could automate creating this legal structure so we could all do it, then governments would be forced to do something about it.
I don't think they were trying to stand up for it, just explaining how it happens. Which we all suspected (if you are paying attention at all) but did it from the point of view of someone who actually was "there". I found it quite interesting.
IMO you need to come up with a way to eliminate tax arbitrage. You see it causing issues between US States where there’s a race to the bottom to give tax breaks and as long as companies can go to places like Vanuatu there will be ways for them to avoid taxes.
Since you can’t control what other sovereign nations do all you can do is make laws restricting what companies that operate in tax havens can do in local jurisdictions. But they will of course lobby that you’re restricting freedom and hobbling your economy and take their HQs elsewhere.
Since you can’t control what other sovereign nations do all you can do is make laws restricting what companies that operate in tax havens can do in local jurisdictions. But they will of course lobby that you’re restricting freedom and hobbling your economy and take their HQs elsewhere.
Why would eliminate tax arbitrage between states? I'd prefer to see states competing over taxes - it provides a great incentive for efficiency. And no, a company won't always choose the lower tax rate, there are other factors at play like: 1)where are the employees located, 2) will they even go to a state with lower business taxes, 3) what services do I get as a company from the state gov't, 4) what's the general business climate in the state.
I hate the derogatory use of "race to the bottom" since it's the reason why we have handheld computers in our pockets and 60 inch flat screen TVs that cost $300. Every company is "racing to the bottom" to provide as much value for the least cost as possible.
I hate the derogatory use of "race to the bottom" since it's the reason why we have handheld computers in our pockets and 60 inch flat screen TVs that cost $300. Every company is "racing to the bottom" to provide as much value for the least cost as possible.
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Maybe it's a little too much to ask, but are why are you "not saying any of this is right or good".
Part of my brain wishes that law would actually mean justice but somehow, if I trust only what I know, I cleary cannot judge, as you do, if finance engineering is good or bad.
I'd like to know what prevents you to choose if it's good or right (as person who have worked inside the business)
thx
Part of my brain wishes that law would actually mean justice but somehow, if I trust only what I know, I cleary cannot judge, as you do, if finance engineering is good or bad.
I'd like to know what prevents you to choose if it's good or right (as person who have worked inside the business)
thx
I do have opinions about various tax provisions that I know well. But the topics I mentioned in my prior comment were not about a specific tax provision, or even tax policy generally. I was just stating the facts of life. It will always be the case that big companies will find it efficient to engage in certain revenue-producing activities that smaller companies/individuals will not.
Just as I don't have feelings about laws of physics, I don't have any feelings about economies of scale.
Lobbying is a bit different. Like most folks, the idea of 'lobbying' strikes me as wasteful/corrupt. But if you try to come up with a definition about what 'lobbying' is, and how you might try to restrict it, you realize that it is very difficult to do so without being underinclusive or overinclusive (or both!). So while I find the idea distasteful, I don't have any answers on how to 'fix' it.
Just as I don't have feelings about laws of physics, I don't have any feelings about economies of scale.
Lobbying is a bit different. Like most folks, the idea of 'lobbying' strikes me as wasteful/corrupt. But if you try to come up with a definition about what 'lobbying' is, and how you might try to restrict it, you realize that it is very difficult to do so without being underinclusive or overinclusive (or both!). So while I find the idea distasteful, I don't have any answers on how to 'fix' it.
Thanks. What I love about the comments you make is twofold:
- You clearly differentiate between opinion, observation and fact. - You don't try to find an easy answer.
Thanks. Comments like these make me come back and read on HN.
- You clearly differentiate between opinion, observation and fact. - You don't try to find an easy answer.
Thanks. Comments like these make me come back and read on HN.
My hobby [1] is helping people think clearly about media bias and filter bubbles, so I'm glad to hear that my comments come across as rational and balanced!
1: http://www.readacrosstheaisle.com
1: http://www.readacrosstheaisle.com
This is an interesting concept. I think this is a tool that I would use, however I don't have an iPhone and I don't use Chrome. Are there plans to release this as a Firefox addon?
Lobbying is a bit different. Like most folks, the idea of 'lobbying' strikes me as wasteful/corrupt.
Are people aware what everyday lobbying is in it's most basic form? It's companies engaging their elected representatives on policy issues relevant to them.
So when the Obamacare bill was being written, the AMA (representing physicians) lobbied Congress to make sure their views were heard. Completely legitimate. Another example might be a crime bill where the ACLU lobbies Congress. Or the EFF lobbies Congress.
And the lobbying dollars that are spent aren't bundles of cash given to Congresspersons, it's dollar spent on lobby firms that have armies of experts who know how Congress works, who to talk to and how to craft an argument that resonates. That doesn't come cheap.
Now up to this point nothing illegal has happened. You could argue it's unfair that businesses (well, more accurately organizations) have better access to Congress than individual voters, but groups will always have more power than individuals (since they represent more voters). There is nothing to stop a group of voters from forming an organization to lobby Congress on a specific issue. Again, that's what the ACLU and EFF do.
It seems like most people see "the AMA spent $10M on lobbying last year" and picture lobbyists passing bags of cash to Congress. No, that's illegal and has been for a very long time.
Are people aware what everyday lobbying is in it's most basic form? It's companies engaging their elected representatives on policy issues relevant to them.
So when the Obamacare bill was being written, the AMA (representing physicians) lobbied Congress to make sure their views were heard. Completely legitimate. Another example might be a crime bill where the ACLU lobbies Congress. Or the EFF lobbies Congress.
And the lobbying dollars that are spent aren't bundles of cash given to Congresspersons, it's dollar spent on lobby firms that have armies of experts who know how Congress works, who to talk to and how to craft an argument that resonates. That doesn't come cheap.
Now up to this point nothing illegal has happened. You could argue it's unfair that businesses (well, more accurately organizations) have better access to Congress than individual voters, but groups will always have more power than individuals (since they represent more voters). There is nothing to stop a group of voters from forming an organization to lobby Congress on a specific issue. Again, that's what the ACLU and EFF do.
It seems like most people see "the AMA spent $10M on lobbying last year" and picture lobbyists passing bags of cash to Congress. No, that's illegal and has been for a very long time.
yeah sure. But like everything, there's a point at which it makes people nervous. Eating sugar up to the point it's too much.
Lobbying is actually not hard to stop at all. It msy be under our current structure, but its not hard to stop
Here are 3 rules that would stop lobbying overnight.
1- Make house of reps sole body to set tax law at federal lvl 2- tie reps in house to very specific, low pop counts. For ex, 1 rep district = 25,000. This would mean house would become gigantic. 3- randomize election outcomes. Swap winner of city treasurer with senate winner. Swap rep seat with state assemblyman. Every seat should have a high random chance of being swapped. If winner does not like position. We should even do this with presidency.
This solves federal level lobbying by taking (1) power into a (2) decentralized body and also (3) inserting downside for lobbyist.
Here are 3 rules that would stop lobbying overnight.
1- Make house of reps sole body to set tax law at federal lvl 2- tie reps in house to very specific, low pop counts. For ex, 1 rep district = 25,000. This would mean house would become gigantic. 3- randomize election outcomes. Swap winner of city treasurer with senate winner. Swap rep seat with state assemblyman. Every seat should have a high random chance of being swapped. If winner does not like position. We should even do this with presidency.
This solves federal level lobbying by taking (1) power into a (2) decentralized body and also (3) inserting downside for lobbyist.
So you don’t have any emotional opinions on the work of others that has real effect on your life?
Physicists can be wrong.
Economists can be wrong.
At some point technical nonsense becomes “imperfect people choosing.”
A fix might simply be change tax laws? Kind of like how the billionaires changed them to be less distributed.
But you don’t have feelings enough about economics being purposely wielded at scale to manipulate; let’s hope you’re still one of the privileged enough to be indifferent and comfortable in the future.
popcorn
Real-time meltdown of Pax Americana is pretty metal.
Physicists can be wrong.
Economists can be wrong.
At some point technical nonsense becomes “imperfect people choosing.”
A fix might simply be change tax laws? Kind of like how the billionaires changed them to be less distributed.
But you don’t have feelings enough about economics being purposely wielded at scale to manipulate; let’s hope you’re still one of the privileged enough to be indifferent and comfortable in the future.
popcorn
Real-time meltdown of Pax Americana is pretty metal.
I don't think the poster was saying any of this. They were simply stating that the post was informational and that they weren't offering any commentary on the situation, just giving facts.
I mean, sure a physicist can be wrong, but if they are giving facts as are currently accepted by the community or even as they know them, it isn't an emotional statement of whether they agree. It is just that: Facts as we know them, to the best of our ability and not giving the commentary with it.
I mean, sure a physicist can be wrong, but if they are giving facts as are currently accepted by the community or even as they know them, it isn't an emotional statement of whether they agree. It is just that: Facts as we know them, to the best of our ability and not giving the commentary with it.
He said "laws of physics" not "physicists." You're deliberately misreading his point, which undermines whatever point you're trying to make.
Laws of physics are discovered by human experiment.
Economics are defined by humans.
They’re taught to each other by humans.
It’s all wrapped in how we treat each other at scale.
Separating the two is impossible except as a semantics game.
Economics are defined by humans.
They’re taught to each other by humans.
It’s all wrapped in how we treat each other at scale.
Separating the two is impossible except as a semantics game.
They're separable by experimental verification. The laws of physics are multiple orders of magnitude more accurate than the laws of economics, and the physicists are certain that at least one of their models is wrong.
Try getting an admission like that out of an economist!
Try getting an admission like that out of an economist!
As economists we are certain all of our models are wrong! But some can be useful in a constrained environment to answer specific questions, so thats why we have so damn many of them!
Because he wants to give his technical expertise, and does not want to enter into a political debate about the way we organise society.
If you read between the lines, you can see that he understands that people have reservations (and probably he has chosen). He just chooses to explicitly not make a statement about it, and keep this a technical discussion.
In todays highly politicised society, this is (in my opinion) a sensible thing to do.
If you read between the lines, you can see that he understands that people have reservations (and probably he has chosen). He just chooses to explicitly not make a statement about it, and keep this a technical discussion.
In todays highly politicised society, this is (in my opinion) a sensible thing to do.
It the OP, but there’s a difference between holding a moral opinion and stating that opinion in a discussion. OP may simply have not wanted to obscure information presented from an insider perspective with personal opinion, in an attempt to stay objective.
Further, financial engineering by itself is morally neutral. It can create abuses sure, but it can also reduce unnecessary costs so that a company can employ more people, offer goods and services to customers at lower prices, etc. Tax is just one piece of a much bigger puzzle and it can’t always easily be disentangled from other issues.
I’m reminded of the saying about porn, you might not be able to define it, but you know it when you see it. There are plenty of publicly discussed cases of pretty clear and egregious tax evasion, but not all efforts to limit tax liability are abuses. Some of them are responses to deliberate incentives put into the tax system to encourage specific behaviour.
Further, financial engineering by itself is morally neutral. It can create abuses sure, but it can also reduce unnecessary costs so that a company can employ more people, offer goods and services to customers at lower prices, etc. Tax is just one piece of a much bigger puzzle and it can’t always easily be disentangled from other issues.
I’m reminded of the saying about porn, you might not be able to define it, but you know it when you see it. There are plenty of publicly discussed cases of pretty clear and egregious tax evasion, but not all efforts to limit tax liability are abuses. Some of them are responses to deliberate incentives put into the tax system to encourage specific behaviour.
Law is the UI for political power, and not inherently for justice.
If you want justice, you have to apply political leverage to steer power in its direction.
Law is also the UI for political self-interest. Unfortunately the same leverage principle applies. Which is why it's almost impossible to get real justice - including tax justice - in a plutocracy. The scales are tilted too heavily in the opposite direction.
The answer is to balance plutocracy with effective political organisation, but that's an incredibly hard problem to solve at all, never mind peacefully.
If you want justice, you have to apply political leverage to steer power in its direction.
Law is also the UI for political self-interest. Unfortunately the same leverage principle applies. Which is why it's almost impossible to get real justice - including tax justice - in a plutocracy. The scales are tilted too heavily in the opposite direction.
The answer is to balance plutocracy with effective political organisation, but that's an incredibly hard problem to solve at all, never mind peacefully.
This is why I've always been skeptical of high _income_ tax rates. First tax avoidance is at base a fixed cost. It's the price of a really tax lawyer (or at the extreme a couple of US Senators). If that fixed price is less then your tax bill only idiot pays the tax bill.
The second reason is that I don't believe people view money fractionally - I think they look at it absolutely. For me am million dollars is a lot of money. For Bill Gates though a million dollars is ... a lot of money. It doesn't matter that he's a billionaire he's still not going to throw around a million dollars the same way I'd throw around the same fraction of my wealth that a million is to him. He still recognizes the absolute value of that money and he can still see it's potential to make things happen in the world just as I can see what a hundred dollars (or whatever my fractional equivalent is) can do in the world.
The second reason is that I don't believe people view money fractionally - I think they look at it absolutely. For me am million dollars is a lot of money. For Bill Gates though a million dollars is ... a lot of money. It doesn't matter that he's a billionaire he's still not going to throw around a million dollars the same way I'd throw around the same fraction of my wealth that a million is to him. He still recognizes the absolute value of that money and he can still see it's potential to make things happen in the world just as I can see what a hundred dollars (or whatever my fractional equivalent is) can do in the world.
Look at Bill Gates's house to see how obvious false that thesis is.
Na, you're both wrong, GP for assuming he knows how a billionaire views a million dollars and you for your weak rebuttal that his home proves he doesn't value money.
You both need to stop speculating about Bill Gates.
You both need to stop speculating about Bill Gates.
This has been on my mind for quite a while: is there a way to set up saving structures like those of Big Corp to poor people - i.e. find a way for the people least able to pay tax to pay less of it.
Would you mind chatting about your expertise here? Do you think there is any feasible way of generalizing these tax avoidance structures so that Joe and Jane can reap some of those sweet sweet loophole benefits as well?
Would you mind chatting about your expertise here? Do you think there is any feasible way of generalizing these tax avoidance structures so that Joe and Jane can reap some of those sweet sweet loophole benefits as well?
There's usually a high fixed cost to them. The merely averagely rich have been taking advantage of them, but gradually the low-cost loopholes are closed, e.g. https://www.accountingweb.co.uk/any-answers/isle-of-man-tax-...
Mind you, most actually poor people have a low tax incidence in the first place due to progressive tax rates.
Mind you, most actually poor people have a low tax incidence in the first place due to progressive tax rates.
sorry for the nitpick, but I don't think tax incidence [0] is the term you were looking for here. it's hard for poor people to take advantage of tax loopholes because they don't directly pay much tax after the standard deduction and (possibly) EITC. whether they bear the burden (ie, tax incidence) of taxes levied against other entities is controversial.
[0] https://en.wikipedia.org/wiki/Tax_incidence
[0] https://en.wikipedia.org/wiki/Tax_incidence
Do you have any input as to how they can be prevented from beating the system or do you think there will always be enough loop holes for them to get out of paying taxes because they essentially own the law makers?
> that saved our clients hundreds of millions of dollars.
Could you elaborate, from your experience, what happened to these $$$? Do they sit in banks without being used or do they get get invested and recirculated in the economy?
Also, given that just about every function of the US govt has been privatised, what would the US govt spend this money on? Spend it on defence (and channel the money back to private defense entities)? Pay off trade deficit? I'm not aware of US budget break down on expenditure side so any pointer would be great.
Could you elaborate, from your experience, what happened to these $$$? Do they sit in banks without being used or do they get get invested and recirculated in the economy?
Also, given that just about every function of the US govt has been privatised, what would the US govt spend this money on? Spend it on defence (and channel the money back to private defense entities)? Pay off trade deficit? I'm not aware of US budget break down on expenditure side so any pointer would be great.
Spend it on? How about COVID relief?
IIRC defense is about 20% of the US federal budget. About 40% of that (ie 8% of total federal spending) is paid to staff. In some ways it's the largest redistributive program.
The trade deficit is private, it's an accounting summary between private importers and exporters. Nothing to "pay off".
IIRC defense is about 20% of the US federal budget. About 40% of that (ie 8% of total federal spending) is paid to staff. In some ways it's the largest redistributive program.
The trade deficit is private, it's an accounting summary between private importers and exporters. Nothing to "pay off".
Money in banks ARE invested and circulated in the economy.
Economies or scale... How about just power? These companies have too many people in their pocket. When you have enough power you can get away with this. These companies, even if not paying taxes directly, are huge contributors of economy. You threaten them, and they threaten you back. Do you want them to take their 10,000 jobs somewhere else? It's not tax laws and enforcing them, just rather just too much power on too few people's hands.
When is the right time to consult a tax lawyer for an average person that is paid quite a bit above average?
That's all great for business and terrible for the public interest.
In practice this amounts to a regressive tax system.
Out of curiosity, what kind of disability tools?
My startup’s tech makes reading on screen easier. It is used by all types of readers, but is especially helpful popular among people with dyslexia, ADHD, vision impairment, and various chronic conditions.
http://www.beelinereader.com
http://www.beelinereader.com
> At this scale, paying for our services was a no-brainer.
What? I don't think so. If money is the only thing they care about, sure. But is it? Should it be? And if breaking the spirit of the law is fine, shouldn't breaking the letter of the law be fine as well? As long as the risk is low enough..
</rant>
What? I don't think so. If money is the only thing they care about, sure. But is it? Should it be? And if breaking the spirit of the law is fine, shouldn't breaking the letter of the law be fine as well? As long as the risk is low enough..
</rant>
You either save the billions in taxes or cannot scale further because now you can't afford to compete with those that do.
Also things sure do look different when you are at the helm. If you decide your company should pay more in taxes the board will probably vote you out on your ass.
Also things sure do look different when you are at the helm. If you decide your company should pay more in taxes the board will probably vote you out on your ass.
> if breaking the spirit of the law is fine, shouldn't breaking the letter of the law be fine as well?
There's no law against breaking the spirit of the law. Breaking the spirit of the law will only get you tried in the court of public opinion. Breaking the letter will also go to a court of justice.
There's no law against breaking the spirit of the law. Breaking the spirit of the law will only get you tried in the court of public opinion. Breaking the letter will also go to a court of justice.
One should read up on the judiciary system in their specific state before they start breaking the spirit of the law.
In some states the judges are quasi-politicians with an implied mandate to rule how they think the people want them to rule. In others the judiciary is a system for evaluating the law and they see they consider it their mandate to enforce the law exactly as written, especially when it gives the legislature and the public the middle finger because that's the incentive for those groups to write and demand good law.
In some states the judges are quasi-politicians with an implied mandate to rule how they think the people want them to rule. In others the judiciary is a system for evaluating the law and they see they consider it their mandate to enforce the law exactly as written, especially when it gives the legislature and the public the middle finger because that's the incentive for those groups to write and demand good law.
The thing about capitalism is that companies that don’t do everything in their power to increase profit are at a disadvantage against those who do. Profit is the ability to invest more in R&D, attract more investors, scale faster, advertise more. Unless your consumers care enough to only support you if you pay taxes, or you can get substantially more productive employees by paying taxes, or some other advantage in the marketplace by paying taxes, paying taxes when your competition does not is an albatross around your neck. And if your morality creates enough albatrosses around your neck your company will either fold or be eternally small as your competitors without such restrictions have higher efficiency. So it’s a no-brainer in that any company that gets to the scale where spending millions on lawyers is appropriate is already of this mindset.
This is why laws need to be crafted to not give companies the benefit of the doubt when it comes to acting in the best interest of society. Less because it is impossible for a company to be moral in a vacuum, but because if being immoral is allowed and advantageous inevitably the immoral company will out compete the moral one. (Of course it can be hard to agree on what moral is. Some say that taxes are immoral after all.)
This is why laws need to be crafted to not give companies the benefit of the doubt when it comes to acting in the best interest of society. Less because it is impossible for a company to be moral in a vacuum, but because if being immoral is allowed and advantageous inevitably the immoral company will out compete the moral one. (Of course it can be hard to agree on what moral is. Some say that taxes are immoral after all.)
It gets very complicated at the high levels of tax compliance. I am part of a company who had paid a specialized company to set up a tax advantaged structure in a foreign country several years ago in order to avoid capital gains tax.
The tax treaty document between the US and this country was over 100 pages long. When it came time to actually take the tax advantages on a return, we decided to figure out what the risks were of being audited and potential penalties. We engaged several tax experts to give their opinion.
What ensued was eye opening. We received wildly different opinions depending on the expert. The entire case hinged upon how one line in that 100+ page document could be interpreted. At the end of the day you are subject to the mercy of the IRS. For a large corporation, you may be able to afford the litigation (or avoid it all together as you could proactively play to the court of public opinion).
For us, we decided to fire the tax consultant and pay the tax. It was - for us - a very large sum, several million dollars.
Ultimately the “laws” are less like a set of rules and more a set of malleable guidelines. People who say, “oh I can just take whatever loopholes I’ve been given” don’t understand the sheer complexity and ambiguity of the tax code.
While I’m disappointed that we “lost” that money (one could argue it wasn’t ours to begin with), and disappointed that others are morally flexible enough or big enough to get away with it, I am left with the feeling that we did the right thing for the country as a whole. I am sad that more companies and individuals don’t consider that in their moral calculation.
The tax treaty document between the US and this country was over 100 pages long. When it came time to actually take the tax advantages on a return, we decided to figure out what the risks were of being audited and potential penalties. We engaged several tax experts to give their opinion.
What ensued was eye opening. We received wildly different opinions depending on the expert. The entire case hinged upon how one line in that 100+ page document could be interpreted. At the end of the day you are subject to the mercy of the IRS. For a large corporation, you may be able to afford the litigation (or avoid it all together as you could proactively play to the court of public opinion).
For us, we decided to fire the tax consultant and pay the tax. It was - for us - a very large sum, several million dollars.
Ultimately the “laws” are less like a set of rules and more a set of malleable guidelines. People who say, “oh I can just take whatever loopholes I’ve been given” don’t understand the sheer complexity and ambiguity of the tax code.
While I’m disappointed that we “lost” that money (one could argue it wasn’t ours to begin with), and disappointed that others are morally flexible enough or big enough to get away with it, I am left with the feeling that we did the right thing for the country as a whole. I am sad that more companies and individuals don’t consider that in their moral calculation.
It's funny how that works as companies scale up. A relative owns a small business and needed to get rid of an employee. She wound up laying her off, and taking the insurance hit. She wasn't the best employee and there probably could have been an argument for causal firing, "I'm not going to just lie" is what she said.
Many larger orgs would just try to go for a causal firing, so they can block the employee from receiving unemployment. It doesn't even matter if they're an otherwise decent employee. We'll save money so lets just lie, basically. It's pretty crushing to the individual, and IMO this practice should be abolished.
This is totally anecdotal and plenty of small to medium businesses act shady, but it's interesting that things tend to get even shadier (lawful evil) as things scale up. Yet there's less at stake for the individual employees and more ability to "not be evil", without closing up shop.
Many larger orgs would just try to go for a causal firing, so they can block the employee from receiving unemployment. It doesn't even matter if they're an otherwise decent employee. We'll save money so lets just lie, basically. It's pretty crushing to the individual, and IMO this practice should be abolished.
This is totally anecdotal and plenty of small to medium businesses act shady, but it's interesting that things tend to get even shadier (lawful evil) as things scale up. Yet there's less at stake for the individual employees and more ability to "not be evil", without closing up shop.
> Ultimately the “laws” are less like a set of rules and more a set of malleable guidelines. People who say, “oh I can just take whatever loopholes I’ve been given” don’t understand the sheer complexity and ambiguity of the tax code.
I wonder if it's laziness or by design.
> While I’m disappointed that we “lost” that money (one could argue it wasn’t ours to begin with), and disappointed that others are morally flexible enough or big enough to get away with it, I am left with the feeling that we did the right thing for the country as a whole. I am sad that more companies and individuals don’t consider that in their moral calculation.
That's the thing: Moral should never come into play. If it does, that means the law wasn't written properly.
I wonder if it's laziness or by design.
> While I’m disappointed that we “lost” that money (one could argue it wasn’t ours to begin with), and disappointed that others are morally flexible enough or big enough to get away with it, I am left with the feeling that we did the right thing for the country as a whole. I am sad that more companies and individuals don’t consider that in their moral calculation.
That's the thing: Moral should never come into play. If it does, that means the law wasn't written properly.
You should read https://www.huffpost.com/highline/article/white-collar-crime...
Some excerpts (it's a great, long piece. Read it all):
"In 2017, researchers estimated that fraud by America’s largest corporations cost Americans up to $360 billion annually between 1996 and 2004. That’s roughly two decades’ worth of street crime every single year."
"Even though auditing millionaires and billionaires is one of the most cost-effective government activities imaginable—an independent report estimated in 2014 that it yielded up to $4,545 in recovered revenue per hour of staff time—the IRS investigated the returns of just 3 percent of American millionaires in 2017."
"It is, as one of those high-priced lawyers might say, improbable that these demographic and economic facts exert no influence whatsoever on judges' rulings. In a 2012 review of sentencing data in Florida, researchers found that “high-status” white collar criminals, such as doctors scamming Medicaid, were 98.7 percent less likely to receive prison terms than welfare fraudsters. A 2015 study found that judges showed increasing mercy as fraud offenders moved up the income scale: Criminals who stole more than $400 million got sentences that were less than half of the minimum recommended by federal guidelines. Criminals who stole $5,000 or less served sentences well over the minimum."
"The only thing that consistently worked was to combine them— warnings from government agencies, surveillance of the worst actors, harsher punishments for repeat offenders and, yes, at the top of the ladder, criminal prosecutions for corporations that refused to shape up.
This is hardly some exotic, untested concept. When it comes to every other form of crime, law enforcement agencies are perfectly comfortable cracking down on offenses at every level. This is the country that invented three-strikes laws and “broken windows” policing. When it comes to street gangs and drug distribution networks, the criminal justice system has no problem simplifying complex criminal liability questions into four simple words: You should have known. "
Some excerpts (it's a great, long piece. Read it all):
"In 2017, researchers estimated that fraud by America’s largest corporations cost Americans up to $360 billion annually between 1996 and 2004. That’s roughly two decades’ worth of street crime every single year."
"Even though auditing millionaires and billionaires is one of the most cost-effective government activities imaginable—an independent report estimated in 2014 that it yielded up to $4,545 in recovered revenue per hour of staff time—the IRS investigated the returns of just 3 percent of American millionaires in 2017."
"It is, as one of those high-priced lawyers might say, improbable that these demographic and economic facts exert no influence whatsoever on judges' rulings. In a 2012 review of sentencing data in Florida, researchers found that “high-status” white collar criminals, such as doctors scamming Medicaid, were 98.7 percent less likely to receive prison terms than welfare fraudsters. A 2015 study found that judges showed increasing mercy as fraud offenders moved up the income scale: Criminals who stole more than $400 million got sentences that were less than half of the minimum recommended by federal guidelines. Criminals who stole $5,000 or less served sentences well over the minimum."
"The only thing that consistently worked was to combine them— warnings from government agencies, surveillance of the worst actors, harsher punishments for repeat offenders and, yes, at the top of the ladder, criminal prosecutions for corporations that refused to shape up.
This is hardly some exotic, untested concept. When it comes to every other form of crime, law enforcement agencies are perfectly comfortable cracking down on offenses at every level. This is the country that invented three-strikes laws and “broken windows” policing. When it comes to street gangs and drug distribution networks, the criminal justice system has no problem simplifying complex criminal liability questions into four simple words: You should have known. "
First off tax avoidance isn't fraud even given such shenanigans. They really do have offshore corporate offices in those countries. If they tried faking paperwork and really kept it in a corporate bank account? Actual fraud.
There is a reason for that - said strict criminal liability is broken it just breaks single lives and horrifyingly can be ignored. But break an entire systems and that leads to instability.
Take a complex economy with byzatine rules - either you have selective enforcement and effectively a dictatorship with extra steps or it is applied mercilessly across the board. Given the added risk to investments unsurprisingly many would choose to get the hell out of there.
Really the answer should be to do away with strict liability bullcrap.
There is a reason for that - said strict criminal liability is broken it just breaks single lives and horrifyingly can be ignored. But break an entire systems and that leads to instability.
Take a complex economy with byzatine rules - either you have selective enforcement and effectively a dictatorship with extra steps or it is applied mercilessly across the board. Given the added risk to investments unsurprisingly many would choose to get the hell out of there.
Really the answer should be to do away with strict liability bullcrap.
> My intuition is that if I personally came up with a cute "gotcha" like this where I wound up paying zero in taxes because of some loophole, I would go to prison. Why isn't the same standard applied to rich companies?
I know of one "gotcha" that works in my country at least: work for low / no wage but instead have loads of assets like stocks; dividend taxes are much lower than income taxes.
I could be wrong. I'm just reminded of people like the Google founders who humblebragged about only earning $1 / year in salary. They still became multi-billionaires off of stocks.
In my country, assets are taxed by a percentage of a percentage (they tax estimated return on investment, which is ridiculous if you only have a savings account that nowadays has either no interest or even negative interest). I think there should be an additional tax on any money or assets moving out of said investment account.
Because that's how rich people do it; they hardly pay any taxes because they have hardly any taxable income or assets. They put their house into a corporation or foundation, funnel any cash they need through various shell organizations and tax havens, etc.
I know of one "gotcha" that works in my country at least: work for low / no wage but instead have loads of assets like stocks; dividend taxes are much lower than income taxes.
I could be wrong. I'm just reminded of people like the Google founders who humblebragged about only earning $1 / year in salary. They still became multi-billionaires off of stocks.
In my country, assets are taxed by a percentage of a percentage (they tax estimated return on investment, which is ridiculous if you only have a savings account that nowadays has either no interest or even negative interest). I think there should be an additional tax on any money or assets moving out of said investment account.
Because that's how rich people do it; they hardly pay any taxes because they have hardly any taxable income or assets. They put their house into a corporation or foundation, funnel any cash they need through various shell organizations and tax havens, etc.
Really rich people do this with a complex network of shell organisations that's as opaque as possible.
It's not just that a corporation owns their house, it's that another corporation owns that corporation, and a holding company in the Cayman Islands with a nominee director who lives in a postbox owns everything, except the IP rights which are in Panama - this year. And personal spending goes through a credit card set up by their own personal offshore bank, which effectively makes it loan. Etc.
If there are enough shell companies you can decide your own tax payments, because you can hide everything you choose to hide. It's not that these networks can't be disassembled, it's that they can't be disassembled efficiently. It can literally take months or years of full-time auditing effort to trace all the relationships.
It's not just that a corporation owns their house, it's that another corporation owns that corporation, and a holding company in the Cayman Islands with a nominee director who lives in a postbox owns everything, except the IP rights which are in Panama - this year. And personal spending goes through a credit card set up by their own personal offshore bank, which effectively makes it loan. Etc.
If there are enough shell companies you can decide your own tax payments, because you can hide everything you choose to hide. It's not that these networks can't be disassembled, it's that they can't be disassembled efficiently. It can literally take months or years of full-time auditing effort to trace all the relationships.
Somewhat oversimplified, you don't need a herd of corporations to do this - simply sell your house to a trust fund of which you or someone you trust is the primary beneficiary. In Jersey, Luxembourg or the like. You pay a lawyer who already does this for many funds to administer yours.
You then either rent the house from the trust for a minimal amount, or the trust lets you stay there rent-free as a guest. This is also how many of the wealthy get around inheritance tax. When you cash in your chips your will appoints your offspring/significant other as the primary beneficiary and the wheel keeps turning.
As with all things in life knowing the thing is often the hard part. Most of us don't know what questions to ask.
You then either rent the house from the trust for a minimal amount, or the trust lets you stay there rent-free as a guest. This is also how many of the wealthy get around inheritance tax. When you cash in your chips your will appoints your offspring/significant other as the primary beneficiary and the wheel keeps turning.
As with all things in life knowing the thing is often the hard part. Most of us don't know what questions to ask.
I was under the impression that living somewhere rent-free, or renting at under the market rate for a typical location, was still taxable income that needed to be declared.
Not in any country I've lived, but I imagine there'll be inevitable outliers. Rent is rent though, no? I'd love to know which country penalises you for finding a place to live with low rent...
I know of one "gotcha" that works in my country at least: work for low / no wage but instead have loads of assets like stocks; dividend taxes are much lower than income taxes.
This is a common trick in the UK, or at least it was before the IR35 crackdown. Programmers, sportsmen, celebrities, even politicians and civil servants would run single-person companies and get their salaries paid to them. Then those companies in turn would pay them in dividends.
This is a common trick in the UK, or at least it was before the IR35 crackdown. Programmers, sportsmen, celebrities, even politicians and civil servants would run single-person companies and get their salaries paid to them. Then those companies in turn would pay them in dividends.
The saving is more from a National Insurance perspective than an income tax one as income tax is paid on dividends (and dividends come out of profit after tax)
Only first 2k of dividends is tax free, then its 7.5% within the basic earnings band, and 32.5% in the higher band.
This is from funds that have already had 19% corporation tax applied to them.
Of course anything paid as dividends doesn't attract either employees or employers National Insurance so there's a saving there, and adding a spouse or partner as a director allows the income and dividends to be split so reducing tax.
Merging National Insurance into Income Tax is one way to start addressing the issue also simplifies administration work (for companies and government) but you'd get the political issue of tax increases on pensioners savings.
Fundamentally we need to start treating earned (salary) and un-earned (interest, dividends) income the same from a tax point of view
Only first 2k of dividends is tax free, then its 7.5% within the basic earnings band, and 32.5% in the higher band.
This is from funds that have already had 19% corporation tax applied to them.
Of course anything paid as dividends doesn't attract either employees or employers National Insurance so there's a saving there, and adding a spouse or partner as a director allows the income and dividends to be split so reducing tax.
Merging National Insurance into Income Tax is one way to start addressing the issue also simplifies administration work (for companies and government) but you'd get the political issue of tax increases on pensioners savings.
Fundamentally we need to start treating earned (salary) and un-earned (interest, dividends) income the same from a tax point of view
From a national insurance POV I think you meant.
For income tax apart from the £2k(divi) and £500 (savings interest) allowances, it is already on the same basis.
For income tax apart from the £2k(divi) and £500 (savings interest) allowances, it is already on the same basis.
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Earlier this year I read the book The Chickenshit Club on the advice of someone on here. It has a lot of interesting information but I didn't agree with the author's summary, basically: "prosecutors are cowardly and don't fight cases that don't look easily winnable. They should be braver and go for the highest-profile cases to make a statement". This seems wrong to me because a) litigating a complex, lengthy case and losing is a huge waste of public funds (it isn't a deterrent if the defendants know they can hire expensive lawyers and get off) and b) it can often be counterproductive, since it leads judges to set precedents which make their work harder in future.
One regulatory ideas I thought of was a salary cap on criminal defence attorneys (lawyers can make as much money as they want in civil law, but letting the wealthy hire a different league of lawyers in criminal cases is a huge distortion of justice). This is all more about actual crimes than violating the spirit of the law, but maybe the same could apply to tax law. (I feel like there must be a flaw with this, would be happy to hear what it is.)
(Wrote more about the book here: https://www.goodreads.com/review/show/3507224023)
One regulatory ideas I thought of was a salary cap on criminal defence attorneys (lawyers can make as much money as they want in civil law, but letting the wealthy hire a different league of lawyers in criminal cases is a huge distortion of justice). This is all more about actual crimes than violating the spirit of the law, but maybe the same could apply to tax law. (I feel like there must be a flaw with this, would be happy to hear what it is.)
(Wrote more about the book here: https://www.goodreads.com/review/show/3507224023)
The flaw is simple: you'll end up with only having as criminal defence attorneys those people who didn't succeed at being civil case attorneys, as everyone will prefer to earn more money with mostly the same training. So you won't have any outstanding criminal defence attorneys, which is equivalent to undermining the rights of those of need to defend themselves in criminal cases.
If you want to go this way, you have to go for the full-fledged solution: either the defendant choses their attorney (at a capped price) or an attorney shall be selected at random among all attorneys registered with the bar and must take charge of the case, the only exception being if they have a valid conflict of interest in that case.
If you want to go this way, you have to go for the full-fledged solution: either the defendant choses their attorney (at a capped price) or an attorney shall be selected at random among all attorneys registered with the bar and must take charge of the case, the only exception being if they have a valid conflict of interest in that case.
But prosecutor salaries are (more or less) fixed, so if you let defence attorneys earn the same as prosecutors I don't think this harms the right of the defendant. You have a right to a reasonably good lawyer, but not to be defended by the most brilliant legal mind on earth who could get anybody acquited. The randomisation suggestion sounds good too.
A defense attorney is not defending only against a prosecutor in some kind of 1:1 coverage. They're defending against the prosecutor who also has a substantial fraction of the power of the entire government behind them. They can use a large amount of crime lab, detectives, investigators, etc.
I would argue almost the opposite. I don't see how it serves the public interest to limit the amount of resources people are allowed to use to defend themselves against the state. it's sort of like combating inequality by burning down the nicest houses. you've made everyone more equal, but no one is better off for it.
I think the imbalance is actually much worse in civil cases, which are disputes between people who ought to be peers. the fact that people have to give up their right to see an opponent in court because they can't afford counsel seems much worse than some rich people getting a better defense against the state.
I think the imbalance is actually much worse in civil cases, which are disputes between people who ought to be peers. the fact that people have to give up their right to see an opponent in court because they can't afford counsel seems much worse than some rich people getting a better defense against the state.
> Why isn't the same standard applied to rich companies?
Prosecuting you is cheap and easy. Prosecuting a multinational billion dollar company is expensive and difficult.
One of the reasons it's difficult is that they're not (usually) outright evading tax. They're avoiding tax. The law is what's written, but also how that's interpreted by the courts. Sometimes the courts have not yet decided how to interpret a bit of the written law, and so companies will continue to use those bits in interesting ways.
Finally, some places have a "light touch" approach to regulation and they use courts as a measure of last resort, for the worst offenders. Everyone else will be persuaded to change their tax affairs. One consequence of this is that courts only rule on the obvious stuff, and we don't build up case law for the gray areas that get used in tax avoidance schemes.
I agree it's baffling that we let them get away with it. In the UK we think there are between £30bn and £120bn in tax that's evaded, avoided, or uncollected.
Prosecuting you is cheap and easy. Prosecuting a multinational billion dollar company is expensive and difficult.
One of the reasons it's difficult is that they're not (usually) outright evading tax. They're avoiding tax. The law is what's written, but also how that's interpreted by the courts. Sometimes the courts have not yet decided how to interpret a bit of the written law, and so companies will continue to use those bits in interesting ways.
Finally, some places have a "light touch" approach to regulation and they use courts as a measure of last resort, for the worst offenders. Everyone else will be persuaded to change their tax affairs. One consequence of this is that courts only rule on the obvious stuff, and we don't build up case law for the gray areas that get used in tax avoidance schemes.
I agree it's baffling that we let them get away with it. In the UK we think there are between £30bn and £120bn in tax that's evaded, avoided, or uncollected.
That's because there is so much effort highlighting benefit fraud - even though that is estimated to be about £2.3 billion a year.
Edit: Just for the record I'm against benefit fraud and tax evasion.
Edit: Just for the record I'm against benefit fraud and tax evasion.
I'd go further than this and make a positive case.
If we want the free market to work, business models need to be clear. We want people to see a successful business and say "hey, I can do that better". Part of that is transparent accounts, and part of that is transparent ownership.
Would also help againt some of the more egregious frauds we've seen in recent years. Some of them would have gotten caught if they'd just had more eyes on them, and you get more eyes if things are transparent.
If we want the free market to work, business models need to be clear. We want people to see a successful business and say "hey, I can do that better". Part of that is transparent accounts, and part of that is transparent ownership.
Would also help againt some of the more egregious frauds we've seen in recent years. Some of them would have gotten caught if they'd just had more eyes on them, and you get more eyes if things are transparent.
> My intuition is that if I personally came up with a cute "gotcha" like this where I wound up paying zero in taxes because of some loophole, I would go to prison. Why isn't the same standard applied to rich companies?
The same standards do apply, the loopholes just don’t really exist down at a normal individual income level.
Calling it a “loophole” is a bit of a misnomer as well since it’s just the regular law. Being a subsidiary of another company is extremely common and isolating particular resources into subsidiaries with exclusive licensing/usage agreements for liability/accounting/ownership/management purposes is extremely common.
> These tax shenanigans would stop if laws were enforced.
Again, the laws are enforced. Tax avoidance schemes operate within the bounds of the law. It sounds like you’re confusing with “tax evasion”, which is illegal and is enforced.
The same standards do apply, the loopholes just don’t really exist down at a normal individual income level.
Calling it a “loophole” is a bit of a misnomer as well since it’s just the regular law. Being a subsidiary of another company is extremely common and isolating particular resources into subsidiaries with exclusive licensing/usage agreements for liability/accounting/ownership/management purposes is extremely common.
> These tax shenanigans would stop if laws were enforced.
Again, the laws are enforced. Tax avoidance schemes operate within the bounds of the law. It sounds like you’re confusing with “tax evasion”, which is illegal and is enforced.
Tax evasion is rarely enforced, because the IRS was defunded.
Tax loopholes (and tax lawyers) exist only because there is sufficient complexity in the tax system/tax code.
This is because the tax system actually has 2 conflicting uses: (i) collect revenue for the gov't and (ii) create incentives/disincentives that are meant to push taxpayers in ways that are deemed beneficial, be it to the economy or to certain policy like environment, housing, etc.
If you drop (ii) you can end up with an extremely simple tax code as most of the tax code complexities deal with those incentives/disincentives.
So the question is: to what extent can you do away with (ii), or more generally with tax code complexity?
This is because the tax system actually has 2 conflicting uses: (i) collect revenue for the gov't and (ii) create incentives/disincentives that are meant to push taxpayers in ways that are deemed beneficial, be it to the economy or to certain policy like environment, housing, etc.
If you drop (ii) you can end up with an extremely simple tax code as most of the tax code complexities deal with those incentives/disincentives.
So the question is: to what extent can you do away with (ii), or more generally with tax code complexity?
> Tax loopholes (and tax lawyers) exist only because there is sufficient complexity in the tax system/tax code.
I don't think this is entirely correct. Even if there were no deductions and no other complexities, and the corporate income tax was simply based on "all revenue minus all costs", a company could still reduce or even eliminate its tax burden entirely by simply paying IP licensing costs to a different company located in a tax haven.
I don't think this is entirely correct. Even if there were no deductions and no other complexities, and the corporate income tax was simply based on "all revenue minus all costs", a company could still reduce or even eliminate its tax burden entirely by simply paying IP licensing costs to a different company located in a tax haven.
Tax any money going to these havens at a similar rate, don't allow it to be a tax deduction if the money is leaving the country.
No, the tax system is complex because businesses are synthetic entities that can be arbitrarily complex. This is because corporations are allowed to exist unchecked since the 19th century. Return to the original intention of corporations, that they must be chartered and regulated in order to preserve their exemption from human individual law, and most of the problem goes away.
That is a very charitable interpretation of the original intention of corporations. For all intents and purposes, the earliest corporations were the shipping companies in Holland and England of the 16- and 1700s that were made to distribute the risk of colonial trading operations. Chartering and regulation came much later, when the various governmental structures of the time recognized the vast profits that were being made and decided to use their standing armies to get some of that money for themselves. The earliest corporate law is only from ~1798, almost 2 centuries after the founding of the VOC.
The original intention of corporations was to make more money for their owners and that is pretty much still the case. Chartering and regulation were introduced later, to curb the worst excesses of human greed. Arguably, this very discussion thread and the push by governments to curtail tax evasion is proof of that ongoing process.
The original intention of corporations was to make more money for their owners and that is pretty much still the case. Chartering and regulation were introduced later, to curb the worst excesses of human greed. Arguably, this very discussion thread and the push by governments to curtail tax evasion is proof of that ongoing process.
An alternative to attempting to tax companies, is to tax people.
There is no company that would just exist to forever eat money away from the public. Eventually they intend to pay the profits to a real person (either in money, or other benefits). Taxing that dividend or salary transaction might be simple enough to just work. And you have a real person to put to jail when the taxes were avoided.
There is no company that would just exist to forever eat money away from the public. Eventually they intend to pay the profits to a real person (either in money, or other benefits). Taxing that dividend or salary transaction might be simple enough to just work. And you have a real person to put to jail when the taxes were avoided.
We already tax people and most of the noise about companies not paying tax basically ignores that because it makes a good headline. I'm of the opinion that taxes on corporations are a bit of a nonsense tax. If they sell goods or services, there's sales tax. If their employees and shareholders receive salaries and profits, they get income and dividend tax. When we see a headline of a company paying almost no taxes, they've usually paid more in sales taxes and their staff and shareholders will be paying more in taxes than corporation taxes can ever dream of bringing in. Taxes on profits is difficult, profits can be moved easily. Tax profits too much and companies simply won't make any profits. Sales tax is good since it goes to the actual market the product is sold into, it's the cost of having access to that market. Income/dividend taxes brings in the money where the employees and shareholders live and spend their money, so it's the cost of benefiting from the society they live in. We can quibble about loopholes and levels around those taxes because they make sense, but corporation taxes is never going to bring in enough money to warrant all the noise.
Maybe?
Ingvar Kamprad net worth was "only" 3 billion $
That's about 25 billion $ lower than if he had unfettered access to all of IKEA's worth.
https://www.forbes.com/profile/ingvar-kamprad/
If you like how the company you built spends money more than how the state spends money, you're going to want your company to capture more money/worth without relinquishing it to the public. Another rationale could also be when you can give a stake in your company to your family, that way you won't ever have need to pay profits during your lifetime, since the company (which could be a charity) will actually work as a cross-generational fund.
Also, this works well with the ethos of some companies (like Amazon, allegedly) which reinvest a lot of their profits to cut margins/develop new products... And overall just tighten their hold on the market
Ingvar Kamprad net worth was "only" 3 billion $
That's about 25 billion $ lower than if he had unfettered access to all of IKEA's worth.
https://www.forbes.com/profile/ingvar-kamprad/
If you like how the company you built spends money more than how the state spends money, you're going to want your company to capture more money/worth without relinquishing it to the public. Another rationale could also be when you can give a stake in your company to your family, that way you won't ever have need to pay profits during your lifetime, since the company (which could be a charity) will actually work as a cross-generational fund.
Also, this works well with the ethos of some companies (like Amazon, allegedly) which reinvest a lot of their profits to cut margins/develop new products... And overall just tighten their hold on the market
> Also, this works well with the ethos of some companies (like Amazon, allegedly) which reinvest a lot of their profits to cut margins/develop new products... And overall just tighten their hold on the market
Should a businesses goal not be to tighten their hold on the market? I’m pretty sure if I don’t, someone else will.
Should a businesses goal not be to tighten their hold on the market? I’m pretty sure if I don’t, someone else will.
Pure greed dictates that companies must do what is best for the individual company. Grow like cancer, engulf all competition, capture the market etc.
However, the owners of the company are humans that do not need to be constrained by those rules. Indeed, humans can hold other values higher - such as seeing that acting in the benefit of the entire society or even to benefit the entire planet is better than focusing on the best for a single corporation.
Pretend for a while that you are the majority owner of an internet company that preys on attention. You can capture the attention of millions, even billions of humans, and grow your vast empire. You can even become so successful that humans choose your product before the attention of other humans, choosing the dopamin kick from social media before real social interactions.
But...should you? Replacing the social interactions of an entire planet might make you rich today, but the price might be very high. Even your own offspring might suffer and perish in a world where social life has been replaced by hearts, thumbs up and endless scrolling.
However, the owners of the company are humans that do not need to be constrained by those rules. Indeed, humans can hold other values higher - such as seeing that acting in the benefit of the entire society or even to benefit the entire planet is better than focusing on the best for a single corporation.
Pretend for a while that you are the majority owner of an internet company that preys on attention. You can capture the attention of millions, even billions of humans, and grow your vast empire. You can even become so successful that humans choose your product before the attention of other humans, choosing the dopamin kick from social media before real social interactions.
But...should you? Replacing the social interactions of an entire planet might make you rich today, but the price might be very high. Even your own offspring might suffer and perish in a world where social life has been replaced by hearts, thumbs up and endless scrolling.
It's unpopular in some circles to praise Bezos, but during this pandemic, I sure am glad that they had built such an expansive and performant logistics supply chain to help people get the goods they needed without having to go to the (often closed) malls.
That's a 2020 benefit to an entire society that arose from 25 years of effort to grow in a sustainable way.
That's a 2020 benefit to an entire society that arose from 25 years of effort to grow in a sustainable way.
It'd have been little different if there were a dozen of these companies, instead of a near-monopoly?
Is there a single market which has remained with a dozen of those companies which didn't have a cartel or preapportioned monopoly? Just with random variance I would expect three at most still around at the "traditional international size" level even if we started with a dozen Jeff Bezos Clones all told they were the real one with the goal of Amazon given identical starting funds (all too stubborn to merge).
The question is whether that moral owner can successfully compete in the unregulated marketplace. The answer is clearly No, which is why regulation is needed.
This could work, but it would have to be reconciled with the existing basis step-up at death, which is a key part of our intergenerational personal tax system. If you only taxed people when there is a dividend or salary payment, a savvy CEO of a private company could follow the tax advice of "borrow, buy, die". Instead of taking a huge salary, the CEO would borrow money to pay for everything, using the shares of the company as collateral. Then when the CEO dies, the loans are repaid out of the estate. And the basis in the remaining shares is stepped up when passed to heirs.
So while you can get rid of corporate taxation, the tax treatment of natural persons at death means that folks could greatly reduce the amount of income realized during their lifetime.
So while you can get rid of corporate taxation, the tax treatment of natural persons at death means that folks could greatly reduce the amount of income realized during their lifetime.
> Instead of taking a huge salary, the CEO would borrow money to pay for everything, using the shares of the company as collateral.
This would mean that they essentially pay a "wealth tax" (interest on all their borrowed net worth, with probably a decent premium for the risk) to the bank.
> Then when the CEO dies, the loans are repaid out of the estate.
And at this point, income is raised out of the company and would become taxable. At least where I live, the estate of a natural person pays taxes for their income like a living natural person.
> the tax treatment of natural persons at death means that folks could greatly reduce the amount of income realized during their lifetime
But they'd still pay the taxes eventually. I don't see this as a huge issue. If the society can't wait to get their the taxes (IMHO a nation state should plan for timeframes longer than a single lifetime), they can use the same trick to get a loan from the bank with the future tax income as collateral.
This would mean that they essentially pay a "wealth tax" (interest on all their borrowed net worth, with probably a decent premium for the risk) to the bank.
> Then when the CEO dies, the loans are repaid out of the estate.
And at this point, income is raised out of the company and would become taxable. At least where I live, the estate of a natural person pays taxes for their income like a living natural person.
> the tax treatment of natural persons at death means that folks could greatly reduce the amount of income realized during their lifetime
But they'd still pay the taxes eventually. I don't see this as a huge issue. If the society can't wait to get their the taxes (IMHO a nation state should plan for timeframes longer than a single lifetime), they can use the same trick to get a loan from the bank with the future tax income as collateral.
We could even invent borrowing mechanisms where governments could get money today in exchange for a binding agreement to make future payments against those future tax revenues. We could call these binding agreements a government bond.
Forever is a long time. In practice there are wealthy people willing to pass vast majority of their wealth through generations.
Personally I don't think it is fair or likely healthy in the long term for the society to let vast majority of the income/wealth of wealthy and thus powerful people to go untaxed - even[1] if that income/wealth is not consumed.
[1] Actually it should be "especially if it is not consumed". In the old days there was a shortage of capital for investments indicated by relatively high interest rates. Nowadays there is shortage of consumption. But that to my understanding is a bit of a heterodox view, so I am just leaving it there.
Personally I don't think it is fair or likely healthy in the long term for the society to let vast majority of the income/wealth of wealthy and thus powerful people to go untaxed - even[1] if that income/wealth is not consumed.
[1] Actually it should be "especially if it is not consumed". In the old days there was a shortage of capital for investments indicated by relatively high interest rates. Nowadays there is shortage of consumption. But that to my understanding is a bit of a heterodox view, so I am just leaving it there.
> Personally I don't think it is fair or likely healthy in the long term for the society to let vast majority of the income/wealth of wealthy and thus powerful people to go untaxed
But this is already happening even with the current system that attempts to tax company profits, isn't it? My point is that taxing the person instead of the company would enable taxing the wealthy. There are already quite severe restrictions of using company assets for your personal benefit, at least where I live that is taxable as income.
I should amend how I expressed the idea: I never meant that companies pay no tax at all, only that they'd pay no tax on profit (which can be hidden for the yearly checkpoint by creative accounting). That leaves all sorts of tax categories still available for use (land, transactions, resource usage), which are much harder to hide or deny. A company making profit would be involved in some activity that would be taxable through these. Money on a bank account is by itself a bad medium to store wealth, as it's generally subject to 1%~5% yearly inflation.
Whether wealth (aside from income/profit) of individuals or companies should be taxed is a different discussion. Many countries choose to tax wealth only when it's in form of land or constructed property.
But this is already happening even with the current system that attempts to tax company profits, isn't it? My point is that taxing the person instead of the company would enable taxing the wealthy. There are already quite severe restrictions of using company assets for your personal benefit, at least where I live that is taxable as income.
I should amend how I expressed the idea: I never meant that companies pay no tax at all, only that they'd pay no tax on profit (which can be hidden for the yearly checkpoint by creative accounting). That leaves all sorts of tax categories still available for use (land, transactions, resource usage), which are much harder to hide or deny. A company making profit would be involved in some activity that would be taxable through these. Money on a bank account is by itself a bad medium to store wealth, as it's generally subject to 1%~5% yearly inflation.
Whether wealth (aside from income/profit) of individuals or companies should be taxed is a different discussion. Many countries choose to tax wealth only when it's in form of land or constructed property.
If we transform the taxation so that the income/profit of people and corporations is no more taxed, but the tax revenue is still somehow fairly collected, I am all in. It is just that typically when people propose stopping taxing corporate profits, they offer nothing to replace the tax.
One of my pet ideas is to stop taxing income/profits of limited liability companies completely. Instead make the the companies issue a certain percentage of their stock to the tax authorities annually. For public companies, Tax authorities just sell the shares in exchange. For private ones, the shares would be auctioned publicly.
Outcomes: - No negative tax cashflows to companies. Ever. - No need for creative tax accounting. Only ones left to fool with accounting are the owners of the companies. - Strong incentive to simplify corporate structures. Any company owned by a company would add to tax burden of the ultimate owners.
(For private companies, it might be nice to allow them to ask to postpone the auctions for e.g. 5 years if they want to keep the control of the company but are short of cash to buy the stock from the auction)
One of my pet ideas is to stop taxing income/profits of limited liability companies completely. Instead make the the companies issue a certain percentage of their stock to the tax authorities annually. For public companies, Tax authorities just sell the shares in exchange. For private ones, the shares would be auctioned publicly.
Outcomes: - No negative tax cashflows to companies. Ever. - No need for creative tax accounting. Only ones left to fool with accounting are the owners of the companies. - Strong incentive to simplify corporate structures. Any company owned by a company would add to tax burden of the ultimate owners.
(For private companies, it might be nice to allow them to ask to postpone the auctions for e.g. 5 years if they want to keep the control of the company but are short of cash to buy the stock from the auction)
> For private ones, the shares would be auctioned publicly.
No company could be held privately in perpetuity. Taking ownership away is very different from taxing ownership.
No company could be held privately in perpetuity. Taking ownership away is very different from taxing ownership.
Fundamentally it is not any different. In the current model, either the company can afford to pay taxes by cash without issuing new stock, or then it does not and needs to issue new stock, thus diluting current ownership.
In my model, either company can afford to buy back the stock from the auction thus keeping the company completely private, or then it does not, thus diluting current ownership.
(I personally would expect a tax rate of around 1% p.a in my model. If your company can't buy back 1% pa of its stock without needing to pay any other tax, I am not sure it is a healthy company)
Last, strongly ideologically, in my opinion limited liability is so massive benefit given to the owners by the society that I am not sure there is any reason to even have perpetual private limited companies. Either you grow up to public scrutiny of a publicly traded company or you do not succeed and die trying.
In my model, either company can afford to buy back the stock from the auction thus keeping the company completely private, or then it does not, thus diluting current ownership.
(I personally would expect a tax rate of around 1% p.a in my model. If your company can't buy back 1% pa of its stock without needing to pay any other tax, I am not sure it is a healthy company)
Last, strongly ideologically, in my opinion limited liability is so massive benefit given to the owners by the society that I am not sure there is any reason to even have perpetual private limited companies. Either you grow up to public scrutiny of a publicly traded company or you do not succeed and die trying.
Would you accept the forced sale of 1% of your personal income-earning ability each year? You get to keep 100% of your 2021 salary iff you can outbid the highest bidder?
I see no reason to antromorphize limited liability companies.
(But just to note, currently I am forced to pay tens of percentage points of my total salary as taxes.)
(But just to note, currently I am forced to pay tens of percentage points of my total salary as taxes.)
I do not understand why public ownership should be a prerequisite for anthropomorphic treatment of companies. A thing is a thing regardless of who owns it.
As for taxes, yes we all pay more. But we do not have our earning power attenuated each year because the government forces us to put ourselves on some incremental slave block.
As for taxes, yes we all pay more. But we do not have our earning power attenuated each year because the government forces us to put ourselves on some incremental slave block.
> These tax shenanigans would stop if laws were enforced.
At the end of it all, laws are enforced by the judiciary. The judiciary (similarly to politicians) are human people, and each individual's interpretation of what is law will vary.
Probably the biggest example of the difficulty of enforcement is the Irish Apple case[0]. The European Commission carried out a two-year investigation that found Apple avoided paying €13 billion in taxes to the Irish state. The Irish state rejected the Commission's findings and appealed the findings to the European General Court (EGC). And the EGC found in favour of the Irish state (and Apple).
Does this count as laws being enforced?
[0] https://en.wikipedia.org/wiki/EU_illegal_state_aid_case_agai...
At the end of it all, laws are enforced by the judiciary. The judiciary (similarly to politicians) are human people, and each individual's interpretation of what is law will vary.
Probably the biggest example of the difficulty of enforcement is the Irish Apple case[0]. The European Commission carried out a two-year investigation that found Apple avoided paying €13 billion in taxes to the Irish state. The Irish state rejected the Commission's findings and appealed the findings to the European General Court (EGC). And the EGC found in favour of the Irish state (and Apple).
Does this count as laws being enforced?
[0] https://en.wikipedia.org/wiki/EU_illegal_state_aid_case_agai...
> Companies making many billions of dollars paying no taxes.
I feel like if that's the case, then you shouldn't expect the US Government to participate in the enforcement of your patent. You licensed in some tax haven? Then adjudicate it in that same tax haven, we want no part of your disputes over it.
I feel like if that's the case, then you shouldn't expect the US Government to participate in the enforcement of your patent. You licensed in some tax haven? Then adjudicate it in that same tax haven, we want no part of your disputes over it.
There are actually some traps for the unwary at the intersection of tax optimization and patent enforcement. For example, if you aren't careful in how you offshore your patents and file your patent lawsuits, you can be ineligible for 'lost profits' as a measure of damages.
This is hugely impactful because the 'lost profits' method can generate much greater payouts than the 'reasonable royalty' method.
This isn't motivated by the sentiment you express, but it nonetheless illustrates that companies that are aggressive on taxes can end up getting bitten in other arenas.
This is hugely impactful because the 'lost profits' method can generate much greater payouts than the 'reasonable royalty' method.
This isn't motivated by the sentiment you express, but it nonetheless illustrates that companies that are aggressive on taxes can end up getting bitten in other arenas.
> My intuition is that if I personally came up with a cute "gotcha" like this where I wound up paying zero in taxes because of some loophole, I would go to prison. Why isn't the same standard applied to rich companies?
Because the tax code is relatively simple for W2 employees. Not so much for corporations.
> "You're technically owned by an Irish company you invented to avoid taxes? Cool. The c-suite plus your accountants are going to prison for the next five years and we're seizing the X billion you actually owe plus a punitive fine."
It gets doubly complicated once you cross borders, because transferring assets like that might be legal under some treaty between country A and B.
Truth is, if society doesn't want these practices to be legal it has to write a tax code that doesn't make them legal.
Because the tax code is relatively simple for W2 employees. Not so much for corporations.
> "You're technically owned by an Irish company you invented to avoid taxes? Cool. The c-suite plus your accountants are going to prison for the next five years and we're seizing the X billion you actually owe plus a punitive fine."
It gets doubly complicated once you cross borders, because transferring assets like that might be legal under some treaty between country A and B.
Truth is, if society doesn't want these practices to be legal it has to write a tax code that doesn't make them legal.
> I read about tax avoidance schemes like corporate inversions or sending all your patents to a company in some tax free haven and licensing your patents from your company for all your profits, and so on, and it makes me really mad. Companies making many billions of dollars paying no taxes.
This used to be a typical loophole but is being closed by the OECD, a lot of tax havens are now taxing royalties differently. 10 years ago after reading up on this, I've decided that it was only fair for me to read up and try the same methods. I didn't see why I should pay high taxes when the richest in my country didn't.
It's not overly difficult to do this completely legally (that's the difference between tax avoidance and tax evasion), it's not an issue of the laws being enforced, it's mostly that there are many countries in the world and some have an incentive to compete on tax law. So, you can do a lot while still being completely legal (it's easier though if you are willing to move and live in different countries and if you're not american but still possible otherwise).
In the last 5 years, the OECD has been fighting against this and forced a lot of tax havens to change their laws. From my read of the texts and has someone who has been impacted by this, it doesn't really make avoiding tax impossible just more expensive, meaning it's increasingly difficult and costly for a single person who is middle class like me to do it but still relatively easy for big corporations with an army of accountants to do it. I'm not sure that's really an improvement.
This used to be a typical loophole but is being closed by the OECD, a lot of tax havens are now taxing royalties differently. 10 years ago after reading up on this, I've decided that it was only fair for me to read up and try the same methods. I didn't see why I should pay high taxes when the richest in my country didn't.
It's not overly difficult to do this completely legally (that's the difference between tax avoidance and tax evasion), it's not an issue of the laws being enforced, it's mostly that there are many countries in the world and some have an incentive to compete on tax law. So, you can do a lot while still being completely legal (it's easier though if you are willing to move and live in different countries and if you're not american but still possible otherwise).
In the last 5 years, the OECD has been fighting against this and forced a lot of tax havens to change their laws. From my read of the texts and has someone who has been impacted by this, it doesn't really make avoiding tax impossible just more expensive, meaning it's increasingly difficult and costly for a single person who is middle class like me to do it but still relatively easy for big corporations with an army of accountants to do it. I'm not sure that's really an improvement.
It's insane that a nation delegates its sovereignty to others. There's no reason to allow subjects to shop around for better tax rates, except corruption.
If it's a real loophole, the government is out of luck; best it can do is remove it next year.
When the money flowing through a corporation actually makes someone rich, it becomes his personal income. It's not clear that corporations paying their own taxes is even a good idea vs. collecting the same revenue through higher marginal tax rates on the beneficial owners.
When the money flowing through a corporation actually makes someone rich, it becomes his personal income. It's not clear that corporations paying their own taxes is even a good idea vs. collecting the same revenue through higher marginal tax rates on the beneficial owners.
Expensives can be hidden at the corporate level but used personally. The company plane can be used for both personal/business and those are hard to separate.
There are actually very detailed rules about how personal use of corporate planes needs to be reported for both tax purposes and shareholder reporting purposes.
Even if a plane is already going from City A to City B for business purposes, if the CEO brings a spouse along for personal reasons, there can be reporting consequences. Of course, this only matters if the company is under sufficient scrutiny to actually report such details.
Even if a plane is already going from City A to City B for business purposes, if the CEO brings a spouse along for personal reasons, there can be reporting consequences. Of course, this only matters if the company is under sufficient scrutiny to actually report such details.
Donald Trump deducts all his personal expenses from his businesses because he claims his personal lifestyle is a marketing program for his businesses.
Tax loopholes can generally be closed retrospectively.
At least in the US, there are constitutional issues created by changing tax laws with retroactive effect.
For what it is worth: The OECD has made a lot of changes to their transfer pricing guidelines, and starting in 2018, individual countries have a lot of leeway in re-assigning profits to other jurisdictions. The effect is not fully felt yet because the new guidelines are not evenly applied, but a friend of mine (who spent most of the 2000s building aggressive tax structures for multinational pharma companies) has spent the last few years mostly unwinding the aggressive structures again, in reaction to the OECD changes.
If you are interested in the details of this, Google "OECD BEPS transfer pricing"; it is quite a fascinating topic.
On a side note: The same updated guidelines, when misapplied by an aggressive tax authority, can cause all sorts of headaches for fully-distributed, fully remote companies, and the extent how this can cause trouble is underappreciated by the startup scene.
If you are interested in the details of this, Google "OECD BEPS transfer pricing"; it is quite a fascinating topic.
On a side note: The same updated guidelines, when misapplied by an aggressive tax authority, can cause all sorts of headaches for fully-distributed, fully remote companies, and the extent how this can cause trouble is underappreciated by the startup scene.
> My intuition is that if I personally came up with a cute "gotcha" like this where I wound up paying zero in taxes because of some loophole, I would go to prison.
Your intuition is wrong. There are lots of small business people that expense everything and pay negligible tax if any.
Your intuition is wrong. There are lots of small business people that expense everything and pay negligible tax if any.
If you are upper middle class it is possible to pay zero taxes. Between tax loss harvesting, 401ks, opportunity zones, and LLC formation, a citizen can legally pay no taxes some years. It's a bit of a learning curve but none of the mechanics are particularly difficult.
"some years" is bearing quite a bit of load there.
Where can we learn how to do this?
If you're a salaried employee that gets a W2, you're gonna pay taxes.
Here's one case study: https://www.gocurrycracker.com/never-pay-taxes-again/
"Once income and spending exceed this level, taxes must be paid. Unless…
Unless that income comes from qualified dividends or long-term capital gains. In this case, a married couple can have $24,400 a year in income AND $78,750 in investment income, TAX-FREE"
If you can get 78k$ yearly investment income from index funds, you already have a net worth of several million $, and you're thus already among the people that don't need to work (or you had some incredible luck for smaller investments)
Unless that income comes from qualified dividends or long-term capital gains. In this case, a married couple can have $24,400 a year in income AND $78,750 in investment income, TAX-FREE"
If you can get 78k$ yearly investment income from index funds, you already have a net worth of several million $, and you're thus already among the people that don't need to work (or you had some incredible luck for smaller investments)
But according to that link, all you have to do is choose leisure over labor*
*and have $5M+ in assets
*and have $5M+ in assets
Closer to $2M will do it with a low risk of portfolio failure, $2.5M will do it with almost no risk of failure.
Don't hate the player, hate the game. Capital owners pay far less in taxes than worker bees.
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The laws /are/ being enforced. Business taxation is based upon profit and has deductible expenses essentially to help avoid what happened with US Steel and not investing in their infastructure and then the world passed them by. If they actually spent or redistributed the parked money domestically without going through the proper channels they would be in deep shit.
Similarly limits on capital travel hampers both foreign investment and international business expansion as it gets "routed around".
IP expense transfers are the third piece and whatever was tried to do away with would result in giving up what the US already wins big on.
It isn't a problem of enforcement. Every last piece is policy of the loophole is policy working by design.
Similarly limits on capital travel hampers both foreign investment and international business expansion as it gets "routed around".
IP expense transfers are the third piece and whatever was tried to do away with would result in giving up what the US already wins big on.
It isn't a problem of enforcement. Every last piece is policy of the loophole is policy working by design.
This tax shenanigans happen because we have built an absurdly complex tax framework which can be gamed/abused with economies of scale. The solution is to streamline the tax framework as to make its implementation almost unavoidable.
Long-story short, my bet is:
- Sales tax (VAT)
- Inflation
- UBI
Sales tax is far less gameable as it's linked to concrete economic activity. It also has the benefit of tracking the added value produced by an economy (it has the right properties as a tax). It has a problem though, it's regressive, see last point. Every economic activity should be included (e.g. stocks should have a VAT; you sell stock you collect VAT, you buy stocks, you pay VAT). Some progressiveness may be included by using different VAT rates for different products, to be done judiciously.
Inflation is a fantastic tax, very hard to game as it's quite pervasive and taxes the accumulation of capital so it tends to be distributive, anti-regressive. Cash sitting idle does nothing for the economy so disincentivizing it makes sense. This doesn't mean that inflation has to be high (the usual moderately low and positive that economists aim for may be reasonable), just that inflation should be seen as the taxation mechanism for the accumulation of capital. And we shouldn't reduce it to a single number for the entire economy but understand how inflation is evolving in the different parts of the economy to make sure monetary and fiscal policy are hitting the targets.
UBI, fixes the regressiveness of VAT. UBI is not too different from having a lowest tax-free income bracket or even negative-tax income bracket if you prefer to look at it that way. UBI can also help hit the right inflation rates in consumer products which we have been having great trouble achieving through conventional central bank policies.
I think this mix is far less gameable, tracks better the size of the economy, places the right incentives and disincentives and will survive better the ongoing economic transformations (good luck taxing income when most of the economic output is produced by computers).
Long-story short, my bet is:
- Sales tax (VAT)
- Inflation
- UBI
Sales tax is far less gameable as it's linked to concrete economic activity. It also has the benefit of tracking the added value produced by an economy (it has the right properties as a tax). It has a problem though, it's regressive, see last point. Every economic activity should be included (e.g. stocks should have a VAT; you sell stock you collect VAT, you buy stocks, you pay VAT). Some progressiveness may be included by using different VAT rates for different products, to be done judiciously.
Inflation is a fantastic tax, very hard to game as it's quite pervasive and taxes the accumulation of capital so it tends to be distributive, anti-regressive. Cash sitting idle does nothing for the economy so disincentivizing it makes sense. This doesn't mean that inflation has to be high (the usual moderately low and positive that economists aim for may be reasonable), just that inflation should be seen as the taxation mechanism for the accumulation of capital. And we shouldn't reduce it to a single number for the entire economy but understand how inflation is evolving in the different parts of the economy to make sure monetary and fiscal policy are hitting the targets.
UBI, fixes the regressiveness of VAT. UBI is not too different from having a lowest tax-free income bracket or even negative-tax income bracket if you prefer to look at it that way. UBI can also help hit the right inflation rates in consumer products which we have been having great trouble achieving through conventional central bank policies.
I think this mix is far less gameable, tracks better the size of the economy, places the right incentives and disincentives and will survive better the ongoing economic transformations (good luck taxing income when most of the economic output is produced by computers).
Inflation is a tax on capital held in monetary form. It is not a tax on capital held as the earning power of an ongoing business. If I hold $1M of cash, I care about inflation eroding that over decades. If I hold $1M worth of DCF of Coca-Cola's future profit streams, inflation does not concern me for that portion of my capital.
Correct, thanks for bringing to attention that distinction.
My point is that the idle capital held in monetary form does nothing, so I want to disincentivize that to some extent. While I have nothing against that capital being available to an enterprise, they inject it back to the economy through their CapEx, R&D, income for employees, etc...
Potentially a company may also sit in vast piles of idle money (e.g. Apple), the value of the company will take into account the DCF and also the existing liquid reserves. In that case the liquid reserves will be progressively diluted by inflation and again, that's a desired outcome (in my view).
My point is that the idle capital held in monetary form does nothing, so I want to disincentivize that to some extent. While I have nothing against that capital being available to an enterprise, they inject it back to the economy through their CapEx, R&D, income for employees, etc...
Potentially a company may also sit in vast piles of idle money (e.g. Apple), the value of the company will take into account the DCF and also the existing liquid reserves. In that case the liquid reserves will be progressively diluted by inflation and again, that's a desired outcome (in my view).
This is my personal opinion, but even if we had perfect global tax laws, people would still find a way to abuse the system. I see the issue being too much power concentrating into too few hands. If you have too much power humans naturally use it. Rich get richer and poor become poorer. How do you see better tax code and UBI will fix this? How do you prevent abusing power?
Land value taxes also seem like they would work very well, have some nice incentive effects and are hard to game: https://en.wikipedia.org/wiki/Land_value_tax
> Inflation is a fantastic tax, ..., anti-regressive.
_Thomas Picketty has entered the chat_. History has shown that the rich are able to (easily) outpace inflation, while the poor (read: effectively ~95% of the planet) do not.
So I'm not too sure that is a desirable claim to make here.
_Thomas Picketty has entered the chat_. History has shown that the rich are able to (easily) outpace inflation, while the poor (read: effectively ~95% of the planet) do not.
So I'm not too sure that is a desirable claim to make here.
Sales tax is extreme regressive, more than UBI can handle. Unless you are proposing a 50% sales tax and a progressive UBI?
Sales tax would be the only conventional tax in the scheme proposed. So it would need to be as high as needed to fit the public government spending. In some EU countries that would be above 50%, in the US may be roughly 40%. That may seem like a lot but averaged it would be the same than the average tax payer paid before, except more evenly distributed so likely median tax payer would be benefited.
UBI by itself is progressive, a simple flat UBI creates a progressive effective rate. You can tweak the numbers to obtain your desired target tax curve; increasing or decreasing UBI, having different VATs for different products. As John Von Neumann said, "with 3 parameters I can draw an elephant and with 4 I can make it wiggle its trunk". There is enough free parameters to make the taxation more or less progressive.
I'm not prescribing those details because I think there should be ample room for fine-tuning. What size government spending should have in an economy and how progressive should a tax system be are questions that different countries have answered differently and you find success and failure all across the spectrum. So I consider it a transversal issue.
My focus is on efficiency, resiliency to abuses/gameability and economic incentives.
UBI by itself is progressive, a simple flat UBI creates a progressive effective rate. You can tweak the numbers to obtain your desired target tax curve; increasing or decreasing UBI, having different VATs for different products. As John Von Neumann said, "with 3 parameters I can draw an elephant and with 4 I can make it wiggle its trunk". There is enough free parameters to make the taxation more or less progressive.
I'm not prescribing those details because I think there should be ample room for fine-tuning. What size government spending should have in an economy and how progressive should a tax system be are questions that different countries have answered differently and you find success and failure all across the spectrum. So I consider it a transversal issue.
My focus is on efficiency, resiliency to abuses/gameability and economic incentives.
I admire the proposed simplicity (and agree that setting the levels can largely mitigate any concerns of regressive nature [especially as compared to today]).
My concern under a sales-tax only system is that politicians also like to be seen as aiding employment and a sales-tax only system does not seem as supportive of employment as today's system where employment expenses are offset in part by their tax deductibility. No one goes out and employs someone for $100 to save $20 on taxes (still -$80), but I still employ more people when it costs me $80 than when it costs me $100 to do so. In that regard a VAT is superior to a straight sales-tax.
My concern under a sales-tax only system is that politicians also like to be seen as aiding employment and a sales-tax only system does not seem as supportive of employment as today's system where employment expenses are offset in part by their tax deductibility. No one goes out and employs someone for $100 to save $20 on taxes (still -$80), but I still employ more people when it costs me $80 than when it costs me $100 to do so. In that regard a VAT is superior to a straight sales-tax.
The IRS tries and loses.
https://www.propublica.org/article/ultrawealthy-taxes-irs-in...
https://www.propublica.org/article/ultrawealthy-taxes-irs-in...
Because the legislature ties IRS hands behind their back.
If you found a cute gotcha, then you would do just fine. You would get thrown in jail if you lied, or didn't have the cute gotcha. But the odds that you find a loophole like that, that you could take advantage of, is fairly slim
When people do it, it is tax avoidance. At scale it is tax optimization. Call it disruption if you will.
These tax shenanigans would stop if laws were enforced.
Those who could enforce them have no interest to do so.
These tax shenanigans would stop if laws were enforced.
Those who could enforce them have no interest to do so.
Anyone can learn how accounting and taxes work and anyone can set up a company wherever they want in the world. IMHO a lot of these "they don't pay any taxes" statements come from not understanding how accounting and taxes work. There is nothing illegal about setting up a company to manage your IP and license it to your other companies and I don't see what's wrong with that, sorry.
Your intuition is incorrect. Almost nobody goes to jail for tax related crimes. The ones that do are folks like Wesley Snipes who just refuse to pay taxes period.
Not that I defend it, but largely because non business entities don't have the concept of losses against which to deduct revenue, unless you actively trade equities. But I don't mean to just be pedantic about it: this really is the main reason. Summers' plea here strikes me as futile. He really thinks if the complex accounting were all laid out that it would lead to some mass awakening? I doubt it...
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Well, you can blame the US governments for it being needed in the first place. If you're an American company operating in another country, you get to pay taxes twice on the same money. In the country where you sold the product, and in the US due to their worldwide taxation.
"You're technically owned by an Irish company you invented to avoid taxes? Cool. The c-suite plus your accountants are going to prison for the next five years and we're seizing the X billion you actually owe plus a punitive fine."
Seems like this is a bit on the difficult to enforce side. Incidentally, profit is what is taxed, so the easy way to avoid tax is to simply not be profitable. Individuals pay tax on all of our income from interest and employment so this difference always feels somewhat unfair. The very laws that allow companies to avoid paying income tax are usually created as incentives: do this (HQ in Ireland), and in trade, you get to pay less in tax. The C suite and lawyers are usually guilty of meticulously obeying the law, which really makes the whole thing feel even more unfair. Reality is that the system is working as coded, but there are bugs in the code.
Seems like this is a bit on the difficult to enforce side. Incidentally, profit is what is taxed, so the easy way to avoid tax is to simply not be profitable. Individuals pay tax on all of our income from interest and employment so this difference always feels somewhat unfair. The very laws that allow companies to avoid paying income tax are usually created as incentives: do this (HQ in Ireland), and in trade, you get to pay less in tax. The C suite and lawyers are usually guilty of meticulously obeying the law, which really makes the whole thing feel even more unfair. Reality is that the system is working as coded, but there are bugs in the code.
International companies are allowed to avoid taxes because governments wage war through infiltrating the supply chains of other countries and conquering them economically, with citizens shouldering the financial burden of the effort.
Yes, and then there are countries with secret tax discounts for large multinationals.
These tax discounts should really be subsidies, and open to the public to view.
Proper accounting is where fairness starts.
These tax discounts should really be subsidies, and open to the public to view.
Proper accounting is where fairness starts.
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The laws have always and will always favor those with capital. Its naive to think otherwise. There will always be loopholes, resources to fight it, go lobby a d bribe.
The "corruption" is a feature, not a bug. If you truly want go get rid of the assymetry, then the answer is not more regulations and extractions, but less across the board. Fund the services without relying on taxes to income, not only will it be fair for you and mc.corp, it will also create efficient market incentives and eliminate the vectors for corruption when there is nothing to gain.
The "corruption" is a feature, not a bug. If you truly want go get rid of the assymetry, then the answer is not more regulations and extractions, but less across the board. Fund the services without relying on taxes to income, not only will it be fair for you and mc.corp, it will also create efficient market incentives and eliminate the vectors for corruption when there is nothing to gain.
Only if power is concentrated as it is today.
Concentration of power in congress is a feature, not a bug.
You can remove concentration of power and simply aee corruption/bribe/lobbying dissappear overnight
See my post above for how to do this with 3 simple laws
Concentration of power in congress is a feature, not a bug.
You can remove concentration of power and simply aee corruption/bribe/lobbying dissappear overnight
See my post above for how to do this with 3 simple laws
they'd let you get away with it, you wouldn't go to prison. i'm pretty sure individuals used to take way more weird writeoffs. but mostly these have been closed over the years for individuals.
the laws are generally enforced the problem is various companies and nations working very hard to make sure that loopholes in the tax code are preserved.
the laws are generally enforced the problem is various companies and nations working very hard to make sure that loopholes in the tax code are preserved.
Well look at the Sacklers. Kill 500,000 people and you pay a $225 million fine out of the $8 billion you made from their deaths. Kill 10 people and they give you a lethal injection.
I'm not sure I understand (or agree with) his assumption that the full tax returns of corporations are private matters and always must be. That's a choice that Congress can make.
If corporations are the way for entities to achieve individual profits without individual liabilities, then surely privacy is not the same concern as for individuals' tax returns. Why are corporations (whose structure is granted by law to reap certain benefits with incorporated protections) then further shielded from their tax returns being public to show how they did it?
We can (if our leaders were incentivized to do it) choose to have it be true.
If corporations are the way for entities to achieve individual profits without individual liabilities, then surely privacy is not the same concern as for individuals' tax returns. Why are corporations (whose structure is granted by law to reap certain benefits with incorporated protections) then further shielded from their tax returns being public to show how they did it?
We can (if our leaders were incentivized to do it) choose to have it be true.
But our leaders aren't incentivized to do it, because our leaders are incentivized only by the very corporations in question.
As in, the corporations, through lobbying, quite literally write the legislation, not the people we actually elect to office.
So uprooting corporate tax info transparency rules is something that will never come to pass until other existing systems are demolished, but how do you get the legislators to legislate against their own self-interest?
As in, the corporations, through lobbying, quite literally write the legislation, not the people we actually elect to office.
So uprooting corporate tax info transparency rules is something that will never come to pass until other existing systems are demolished, but how do you get the legislators to legislate against their own self-interest?
I just read a story about how in the 1950s some citizens in Appalachia couldn't get their representatives to give a damn about fixing the run-down single bridge to their small isolated town far away from the big cities of importance.
So what they did was to ask the Soviet Union's representative office in the United States to sponsor their bridge repair, and they let all the newspapers know about it.
Sooner than you could blink, the state politicians reversed course and ponied up the $ for the bridge.
Maybe sometimes what you need is your enemies to be shown to be exploiting your weaknesses so that someone cares enough to fix it.
So what they did was to ask the Soviet Union's representative office in the United States to sponsor their bridge repair, and they let all the newspapers know about it.
Sooner than you could blink, the state politicians reversed course and ponied up the $ for the bridge.
Maybe sometimes what you need is your enemies to be shown to be exploiting your weaknesses so that someone cares enough to fix it.
> uprooting corporate tax info transparency rules
Also the Big Four are not going to like that, they make a lot of money off this.
Also the Big Four are not going to like that, they make a lot of money off this.
I am still confused as to why companies have to pay tax at all? If every single employee including owners already pay income tax, and IVA/GST/purchase taxes, property taxes, xyz additional personal taxes levied by respective governments, why then on top of all that make companies pay tax, doesn't that just detract from people wanting to start companies and/or seek countries with the least taxes/best loopholes?
Disclaimer: I own no companies. I don't even own stocks at the moment.
Disclaimer: I own no companies. I don't even own stocks at the moment.
> I am still confused as to why companies have to pay tax at all?
Because that's how we decided to build our societies. Money flows up very easily but doesn't flow down anywhere as fast, that's why we tax companies and people.
The sole purpose of a company is to make as much money as possible. Laws are there to make sure they do it safely (ie. don't send 12 years old kids to the mine, don't make employees work 7 days a week), make sure the system isn't abused (Amazon trucks use public infrastructures to deliver goods, why shouldn't they participate to the maintenance of said infrastructures ? &c.), and make sure the country benefits of having such companies operating within their borders.
Not sure about other countries but in France taxes are used to finance schools, universities, hospitals, justice courts, reduce the cost of doctor visits, train tickets, housing assistance, allowance for disabled people, active solidarity income, public education and a lot of other things.
I could find endless arguments to support why companies _should_ pay taxes but none to support the opposite, besides "I own a company and want to accumulate more money"
Because that's how we decided to build our societies. Money flows up very easily but doesn't flow down anywhere as fast, that's why we tax companies and people.
The sole purpose of a company is to make as much money as possible. Laws are there to make sure they do it safely (ie. don't send 12 years old kids to the mine, don't make employees work 7 days a week), make sure the system isn't abused (Amazon trucks use public infrastructures to deliver goods, why shouldn't they participate to the maintenance of said infrastructures ? &c.), and make sure the country benefits of having such companies operating within their borders.
Not sure about other countries but in France taxes are used to finance schools, universities, hospitals, justice courts, reduce the cost of doctor visits, train tickets, housing assistance, allowance for disabled people, active solidarity income, public education and a lot of other things.
I could find endless arguments to support why companies _should_ pay taxes but none to support the opposite, besides "I own a company and want to accumulate more money"
How's this for an argument against corporate taxation:
Corporations receive money from customers, and distribute to employees (salaries) and investors. It's just simple arithmetic. How does a tax on corporations impact these three stakeholders? It seems unlikely the burden falls entirely on investors. So should we burden these customers and employees with taxes? If the real goal is to tax the rich, why not tax investors? Also, corporations have shown they are most capable of avoiding taxation. How efficient is a tax on corporations when they can easily hire an army of tax lawyers and accountants? Would the world be a better place if those tax lawyers were doing something more productive?
The goal isn't to tax the rich, it's to internalize the costs of running a functioning society where those corporations and its members can actually exist.
Because they act as a stand alone entity, and they may make and keep profit that doesn’t get dispersed to the employees.
A company doesn’t “keep” anything. It eventually uses all of its money to either pay dividends (or stock buybacks, their financial equivalent), salaries, business expenses.
We tax corporate profits, not income. That takes out of the dividend stream, so we tax capital gains (the tax the investors pay on dividends/stock appreciation) correspondingly lower.
You could in theory get rid of the corporate tax and just tax capital gains at the same rate as income. It would fix a lot of problems. But you would upset a lot of people who don’t understand finance and taxation, like the people seeing red in this thread, who have some moral gripe with these corporations (who are mostly just doing what the law incentivized them to).
It would have one small effect though. Since the US taxes the worldwide income of its citizens and permanent residents, it would probably overtax them, making them pay the higher capital gains rate for profits made in countries that do retain the corporate tax. The most obvious ways to fix that would just reintroduce the problem of sorting out where the profit was “made”, which is where we are now. Ideally, you’d get all of the western countries to sign up to end this stupid corporate tax at the same time. That’s difficult because a few important countries have used low corporate tax rates as a way to attract business that would otherwise have no reason to be there.
We tax corporate profits, not income. That takes out of the dividend stream, so we tax capital gains (the tax the investors pay on dividends/stock appreciation) correspondingly lower.
You could in theory get rid of the corporate tax and just tax capital gains at the same rate as income. It would fix a lot of problems. But you would upset a lot of people who don’t understand finance and taxation, like the people seeing red in this thread, who have some moral gripe with these corporations (who are mostly just doing what the law incentivized them to).
It would have one small effect though. Since the US taxes the worldwide income of its citizens and permanent residents, it would probably overtax them, making them pay the higher capital gains rate for profits made in countries that do retain the corporate tax. The most obvious ways to fix that would just reintroduce the problem of sorting out where the profit was “made”, which is where we are now. Ideally, you’d get all of the western countries to sign up to end this stupid corporate tax at the same time. That’s difficult because a few important countries have used low corporate tax rates as a way to attract business that would otherwise have no reason to be there.
The problem you do not address, which is already big and would become huge if corporate tax is abolished, is the deferral aspect:
All companies will hoard all cash waiting (perhaps decades) until the tax rates are lower, and then pay it out as salaries/dividends with a lower rate; it’s already happening with overseas profit and “tax holiday” years, but so far only Apple/Google size companies can participate.
Once you enable this for domestic companies, every employee making >$80K will incorporate, keep money in company and draw minimal salary actually needed for everyday life, waiting for favorable tax day or needing the money. The tax base would be reduced by 10-50% if not more (due to progressive taxation) and though it may even out in the end, it would make tax receipts unpredictable and likely somewhat lower overall.
I don’t see the issue with corporate taxation - it’s a liability shield, and it has a cost. Those who don’t like it can do a tax pass-through and risk the liability. Almost no one wants to do that.
All companies will hoard all cash waiting (perhaps decades) until the tax rates are lower, and then pay it out as salaries/dividends with a lower rate; it’s already happening with overseas profit and “tax holiday” years, but so far only Apple/Google size companies can participate.
Once you enable this for domestic companies, every employee making >$80K will incorporate, keep money in company and draw minimal salary actually needed for everyday life, waiting for favorable tax day or needing the money. The tax base would be reduced by 10-50% if not more (due to progressive taxation) and though it may even out in the end, it would make tax receipts unpredictable and likely somewhat lower overall.
I don’t see the issue with corporate taxation - it’s a liability shield, and it has a cost. Those who don’t like it can do a tax pass-through and risk the liability. Almost no one wants to do that.
> A company doesn’t “keep” anything. It eventually uses all of its money to either pay dividends (or stock buybacks, their financial equivalent), salaries, business expenses.
Companies certainly do keep cash balances. That cash balance directly adds to the company’s valuation. They’re not obligated to pay it out or spend it. The owners of the company can sell the company, including cash balance, as an asset.
Suggesting that a company’s cash balance somehow doesn’t count because it’s inside a company structure is disingenuous.
Companies certainly do keep cash balances. That cash balance directly adds to the company’s valuation. They’re not obligated to pay it out or spend it. The owners of the company can sell the company, including cash balance, as an asset.
Suggesting that a company’s cash balance somehow doesn’t count because it’s inside a company structure is disingenuous.
>The owners of the company can sell the company, including cash balance, as an asset.
And just what do you think a cash balance does to the sale price of a company? Btw, that sale is a capital gain.
And just what do you think a cash balance does to the sale price of a company? Btw, that sale is a capital gain.
They don't make use of it in a way a person does. They use it to make more income, not for food, housing, fun, etc.
That sounds like more of a reason to tax them, not less.
You’re just quibbling about how much the total taxation should be. The point is that it doesn’t matter if you tax the company profits at 20% and capital gains at 20% (assume the normal income tax is 40%) or if you tax the company 0% and tax capital gains at 40%.
The government already tries to reduce double taxation. There is not supposed to be a penalty for incorporating vs. doing business as a sole proprietor or general partnership. That’s why the capital gains tax is lower than the income tax.
This is all about ease of administration and making creative accounting more difficult or impossible. If you’re looking at it through some moral lens, you don’t get it.
The government already tries to reduce double taxation. There is not supposed to be a penalty for incorporating vs. doing business as a sole proprietor or general partnership. That’s why the capital gains tax is lower than the income tax.
This is all about ease of administration and making creative accounting more difficult or impossible. If you’re looking at it through some moral lens, you don’t get it.
It does matter if you tax the company profits at 20% and capital gains at 20% (assume the normal income tax is 40%) or if you tax the company 0% and tax capital gains at 40% - because there's a substantial timing difference. You have to pay the corporate income tax this year; you can generally defer the capital gains tax for arbitrary amount of time with some structuring to avoid any taxable event; there's some overhead involved so it's not for small amounts of capital gain, and you need control over the corporate structure, you can't do it for capital gains on 0.001% or Apple; however, if you'd have 0% tax on company profits and capital gains at 40%, then all the billionaires would be paying essentially zero taxes.
No, it doesn't. It's a reason to not tax them. We try to tax consumption, not production in the modern world. Plus what the other commenter said.
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In the US, some companies do not pay tax, the shareholders pay the tax on any income (S Corporations). Sole proprietors and partnerships are the same. C Corporations are like a legally distinct 'person', and what they pay in salaries, etc, are deductions.
It is 100% possible for a C corporation to pay no tax because it pays out all profits (income minus deductions) or operates at a loss.
Many large firms are hiring contractors to perform 'capex' work that qualifies for R&D Tax credits: https://www.cpajournal.com/2017/10/30/u-s-research-developme...
Tax laws drive some crazy incentives.
It is 100% possible for a C corporation to pay no tax because it pays out all profits (income minus deductions) or operates at a loss.
Many large firms are hiring contractors to perform 'capex' work that qualifies for R&D Tax credits: https://www.cpajournal.com/2017/10/30/u-s-research-developme...
Tax laws drive some crazy incentives.
Take the case of me, a German citizen living in Germany, owning Apple stock. The German government taxes me on the capital gains - fair enough.
But with your model the US government and the government of California would receive no taxes beyond those owed by the employees.
But with your model the US government and the government of California would receive no taxes beyond those owed by the employees.
I don't see a problem with that if the value is taxed where it is created, eg via VAT.
US taxes us on capital gains. OP is asking why the same money is taxed twice. You have simply restated the scenario what OP is asking about. The question is why are corporations taxed , not, what would happen if corporations are not taxed.
You seem to be talking past the parent comment. Their point is that a foreigner can make capital gains on an American company without America getting tax money. Double taxation patches that up.
And why is it wrong? Either they sell and/or operate in the US - so US sales tax is paid and their US employees/owners pay their tax - or they do not, no reason to pay tax there.
The US doesn't have sales tax at the federal level.
Just to add sales tax is a State/County/Municipal thing. I just voted on a 1% sales tax increase for my county, for infrastructure, cyber security, and other public stuff.
Theoretically, if salaries were proportional to profit and therefore the overall tax burden, it would make less sense on a domestic level, I agree.
Similar to VAT you could argue that you pay with money that got already taxed.
But if companies have rights, you can argue that they also have burdens.
Similar to VAT you could argue that you pay with money that got already taxed.
But if companies have rights, you can argue that they also have burdens.
Because a company is allowed to go in debt or bankrupt independently of its shareholders. If your LLC is in debt and defaults on that debt, the owners (you) won't go in debt.
There are better explanations, including that a corporation is a beast of the state etc.
There are better explanations, including that a corporation is a beast of the state etc.
Why in the world do you think a company shouldn't pay for taxes on profit? If that were true everyone would just incorporate and no one would have to pay taxes.
Not true. Whenever those companies want to somehow give those profits to a human, that is taxed (income tax, dividend tax, etc.). So requiring no corporate tax would not mean that no taxes are paid.
It’s just a weird way to tax. People don’t pay taxes on “profit” (their savings) they pay taxes on “revenue” (income). Corporations and people are different and it’s fair to ask the question why a non-person entity has to pay that sort of tax.
Empirically, no it does not.
It causes companies to seek loopholes, yes. They'll incorporate in Ireland for example, but they'll continue to operate wherever they need to.
It causes companies to seek loopholes, yes. They'll incorporate in Ireland for example, but they'll continue to operate wherever they need to.
Because we'd all become companies, and nobody would pay taxes.
I don’t fully understand why corporations are taxed in the first place.
All the money the corporation takes in ultimately gets spent on operating expenses, or is profit that is then distributed to shareholders who then owe taxes on that income.
If it’s annoying and counter intuitive that corporations are in some legal senses considered people, it is even more confusing that they pay taxes.
This sets up a crazy situation where employees of the corporations start lobbying and messing with policy and regulations so it favors the organization.
Seems like bad piled on top of bad. Increasing the tax rate on investment income is basically the same thing as taxing corporations, but would remove all these perverse incentives.
All the money the corporation takes in ultimately gets spent on operating expenses, or is profit that is then distributed to shareholders who then owe taxes on that income.
If it’s annoying and counter intuitive that corporations are in some legal senses considered people, it is even more confusing that they pay taxes.
This sets up a crazy situation where employees of the corporations start lobbying and messing with policy and regulations so it favors the organization.
Seems like bad piled on top of bad. Increasing the tax rate on investment income is basically the same thing as taxing corporations, but would remove all these perverse incentives.
>I don’t fully understand why corporations are taxed in the first place.
Because as economically inefficient as a corporate income tax is, without it you would create an enormous incentive for individuals to incorporate, filter all their income through the corporation, have the corporation pay all their expenses as business expenses, purchase their assets for them as business assets, and compensate them in the form of loans which never get paid back. Yes, you could write the law in such a way as to prohibit this and spend a fortune on enforcement, but ultimately it would fail against such incentives.
Because as economically inefficient as a corporate income tax is, without it you would create an enormous incentive for individuals to incorporate, filter all their income through the corporation, have the corporation pay all their expenses as business expenses, purchase their assets for them as business assets, and compensate them in the form of loans which never get paid back. Yes, you could write the law in such a way as to prohibit this and spend a fortune on enforcement, but ultimately it would fail against such incentives.
The UK has laws that prevent all of these things AND still has corporation tax.
Expensing anything is difficult as it must be solely for the business purposes and not personal use.
For example, you cannot generally expense food, clothes, housing, education etc. (You can probably expense an insignificant part of that though under some circumstances.) It’s not possible to take loans for extended periods of time without them actually counting as income for individuals (and being subject to income tax).
Expensing anything is difficult as it must be solely for the business purposes and not personal use.
For example, you cannot generally expense food, clothes, housing, education etc. (You can probably expense an insignificant part of that though under some circumstances.) It’s not possible to take loans for extended periods of time without them actually counting as income for individuals (and being subject to income tax).
You can do all that today no problem.
That can be easily fixed by making loans taxable and payback creditable. Want a $100K loan? Get a $140K loan, pay $40K tax. Pay back the loan? Deduct from taxes.
But I can already do that using an LLC, which also doesn’t pay any tax.
They are taxed because they are beneficiaries of society's investment in infrastructure and people. They benefit directly from a healthy, educated population, enforcement of construction codes, the operation of the legal system, roads and waterways, etc. Companies aren't entirely benign, either, so part of those taxes goes to environmental impact assessment and handling they don't pay for, such as pollution, health hazards, etc.
If you were to make the case the healthy, educated employees could be compensated through their wages, then that still leaves infrastructure, externalities and the legal system.
While you could privatise infrastructure, I think it would be a bad idea. It could lead to shady schemes where a corporation "taxes" its employees on the toll road leading up to the building. Considering historical examples like company stores, I'm not sure we could rule that scenario out. Also, where does infrastructure stop and what does it include? The last miles of telecoms, power, water and other utilities or more?
As to the legal system, it seems self-evident we don't want that privatised. Do you disagree?
On the topic of externalities: I suppose it's feasible to create new taxes specifically for what are now considered externalities, so corporations pay for them: pollution, carbon footprint, burnouts/boreouts, etc. Would you be in favour of those?
If you were to make the case the healthy, educated employees could be compensated through their wages, then that still leaves infrastructure, externalities and the legal system.
While you could privatise infrastructure, I think it would be a bad idea. It could lead to shady schemes where a corporation "taxes" its employees on the toll road leading up to the building. Considering historical examples like company stores, I'm not sure we could rule that scenario out. Also, where does infrastructure stop and what does it include? The last miles of telecoms, power, water and other utilities or more?
As to the legal system, it seems self-evident we don't want that privatised. Do you disagree?
On the topic of externalities: I suppose it's feasible to create new taxes specifically for what are now considered externalities, so corporations pay for them: pollution, carbon footprint, burnouts/boreouts, etc. Would you be in favour of those?
A corporation is an abstraction that does not exist, so it cannot benefit from those things you listed.
The human shareholders and human staff benefit (and profit) from those things, and there are already mechanisms in place to tax those human beings, either as shareholders or as staff with ordinary income.
The human shareholders and human staff benefit (and profit) from those things, and there are already mechanisms in place to tax those human beings, either as shareholders or as staff with ordinary income.
A corporation exists, just as a thought exists, they are both information and they can both change "reality" quite profoundly. Just because you can't touch it doesn't mean it doesn't exist and can't change things.
Corporations can be criminally charged. They are not abstractions, they are associations of people. You need to rethink your arbitrary definition of "abstraction".
> Corporations can be criminally charged.
Are you sure about that? Corporations cannot act (they have no hands, and no brains), and thus they cannot break the law. It also is relatively difficult to throw a corporation in jail for a criminal violation.
Even a much more informal association of people, a "criminal conspiracy", cannot be criminally charged as a single abstracted entity: the individuals who performed that conspiracy must be charged.
Are you sure about that? Corporations cannot act (they have no hands, and no brains), and thus they cannot break the law. It also is relatively difficult to throw a corporation in jail for a criminal violation.
Even a much more informal association of people, a "criminal conspiracy", cannot be criminally charged as a single abstracted entity: the individuals who performed that conspiracy must be charged.
I didn't kill 'im, m'lud! The murder did!
Can a corporation be sent to jail?
No but they can be fined as well as "killed". So it's not like there isn't punishment.
Abstraction != does not exist
Are humans abstractions that do not exist, because they are made of cells ?
A while ago I listened to a podcast [1] where the guest Stephan Kinsella argued that the state justifies taxing and regulating corporations by granting them special rights like limited liability. The guest then continued to explain that this justification is flawed since the these supposed special rights are actually not special at all. The argument made a lot of sense but it only explains the justification and not the reason for corporate taxation. In my opinion the reason is obviously to increase the state's control over us.
[1] http://www.stephankinsella.com/paf-podcast/kol-026-freedomai...
[1] http://www.stephankinsella.com/paf-podcast/kol-026-freedomai...
I believe an income tax should be the only tax, since it covers any and all economic transactions, and it's the only progressive tax.
- There's only a single loophole: People who use their business to pay for personal expenses. They are easy to catch, and the simplicity of the tax scheme allows collectors to focus on this one loophole.
- It's simple to collect: Ask all the banks for everyone's statement, and apply a percentage to their calendar year's income. You could even deduct tax when people deposit money.
- It's simple to forecast and calculate: Everyone knows how much tax they owe, and knows how much tax they will owe.
- It's progressive: The more people make the more they pay. Property tax, sales tax, gas tax, etc. all disproportionately affect people with less money.
- There's only a single loophole: People who use their business to pay for personal expenses. They are easy to catch, and the simplicity of the tax scheme allows collectors to focus on this one loophole.
- It's simple to collect: Ask all the banks for everyone's statement, and apply a percentage to their calendar year's income. You could even deduct tax when people deposit money.
- It's simple to forecast and calculate: Everyone knows how much tax they owe, and knows how much tax they will owe.
- It's progressive: The more people make the more they pay. Property tax, sales tax, gas tax, etc. all disproportionately affect people with less money.
Don’t forget inflation: an uncontrolled, regressive back door tax that primarily affects the poor and poor-adjacent that don’t hold securities.
Sale of labor should be treated as exactly that, a sale. There should be no special income tax rate.
Property tax can easily be made progressive. The only barrier is that some state Constitutions ban progressive property tax due to "originalist constructionist" misinterpretations.
> This sets up a crazy situation where employees of the corporations start lobbying and messing with policy and regulations so it favors the organization.
How is that part crazy? It isn't ideal certainly but the same thing held for farmers, fishermen, and tradesmen back when it was cottage industry. That is fundamentally a result of representative government and them being able to vote. Everybody has interests of some sort.
How is that part crazy? It isn't ideal certainly but the same thing held for farmers, fishermen, and tradesmen back when it was cottage industry. That is fundamentally a result of representative government and them being able to vote. Everybody has interests of some sort.
This makes a lot of sense. There’s no way for the money to get out of the corporation without being taxed, we have all these R&D deductions to make many companies able to pay nothing, why not be direct about it?
On the other hand, is the status quo ok? Are we getting something out of companies having to do these specific activities to deduct?
On the other hand, is the status quo ok? Are we getting something out of companies having to do these specific activities to deduct?
>There’s no way for the money to get out of the corporation without being taxed
Not totally true. Interest free loan to the owner or his mother in law. Company buys a house / car / jet owner can use. Company buys consultancy services from the owners other company based in the Bahamas etc
Not totally true. Interest free loan to the owner or his mother in law. Company buys a house / car / jet owner can use. Company buys consultancy services from the owners other company based in the Bahamas etc
Those expenditures aren’t tax deductible; they aren’t r&d.
The lawyers who work at all of these firms who make large-scale international corporate tax avoidance possible should be ashamed of themselves. They are stealing from their fellow citizens.
When big fraud scandals occur (Enron, Wirecard) the accountants and auditors are rightfully shamed by their industry. When we find out who paid $0 in corporate income tax the lawyers who made it happen and defended it seem to escape scrutiny. The legal industry will protect its own every time, no matter who they enable or defend.
“In every big transaction [...] there is a magic moment during which a man has surrendered a treasure, and during which the man who is due to receive it has not yet done so. An alert lawyer will make that moment his own, possessing the treasure for a magic microsecond, taking a little of it, passing it on. If the man who is to receive the treasure is unused to wealth, has an inferiority complex and shapeless feelings of guilt, as most people do, the lawyer can often take as much as half the bundle, and still receive the recipient’s blubbering thanks.” ― Kurt Vonnegut, God Bless You, Mr. Rosewater
When big fraud scandals occur (Enron, Wirecard) the accountants and auditors are rightfully shamed by their industry. When we find out who paid $0 in corporate income tax the lawyers who made it happen and defended it seem to escape scrutiny. The legal industry will protect its own every time, no matter who they enable or defend.
“In every big transaction [...] there is a magic moment during which a man has surrendered a treasure, and during which the man who is due to receive it has not yet done so. An alert lawyer will make that moment his own, possessing the treasure for a magic microsecond, taking a little of it, passing it on. If the man who is to receive the treasure is unused to wealth, has an inferiority complex and shapeless feelings of guilt, as most people do, the lawyer can often take as much as half the bundle, and still receive the recipient’s blubbering thanks.” ― Kurt Vonnegut, God Bless You, Mr. Rosewater
I used to think like that as well, but honestly, people will exploit loopholes in the law as long as they're there. The whole morality or ethics part of it is really subjective. The only correct fix is to fix those loopholes.
If the law can make something not stealing when it fits the common definition (that is, taking money from people nonconsensually and calling it “taxation”), then someone minimizing taxes while complying with the tax law as it is written is not stealing, as the law is thus the authority on what is or is not “stealing”.
However, if you think that complying with the tax law is stealing (and thus believe that the law is not the basis for what is or is not “stealing”), then it’s also legitimate to call what the tax enforcers do “stealing”, even though it is permitted by law, because it fits the common definition of “taking without consent via threat of force”.
You can’t have it both ways and be consistent. Either the law defines what is “stealing” or it does not.
However, if you think that complying with the tax law is stealing (and thus believe that the law is not the basis for what is or is not “stealing”), then it’s also legitimate to call what the tax enforcers do “stealing”, even though it is permitted by law, because it fits the common definition of “taking without consent via threat of force”.
You can’t have it both ways and be consistent. Either the law defines what is “stealing” or it does not.
> They are stealing from their fellow citizens.
Yeah, but stealing how much?
Almost everyone I know or read about who runs a small business or is self-employed talks with their accountant about how run things in a "tax efficient" way, to pay the minimum tax within the rules while keeping reasonable about it.
It would be foolish not to. You have to keep competitive.
And the rules are, for the most part, based on fair and sensible principles. Things like if you paid for something to use in your trade, it's fair to subtract that from what someone paid you, so the different is your profit on which tax is based.
Scale that up to large international corporations, and it turns out "minimum tax within the rules" is often $0 in a particular country, often because your profit there is also $0.
Just because you can structure a complex business of many parts in such a way that those initially fair and sensible tax principles work out that way.
The tax rules don't specify a larger, correct amount of tax.
So the lawyers, should they be ashamed for advising their clients how to run a large company tax efficiently?
Assuming yes, because that's the premise being replied to here, what should they be advising their clients to do instead? A voluntary tax overpayment? Structure the business another way? Guess? Copy other companies?
Is "shame" really the right way to control what advice lawyers and accountants give to large companies?
It seems to me that "shaming" by itself quickly leads to a lot of uncertainty and unfairness, because nobody can tell what the correct advice or correct tax payments "ought" to be on shame alone.
You'll end up with different companies who do exactly the same thing paying wildly different amounts based, essentially, on what they voluntary decide to do for PR or emotional reasons. That has the potential to be quite unfair.
It would be highly unprofessional for a lawyer or accountant to give advice based on their personal emotional state, and nebulous targets which nobody has agreed on and different people reach very different views on. So the right thing to do for an ethical professional lawyer or accountant is to resist that pressure, and try to give the most unbiased, knowledgable and reliable advice instead, based on the rules as they are set out, which everyone is supposed to adhere to.
That's why I'm inclined more towards ideas like the "General Anti-Avoidance Rule" https://en.wikipedia.org/wiki/Tax_avoidance#General_anti-avo... which gives companies and their advisors a framework for deciding the correct amounts to pay, with a stick if they don't.
Public shaming and campaigning is useful, but the end goal of that is ideally to apply political pressure to improve the rules in a "level playing field" way, so that proper application of them results in proper taxation. Many attempts at closing tax loopholes tend to make the tax code more complex, which requires yet more rules to close yet more new loopholes. Those rules are very "gameable".
But general anti-avoidance rules don't have to have this problem, if they are constructed with suitable generality and defer hair-splitting details to fair justice principles rather than ever-finer rules. Getting this right is still difficult, and still a work in progress. It's very contextual too, as the difference between structuring a business to avoid tax and structuring a business because that's how you conduct business is as much about culture and common practice as anything, and these change over time even while the general rule stays the same. But it seems like a better general approach to me.
Yeah, but stealing how much?
Almost everyone I know or read about who runs a small business or is self-employed talks with their accountant about how run things in a "tax efficient" way, to pay the minimum tax within the rules while keeping reasonable about it.
It would be foolish not to. You have to keep competitive.
And the rules are, for the most part, based on fair and sensible principles. Things like if you paid for something to use in your trade, it's fair to subtract that from what someone paid you, so the different is your profit on which tax is based.
Scale that up to large international corporations, and it turns out "minimum tax within the rules" is often $0 in a particular country, often because your profit there is also $0.
Just because you can structure a complex business of many parts in such a way that those initially fair and sensible tax principles work out that way.
The tax rules don't specify a larger, correct amount of tax.
So the lawyers, should they be ashamed for advising their clients how to run a large company tax efficiently?
Assuming yes, because that's the premise being replied to here, what should they be advising their clients to do instead? A voluntary tax overpayment? Structure the business another way? Guess? Copy other companies?
Is "shame" really the right way to control what advice lawyers and accountants give to large companies?
It seems to me that "shaming" by itself quickly leads to a lot of uncertainty and unfairness, because nobody can tell what the correct advice or correct tax payments "ought" to be on shame alone.
You'll end up with different companies who do exactly the same thing paying wildly different amounts based, essentially, on what they voluntary decide to do for PR or emotional reasons. That has the potential to be quite unfair.
It would be highly unprofessional for a lawyer or accountant to give advice based on their personal emotional state, and nebulous targets which nobody has agreed on and different people reach very different views on. So the right thing to do for an ethical professional lawyer or accountant is to resist that pressure, and try to give the most unbiased, knowledgable and reliable advice instead, based on the rules as they are set out, which everyone is supposed to adhere to.
That's why I'm inclined more towards ideas like the "General Anti-Avoidance Rule" https://en.wikipedia.org/wiki/Tax_avoidance#General_anti-avo... which gives companies and their advisors a framework for deciding the correct amounts to pay, with a stick if they don't.
Public shaming and campaigning is useful, but the end goal of that is ideally to apply political pressure to improve the rules in a "level playing field" way, so that proper application of them results in proper taxation. Many attempts at closing tax loopholes tend to make the tax code more complex, which requires yet more rules to close yet more new loopholes. Those rules are very "gameable".
But general anti-avoidance rules don't have to have this problem, if they are constructed with suitable generality and defer hair-splitting details to fair justice principles rather than ever-finer rules. Getting this right is still difficult, and still a work in progress. It's very contextual too, as the difference between structuring a business to avoid tax and structuring a business because that's how you conduct business is as much about culture and common practice as anything, and these change over time even while the general rule stays the same. But it seems like a better general approach to me.
>It would be foolish not to.
Hard disagree.
At typical self-employed scale, fiddling around with avoiding taxes is a waste of time (and money) which is a net loser against putting that energy into finding income. Are self-employed people really busy setting up as a business in Estonia or lobbying their national representatives?
If you're taxed on your profits, it's always better to double your profits than to avoid tax on your current profits.
This tax avoidance strategy only becomes important where there are no other efficiencies remaining to find: or, when you don't have other competitors to worry about.
It's a monopolist strategy. A tax reform that benefits you is also going to benefit your competitors - so it's not being done for competitive reasons.
Hard disagree.
At typical self-employed scale, fiddling around with avoiding taxes is a waste of time (and money) which is a net loser against putting that energy into finding income. Are self-employed people really busy setting up as a business in Estonia or lobbying their national representatives?
If you're taxed on your profits, it's always better to double your profits than to avoid tax on your current profits.
This tax avoidance strategy only becomes important where there are no other efficiencies remaining to find: or, when you don't have other competitors to worry about.
It's a monopolist strategy. A tax reform that benefits you is also going to benefit your competitors - so it's not being done for competitive reasons.
>> It would be foolish not to.
> Hard disagree. At typical self-employed scale, fiddling around with avoiding taxes is a waste of time (and money)
To the nearest percentage approximation, 100% of self-employed and small businesses do exactly this at a basic level, and it's low effort. There's an entire support industry to keep it simple.
Tax efficiency, which is the polite name for avoiding taxes, which is perfectly legal and encouraged, is literally taught as one of the first things in small business courses, somewhere after book-keeping and giving the books to your accountant.
It means you ask your accountant what expenses to write down, they tell you, then later they look at your books and say "did you know if you do these other little things like this, altogether you can save another thousand?" and you go, wow, I didn't think of those, I guess you are worth the fee after all.
Roughly 100% of self-employed and small businesses do this, in any place where it's common to use an accountant.
> Hard disagree. At typical self-employed scale, fiddling around with avoiding taxes is a waste of time (and money)
To the nearest percentage approximation, 100% of self-employed and small businesses do exactly this at a basic level, and it's low effort. There's an entire support industry to keep it simple.
Tax efficiency, which is the polite name for avoiding taxes, which is perfectly legal and encouraged, is literally taught as one of the first things in small business courses, somewhere after book-keeping and giving the books to your accountant.
It means you ask your accountant what expenses to write down, they tell you, then later they look at your books and say "did you know if you do these other little things like this, altogether you can save another thousand?" and you go, wow, I didn't think of those, I guess you are worth the fee after all.
Roughly 100% of self-employed and small businesses do this, in any place where it's common to use an accountant.
Not only self employed and small businesses! If you work as an employee and have a 401(k), you are participating in a form of tax avoidance: deferral. Your money goes into it, but it's not taxed until much later when you retire and take it out. If you have an HSA, a Roth IRA or a 529 plan for your kid's education, you're also deferring and/or avoiding taxes. If you buy municipal bonds you're avoiding some taxes. There are a few "it would be foolish not to" ways for middle class people to keep their finances tax efficient. Obviously there are many more ways available to rich people and businesses, and they can shelter orders of magnitude more money than us, but let's not pretend that tax avoidance is something only they do.
You’re arguing against a straw man. OP wasn’t saying the self employed incorporate in Estonia. They said they are efficient with taxes. They even gave a specific example: business expenses.
For example, I run a business in Canada, and know that food and drinks are only 50% deductible. Therefore, at a 50% marginal tax rate those items effectively cost business 50% more than, say, buying office supplies. And that informs decision making.
It’s also vital to know how different capital cost classes and depreciation schedules affect things, or to properly set up a home office deduction , and to deduct everything deductible.
Most of these things are set it and forget it. It’s absolutely worth doing correctly even at a self employed scale.
For example, I run a business in Canada, and know that food and drinks are only 50% deductible. Therefore, at a 50% marginal tax rate those items effectively cost business 50% more than, say, buying office supplies. And that informs decision making.
It’s also vital to know how different capital cost classes and depreciation schedules affect things, or to properly set up a home office deduction , and to deduct everything deductible.
Most of these things are set it and forget it. It’s absolutely worth doing correctly even at a self employed scale.
Legitimately expensing office supplies is scarcely considered "corporate tax avoidance" and not reasonable to call "stealing".
Since the OP was making this direct comparison, and you seem to like fallacies, you can take it that I am calling their argument a slippery slope fallacy.
Since the OP was making this direct comparison, and you seem to like fallacies, you can take it that I am calling their argument a slippery slope fallacy.
I am the OP and I was not making this direct comparison.
I was pointing out that it's common for the small business to perform tax efficiency, which is extremely widespread and taught in small business courses. Most people running a small business or self-employed relate to it, and it's indeed a "set and forget" thing, mainly because you just do what the accountant tells you.
In that world, tax efficiency is largely seen as the right thing to do and sensible ("good").
And when you scale that up, the end result looks like international corporate tax avoidance ("bad").
That's not at all the same as saying the small business version is tax avoidance of the "bad" kind.
It's saying that one thing follows from another, not that they are the same thing.
And so we can't solve international corporate tax avoidance by a simple expedient of trying to "ban" or "shame" it, because there isn't any clear boundary at which sensible, approved, "good" tax efficiency turns into shameworthy "bad" avoidance.
And so, to solve it, we need to use a different method, and I advocated such a method.
I was pointing out that it's common for the small business to perform tax efficiency, which is extremely widespread and taught in small business courses. Most people running a small business or self-employed relate to it, and it's indeed a "set and forget" thing, mainly because you just do what the accountant tells you.
In that world, tax efficiency is largely seen as the right thing to do and sensible ("good").
And when you scale that up, the end result looks like international corporate tax avoidance ("bad").
That's not at all the same as saying the small business version is tax avoidance of the "bad" kind.
It's saying that one thing follows from another, not that they are the same thing.
And so we can't solve international corporate tax avoidance by a simple expedient of trying to "ban" or "shame" it, because there isn't any clear boundary at which sensible, approved, "good" tax efficiency turns into shameworthy "bad" avoidance.
And so, to solve it, we need to use a different method, and I advocated such a method.
> It's saying that one thing follows from another
That's why I called it a slippery slope fallacy.
Following the common tax rules to run a competitive and productive business does not inevitably lead to calculating and exploiting (and lobbying to create) loopholes in international tax law.
That's why I called it a slippery slope fallacy.
Following the common tax rules to run a competitive and productive business does not inevitably lead to calculating and exploiting (and lobbying to create) loopholes in international tax law.
Summers is right, of course releasing M3 would be a no-brainer.
Can we ever reconcile accounting and economics? With its excess cash reserves, if Apple paid tax, absolutely nothing about its business would change.
The more profound perspective is, who is really the tax collector then? Who is playing that economic role? Obviously these giant tax-evading companies. They are accumulating huge stockpiles of cash they cannot spend, a long-running surplus, they can't even effectively give it back to shareholders, and it's not because of tax policy. It's because they are the tax.
That's not controversial, some people call it simply rent seeking, but Summers should be going a few steps further: can we characterize the exact amount of non-tax compulsory payments (NTCPs) we are giving to Apple? Is there a policy process to convert the beneficiary of NTCPs from private ownership to the public, i.e. make it just a plain old tax?
Can we ever reconcile accounting and economics? With its excess cash reserves, if Apple paid tax, absolutely nothing about its business would change.
The more profound perspective is, who is really the tax collector then? Who is playing that economic role? Obviously these giant tax-evading companies. They are accumulating huge stockpiles of cash they cannot spend, a long-running surplus, they can't even effectively give it back to shareholders, and it's not because of tax policy. It's because they are the tax.
That's not controversial, some people call it simply rent seeking, but Summers should be going a few steps further: can we characterize the exact amount of non-tax compulsory payments (NTCPs) we are giving to Apple? Is there a policy process to convert the beneficiary of NTCPs from private ownership to the public, i.e. make it just a plain old tax?
> They are accumulating huge stockpiles of cash they cannot spend,
they (the corps) can use this asset that they cannot repatriate as collateral for cheap loans.
they (the corps) can use this asset that they cannot repatriate as collateral for cheap loans.
I agree with your point (probably), but disagree with the restatement. They can repatriate it; it just does not make business sense to do so. (If they actually couldn't repatriate it, it wouldn't be effective to use as collateral.)
Why does US tax money coming back into the country and at what rate? Wouldn't you want to encourage money to be made elsewhere and brought back to the states for investment? or am i fundamentally misunderstanding economics?
US citizens are taxed on global income regardless of whether they live in the US, or whether any of their money will ever enter the US.
It's only right for US corporations to be taxed the same way. Most of these insane financial contortions are done because they aren't taxed on foreign, non-repatriated earnings - creating an incentive to convert domestic earnings into 'foreign' ones, that get repatriated the next time there's a tax holiday.
I personally would love to earmark my personal income as foreign-sourced, and to not pay any taxes on it until I get a tax discount... But if I were to do that, I would go to jail for tax evasion.
It's only right for US corporations to be taxed the same way. Most of these insane financial contortions are done because they aren't taxed on foreign, non-repatriated earnings - creating an incentive to convert domestic earnings into 'foreign' ones, that get repatriated the next time there's a tax holiday.
I personally would love to earmark my personal income as foreign-sourced, and to not pay any taxes on it until I get a tax discount... But if I were to do that, I would go to jail for tax evasion.
“The only major nation that taxes its citizens (and green card holders) regardless of where they live is the United States.”
“Some lists of countries that tax citizens and legal residents on their worldwide income include Libya, North Korea, Eritrea and the Philippines.”
Both from the first search result, https://premieroffshore.com/which-countries-tax-worldwide-in....
At least we’re in good company?
“Some lists of countries that tax citizens and legal residents on their worldwide income include Libya, North Korea, Eritrea and the Philippines.”
Both from the first search result, https://premieroffshore.com/which-countries-tax-worldwide-in....
At least we’re in good company?
Is it right? I know a lady that has dual-citizenship because a parent is US citizen and one Australian; she had to move in US after living 25 years exclusively in Australia because she had to pay taxes in both countries, in Australia as a resident citizen and in US because she was a citizen. The only other option was to give up to US citizenship, like others do. Is it right?
If you paid foreign tax on foreign earnings you can deduct it from your US taxes.
You still have to file, and to pay the difference, if any, every year.
You still have to file, and to pay the difference, if any, every year.
As usual The Economist has a lot that’s very sensible to say about tax reform. In particular putting more emphasis on taxing investors (you can shift your profits between jurisdictions but not your investors), property and inheritances. The main target should be rents.
https://www.economist.com/leaders/2018/08/09/overhaul-tax-fo...
https://www.economist.com/leaders/2018/08/09/overhaul-tax-fo...
I wonder how feasible it is for individuals (or groups of individuals?) in the US, to also incorporate themselves and, through the same or similar loopholes, also pay no tax...
How would the IRS respond in those instances.
Has that been tried? Is anyone aware of anything like that? Is the cost of such a scheme prohibitive for an individual vs. a large Corp? I'd be curious what the challenges and outcome of such an experiment would be.
How would the IRS respond in those instances.
Has that been tried? Is anyone aware of anything like that? Is the cost of such a scheme prohibitive for an individual vs. a large Corp? I'd be curious what the challenges and outcome of such an experiment would be.
People have tried and the problem is when you want to bring the money back to use it on something. Say you setup a licensing company on an island nation that use to then charge yourself $10,000 a month to license the software you wrote... that you transferred there. Now lets say you want to buy a house and you bring back a certain amount of money. That money is taxable and that is where people mess up they don't report it.
Big companies like Apple instead of bringing the money back they borrow billions of dollars at low interest rates. This lets them keep their money offshore where they invest it to make a bigger return then their interest rate on borrowing in the US.
Apple also has a routine for money in the US. You will find in Nevada Apple has an investment corporation. They will do the same thing, send the ownership of software to Nevada, charge their company in some xyz state (CA) and then they use that money in Nevada to invest it for more money then it costs them to borrow. So apple is covered both ways.
https://en.wikipedia.org/wiki/Braeburn_Capital#:~:text=Braeb....
https://www.businessinsider.com/how-apple-dodges-billions-in...
Big companies like Apple instead of bringing the money back they borrow billions of dollars at low interest rates. This lets them keep their money offshore where they invest it to make a bigger return then their interest rate on borrowing in the US.
Apple also has a routine for money in the US. You will find in Nevada Apple has an investment corporation. They will do the same thing, send the ownership of software to Nevada, charge their company in some xyz state (CA) and then they use that money in Nevada to invest it for more money then it costs them to borrow. So apple is covered both ways.
https://en.wikipedia.org/wiki/Braeburn_Capital#:~:text=Braeb....
https://www.businessinsider.com/how-apple-dodges-billions-in...
The first point of failure is that if you are a US taxpayer, then you are already taxed on your worldwide earnings, including the earnings of your wholly-owned foreign subsidiary. Even if you could borrow domestically against your foreign earnings in order to finance your lifestyle, you would have already been taxed on those foreign earnings, as an individual.
How do big corporations get away with it? Is it because they aren't wholly-owned by an individual?
Edit: NVM. I saw your explanation in another comment. Good info :-)
Edit: NVM. I saw your explanation in another comment. Good info :-)
You are taxed but the starting tax threshold is high, 150~200K if I recall correctly.
I worked in Japan for a while and had to file but never paid taxes.
I worked in Japan for a while and had to file but never paid taxes.
I'm not very familiar with US taxation, but when you do this, don't the transfers end up taxable? Eg. Shouldn't the Nevada company license fee have some sort of CA sales tax on it?
You're partly correct but here's an overview of what's really going on.
The money is "brought back" (if it even left) into segregated accounts in the US. Most of that US off-shore money is in New York to avoid currency risks, etc. Then those accounts are used as collateral (if needed. I doubt if anybody says to Apple, "Where's your collateral?") for loans.
Also, the biggest money havens in the world are 2 US states, with special privacy laws. All those guys playing games in Panama, etc. were better off just using US state tax shelters.
The money is "brought back" (if it even left) into segregated accounts in the US. Most of that US off-shore money is in New York to avoid currency risks, etc. Then those accounts are used as collateral (if needed. I doubt if anybody says to Apple, "Where's your collateral?") for loans.
Also, the biggest money havens in the world are 2 US states, with special privacy laws. All those guys playing games in Panama, etc. were better off just using US state tax shelters.
> The money is "brought back" (if it even left) into segregated accounts in the US. Most of that US off-shore money is in New York to avoid currency risks, etc. Then those accounts are used as collateral (if needed. I doubt if anybody says to Apple, "Where's your collateral?") for loans.
This is super interesting. stupid question perhaps: does Apple have the reserves to move a small currency if they decide to convert their cash all at one go?
This is super interesting. stupid question perhaps: does Apple have the reserves to move a small currency if they decide to convert their cash all at one go?
Which states are those?
South Dakota is one
There is no problem if you just don't bring the money back until congress declares a tax holiday. (Yet when another country, like, say, Greece declares a tax holiday, while running a large deficit, our financial press mocks it as populism and corruption...)
Former international tax lawyer here. This would not be possible because these benefits are largely based on international structures, and any non-US corporation owned by a few US-based individuals would be designated as a Controlled Foreign Corporation (CFC). This would prevent you from reaping the biggest benefits from a taxation perspective.
The reason that publicly-traded companies are not CFCs is that a CFC must have 50% of the vote or value of the company owned by US Shareholders. "US Shareholder" is defined as a US person that owns at least 10% of the company. So even if a conglomerate is almost entirely owned by US persons, it would not be a CFC unless the US persons that own it also meet the 10% threshold.
The reason for this cutoff is that the CFC rule is meant to prevent small groups of people who can actually exercise control over a foreign company from getting together and colluding to keep profits off-shore. But this is not a risk in the case of companies whose ownership is spread among many small shareholders. As a result, big companies are able to take advantage of complex international structures in ways that small groups of individuals cannot.
The reason that publicly-traded companies are not CFCs is that a CFC must have 50% of the vote or value of the company owned by US Shareholders. "US Shareholder" is defined as a US person that owns at least 10% of the company. So even if a conglomerate is almost entirely owned by US persons, it would not be a CFC unless the US persons that own it also meet the 10% threshold.
The reason for this cutoff is that the CFC rule is meant to prevent small groups of people who can actually exercise control over a foreign company from getting together and colluding to keep profits off-shore. But this is not a risk in the case of companies whose ownership is spread among many small shareholders. As a result, big companies are able to take advantage of complex international structures in ways that small groups of individuals cannot.
So 7 people could form a corporation to do this? One owns 49% and the rest 8.5% each. Or 11 people if you want equal shares for all.
Yes, but it would be very difficult to coordinate their overlapping/conflicting interests. It could work in the case of family members, whose interests are generally more aligned. But the tax code allows the IRS to attribute ownership among related persons. So you can't do this sort of thing with people who are close blood relatives, otherwise the ownership structure can be collapsed, and it won't work.
> The reason that publicly-traded companies are not CFCs is that a CFC must have 50% of the vote or value of the company owned by US Shareholders.
Aren't there some public companies where some people have over 50% of the votes? Facebook comes to mind as one. Or are their international subsidiaries designated as CFCs?
Aren't there some public companies where some people have over 50% of the votes? Facebook comes to mind as one. Or are their international subsidiaries designated as CFCs?
You're right, it looks like Zuck has 60% of the voting power of FB. [1] I wouldn't be surprised if FB's tax lawyers came up with a creative way to structure their international operations so that not all of their foreign subs are CFCs.
1: https://www.vox.com/recode/2019/5/30/18644755/facebook-stock...
1: https://www.vox.com/recode/2019/5/30/18644755/facebook-stock...
So small groups of individuals can take advantage of this given they are international enough?
Presumably, people who are international enough aren't being taxed by the US in the first place.
But who would have their own government taxes to dodge.
Many countries do not tax their residents on a worldwide basis. So if a person from Country X earns money in Country Y, they are simply not taxed on it in Country X. They don't need to set up a complicated foreign corporate structure to avoid immediate taxation, as US residents do.
It’s not expensive to incorporate, but full time employment can’t really be paid to an EIN. You need to be a contractor or a vendor.
Lots of people do it. Self employment comes with some risks, but if you own it, and convert your employment towards it, it can have benefits.
Its how landscapers drive F250s, for example.
Lots of people do it. Self employment comes with some risks, but if you own it, and convert your employment towards it, it can have benefits.
Its how landscapers drive F250s, for example.
See that’s your first problem, you think everyone has an adversarial relationship with the IRS and that’s simply not true.
These structures often require a very collaborative relationship with the IRS with many things approved, elected or notified of in advance. The IRS only cares about compliance, not a hardline on actual revenue collection. The IRS has many doors for compliance.
These structures often require a very collaborative relationship with the IRS with many things approved, elected or notified of in advance. The IRS only cares about compliance, not a hardline on actual revenue collection. The IRS has many doors for compliance.
As a US citizen it's somewhat tricky as you are taxed on your worldwide income, but the easiest way is probably to become a tax resident in a country with a low tax rate. Even in the UK, as a contractor/freelancer it's fairly simple to pay single digit percent effective taxes on incomes of £100k+. And that's without even delving into what could be considered a 'tax avoidance' scheme.
Not shure single digit effective is possible nowadays even outside IR35 - and HMRC has unliterally ruled that some professions are in side IR35 eg all it/developer contractors.
Actors, film / tv professionals and lawyers etc are for the large part still treated as "self employed"
Actors, film / tv professionals and lawyers etc are for the large part still treated as "self employed"
LOL this is primarily why many self employed people eventually incorporate. Tax reduction.
You should try it some time.
You should try it some time.
It's not that big of a deal. It can help you with investing back into your business, especially if you have a lot of hardware to buy to operate it, as well as easier to write off business travel, rent, etc. However those are all practical. Your individual income will still be taxed at the same rate. It really just makes your paperwork a bit easier than if you went with a sole proprietorship, there's not a huge difference in overall tax rate.
I can’t figure out what to deduct that is more than the $12.2k single filer deductible. I have $500k/yr I’d love to pay less taxes on at the moment due to a booming side business + healthy salary. Can’t find any deductions worth my time and the CPA filing fees.
In Australia, it’s not so much deductions (home office, car, computer, phone, etc), as much as absurdly legal practices like “distributing” income to your family. This means you can divvy up your income so it’s taxed at each family member’s marginal rate (rather than your own top-line consolidated rate).
That might sound reasonable, until you realize that those family members never see that money. The “distribution” is a complete fiction.
I’m usually fairly conservative when it comes to taxes, but I’m astonished this is allowed to continue.
That might sound reasonable, until you realize that those family members never see that money. The “distribution” is a complete fiction.
I’m usually fairly conservative when it comes to taxes, but I’m astonished this is allowed to continue.
To be clear, you are already deducting any and all expenses related to your side business even if you're only filing as self-employed?
If you live in a state with income tax, sounds like you'd be at least $10k of the way there. If you get a mortgage, bobs your uncle
I bet a CPA could.
CPA wanted $3,500 to set up an LLC and turn it into an S-corp + the filing for the year. Said we could deduct 80% of my car and some knick knack stuff. Ran the math, came out to be breakeven. Get $3,500 back to spend $3,500, risk an audit, lots of headache, not worth it to me.
Probably the best reason for an LLC in your case is to split up your finances and protect your personal property (house/cash/other assets) in case your business gets sued. I don't think the tax advantages are huge but the potential losses difference if sued can certainly be huge if you don't separate your assets. I'd be surprised if your accountant didn't bring that up though.
[deleted]
Although avoiding taxes may be a sort of business "code smell" that makes us suspicious, there's no inherent reason to regard such behavior as evil.
The tax code, in all its thousands of pages, is designed (or at least it's supposed to be) to give incentive to certain behaviors that we'd like our businesses (and citizens) to follow. And the more they do this, the less taxes they'll be paying.
Thus, to a first approximation, paying very low taxes ought to be indicative of a payer who's doing all the things that our politicians and bureaucrats think they should be doing.
A few years ago I replaced all the windows in my house, along with a door and a garage door, with new, energy-efficient ones. This entitled me to a tax credit for that year, allowing me to pay a few thousand dollars less in taxes. I don't think that people should accuse me of being a bad citizen because my tax bill that year was unusually low. If anything, I'd think that the same environmental groups who lobbied for such measures in the tax code would all be shaking my hand for taking advantage of that in order to achieve the goal of lowered energy usage.
So yeah, maybe be suspicious of such businesses, but let's not just assume they're evil. That said, the idea that the public has a right to know what corporations are doing this is fully compatible with my claim, so we'd also know who's being a good corporate citizen.
The tax code, in all its thousands of pages, is designed (or at least it's supposed to be) to give incentive to certain behaviors that we'd like our businesses (and citizens) to follow. And the more they do this, the less taxes they'll be paying.
Thus, to a first approximation, paying very low taxes ought to be indicative of a payer who's doing all the things that our politicians and bureaucrats think they should be doing.
A few years ago I replaced all the windows in my house, along with a door and a garage door, with new, energy-efficient ones. This entitled me to a tax credit for that year, allowing me to pay a few thousand dollars less in taxes. I don't think that people should accuse me of being a bad citizen because my tax bill that year was unusually low. If anything, I'd think that the same environmental groups who lobbied for such measures in the tax code would all be shaking my hand for taking advantage of that in order to achieve the goal of lowered energy usage.
So yeah, maybe be suspicious of such businesses, but let's not just assume they're evil. That said, the idea that the public has a right to know what corporations are doing this is fully compatible with my claim, so we'd also know who's being a good corporate citizen.
I think this point outlines how important it is for the public to know how the taxes were reduced. If the methods create positive outcomes to society then it would seem a lot less shady.
Sadly though, capitalism has a way of turning everything into a perverse incentive.
So does basically every other human effort where one can extract a benefit for an individual. Since communism on a large scale has always resulted in failure of its implementation can you suggest a 3rd path?
This will not end until people will all "incorporate" and apply the same tax tricks as major corporations. In other words we need the revolution of the "personal corporation". The startup that offers this will be the next Apple. Or, will be shut down when the law is changed. Either way, it's a win for society.
Stripe Atlas is a step in the right direction, but it does only the low hanging fruit. Accounting, handling audits and winding down is where the pros are required.
Stripe Atlas is a step in the right direction, but it does only the low hanging fruit. Accounting, handling audits and winding down is where the pros are required.
Unfortunately, sophisticated tax advice simply does not scale down to the level that would make it applicable to most companies/people. This type of advice is heavily fact-specific, and if you create a complicated legal structure, you can't take your eye off the ball for a minute. Otherwise you can end up blowing the whole thing up, or worse.
I would note that the world you describe (where people have tax tricks just like corporations) used to exist. Before the tax reform bill of 1986, doctors/lawyers/dentists/etc. were able to take advantage of tax shelters that greatly reduced their wage income, without actually incurring any real losses. These passive loss tax shelters were heavily marketed by accounting firms because of their general applicability. But in 1986 they were eliminated by a tax reform bill that outlawed perceived abuses and lowered tax rates.
I would note that the world you describe (where people have tax tricks just like corporations) used to exist. Before the tax reform bill of 1986, doctors/lawyers/dentists/etc. were able to take advantage of tax shelters that greatly reduced their wage income, without actually incurring any real losses. These passive loss tax shelters were heavily marketed by accounting firms because of their general applicability. But in 1986 they were eliminated by a tax reform bill that outlawed perceived abuses and lowered tax rates.
I have to say I like your replies on this topic here and elsewhere. Almost sounds like these tax avoiding entities are software and there's a big maintenance cost as laws change all the time. I've always thought that a big part of law should be "programable" and I think we are slowly getting there.
Next up, imagine a machine learning trained entity just roaming the international law landscape, just trying to survive.
Next up, imagine a machine learning trained entity just roaming the international law landscape, just trying to survive.
Vague idea:
The government can compulsorily acquire the domestic domiciled assets of any company for 50? 100? times that company's declared taxable income with some appropriate average over the previous 5 years.
You earn nothing taxable here? Great for your tax bill but now you can worry about the capital loss and loss of control of trademarks & patents domestically. Better to declare the profit and pay the tax like an honest person...
The government can compulsorily acquire the domestic domiciled assets of any company for 50? 100? times that company's declared taxable income with some appropriate average over the previous 5 years.
You earn nothing taxable here? Great for your tax bill but now you can worry about the capital loss and loss of control of trademarks & patents domestically. Better to declare the profit and pay the tax like an honest person...
There are legitimate reasons for a valuable company to make little to no profits. Namely re-investment in growth. Your proposal would make it impossible for businesses to spend todays profits on growth for tomorrow, and would thereby dramatically slow economic growth.
Yes. The whole idea of describing the tax on profits as an involving "declared taxable income" is misleading.
Few workers work without a salary, but plenty of companies run without profit... because they are re-investing and growing, or because they are slowly shrinking and dying. Lots of tax can still be collected (on money going out as salaries, and through VAT on money coming in) and their existence can still be useful (making stuff we need, and employing people) even if the books exactly balance at the end of the year.
Few workers work without a salary, but plenty of companies run without profit... because they are re-investing and growing, or because they are slowly shrinking and dying. Lots of tax can still be collected (on money going out as salaries, and through VAT on money coming in) and their existence can still be useful (making stuff we need, and employing people) even if the books exactly balance at the end of the year.
This is actually incorrect. Investment is not tax deductable. Invest all your salary in an S&P500 index fund as a tax deduction?
Business expenses are tax deductable. Investment is not.
Yes I'm completely aware that this is one of Amazon's stated defences for tax dodging. Tax dodging is their core competency. I hate that.
Business expenses are tax deductable. Investment is not.
Yes I'm completely aware that this is one of Amazon's stated defences for tax dodging. Tax dodging is their core competency. I hate that.
No you're incorrect, and drawing a false distinction between spending company money on growth instead of profits, and other business expenses. There is no distinction for tax purposes, nor should there be.
If you buy assets you can claim the depreciation on them as a tax deductable expense.
If investment was tax deductable no company would pay tax ever. Simply invest all profits in an s&p500 index fund and pay no tax.
There is a distinction between business expenses and investment. There is one for tax purposes. It is abused roundly in tax dodges.
This conversations will now go nowhere. If you care about understanding it you've got some research to do to convince yourself, I will be unable to do so.
If investment was tax deductable no company would pay tax ever. Simply invest all profits in an s&p500 index fund and pay no tax.
There is a distinction between business expenses and investment. There is one for tax purposes. It is abused roundly in tax dodges.
This conversations will now go nowhere. If you care about understanding it you've got some research to do to convince yourself, I will be unable to do so.
Or we could just focus on taxing the unearned value arising out of land control instead of property.
Land tax + VAT would be ideal and difficult to avoid.
Land tax + VAT would be ideal and difficult to avoid.
Or just tax pollution and resource (land et al) usage. That will rearrange the economy to overcome one of the biggest challenges of our time.
Tax on labour and housing are dis-incentivizing "good behavior".
Tax on labour and housing are dis-incentivizing "good behavior".
I think this is the only way to get corporation onboard for pricing in climate change. I don't see it happening though as they have a boot on the necks of almost every member of Congress because the corps essentially fund their careers as politicians.
I don't think pollution taxes ought to be treated as general revenue. It should be distributed back as UBi for transparency purposes.
The wealthy tax the rest of us. Think about it.
Tax avoidance, subsidies, bailouts, stimuli, etc.
Want to tax the rich? No. They tax you.
Tax avoidance, subsidies, bailouts, stimuli, etc.
Want to tax the rich? No. They tax you.
That's not taxing us, that's just them (or businesses they, or non-rich people, run) getting some tax relief. They will still be either paying more tax or employing more people or investing in more companies that employ people than I do, that's for sure.
They make us pay for their convenience.
For example, Walmart pays minimum wage and asks employees to use Medicaid while their leadership gets enormously rich.
For example, Walmart pays minimum wage and asks employees to use Medicaid while their leadership gets enormously rich.
If you spread that wealth (the non-stocks and shares kind, actual money) per-employee, you will not get very much money. That's why this sort of statement is silly.
I would argue that given all the privileges that Society gives to Limited Liability Companies, that there should be one basic demand in return (regardless of profitability, or lack of it)
That is, that all company communications be released to the public after a 10 year delay. Governments worldwide manage to do this after 10, 25 or 50 years.
I don't see why corporations would rate the same privilege. Transparency is the best defence against corruption.
Maybe in the era of multinational corporations, the idea of corporate taxation is outdated. What if corporate taxes were eliminated entirely and replaced with higher taxes on personal wages? It’s far more difficult for a person to game the tax system than a corporation. People can’t move their income to another country, or any of the other games corporations play (or at least, it is much more difficult for them to do so).
Why no one ever mentions how much companies effectively contribute to various salary and employees income taxes?
Corporate tax is practically nothing.
Solid point, though those on here that don’t run businesses probably don’t get the scope of what companies pay that those big ones aren’t able to avoid.
> employees income taxes?
that's the employee's contribution, not the company's.
that's the employee's contribution, not the company's.
Right, but if the company didn't create the job, the income tax collected would be zero.
I'm not saying the income tax collected is purely coming from the company, but take Amazon for example - their economic activity creates jobs which pay salaries that are taxed.
I'm not saying the income tax collected is purely coming from the company, but take Amazon for example - their economic activity creates jobs which pay salaries that are taxed.
> their economic activity creates jobs
yes, but the employee would've gotten another job else where, so it's _not_ the company that's creating the taxation benefit! They therefore, should not be given the benefit of attributing that taxation (for PR purposes)!
The company did make some investment which led to the job - but they did said investment for their own benefit, not to create more jobs for which taxation can be levied.
yes, but the employee would've gotten another job else where, so it's _not_ the company that's creating the taxation benefit! They therefore, should not be given the benefit of attributing that taxation (for PR purposes)!
The company did make some investment which led to the job - but they did said investment for their own benefit, not to create more jobs for which taxation can be levied.
They would have gotten a job elsewhere? But that’s not always the case. Sometimes there is no other job.
Well, if my employer is a small company, they pay my additional taxes plus their own. So, why big companies should have an edge in front of the small ones?
Companies that pay billions in taxes also contribute. Why let a handful get away with it?
Wrong incentives.
When basing on salary/personal income taxes, government is interested to raise everyone's income less inflation if it wants more taxes (let's skip 20th century aberrations like > 90% income taxes for now).
Corporate tax is an opaque mechanism with unknown corrupt incentives, effectively turns into blackmailing of business and IMO should be dropped whatsoever.
Many countries are adopting zero corporate tax (having dividend and salary taxes instead).
> The public has a right to know how companies that pay no taxes pull it off
Not just that, they need cheap access to the same infrastructure.
Not just that, they need cheap access to the same infrastructure.
That doesn't exist and won't as long as corporations can spend unlimited amounts on politicians and said politicians have no term limits.
unfortunately, it doesn't exist. Otherwise, if it does, then there's a way to arbitrage the extra money savings into a service that you can pay for (in lieu of tax).
The fact that such a service doesn't exist for the pleb individual means that this can't be done.
The fact that such a service doesn't exist for the pleb individual means that this can't be done.
at least in europe , there is a market for "tax optimization" for middle-to-upper middle class people that is not prohibitively expensive, involving the many tax havens of the EU for certain kinds of businesses, for those willing to go through the hassle.
As if Larry Summers doesn't know how they do it.
Is he trolling?
Why doesn't he just write the article "This is how corporations pay no tax"?
Maybe it has something to do with un-elected officials, who generally represent the not-public, being Treasury Secretary.
The behaviour is legal because it was made legal. We choose to do this. Pretending its some magic trick with complex steps is simply a nice excuse to avoid the difficult truth: it's legal and easy for publically traded companies to pay no corp tax and we like it that way.
I see so many posts that have the wrong idea. So many of our politicians and lobbyists are former lawyers. Even the accountants are in on it. The laws are written to be purposely complicated so mega corporations keep smaller entrepreneurs down and lawyers/accountants big fees for knowing the rules inside out(they wrote them).
Why do you think large companies give stock options as compensation instead of straight cash. It is to avoid taxes.
The average American has one source of income a W2. A simple tax filing. Next time you do your tax filing, look at the questions TurboTax or FreeTaxUSA asks you and then look at the offical government tax doc(this is what gets filled out with your answers).
Why do you think large companies give stock options as compensation instead of straight cash. It is to avoid taxes.
The average American has one source of income a W2. A simple tax filing. Next time you do your tax filing, look at the questions TurboTax or FreeTaxUSA asks you and then look at the offical government tax doc(this is what gets filled out with your answers).
Most large companies have transitioned to giving shares (RSUs) rather than stock options (NQSOs in the case of large companies) for non-executives. Compliance risks/costs are lower and payouts to employees are more predictable (and therefore valued more highly by employees).
[deleted]
It's not really a secret, the laws are public, the methods exactly aren't hidden as they must abide that and people in the profession understand liability mitigation.
The challenge here is education the public what assets, tax liability and general liability are for a corporation and what a corporation actually is (basically, almost, kinda a person.)
So it isn't shenanigans, it's the general public inability to learn a specific niche field and people whoa are knowledgeable, exploiting a legal loophole, on purpose whether or not the spirit/letter of the law was for that.
The challenge here is education the public what assets, tax liability and general liability are for a corporation and what a corporation actually is (basically, almost, kinda a person.)
So it isn't shenanigans, it's the general public inability to learn a specific niche field and people whoa are knowledgeable, exploiting a legal loophole, on purpose whether or not the spirit/letter of the law was for that.
Create a "church of the people" non-profit org, where anyone that "believes" can join and give it charity, and the church in its infinite benevolence gives credit cards to the needy(the donors) that they can use as they like or as the gods allows(how much you donated + interest).
To avoid taxes you mealy have to find a way to appear poor. In the above scenario both the "church" org and the donors are poor if the church uses all its donations on its donors and vice-versa.
To avoid taxes you mealy have to find a way to appear poor. In the above scenario both the "church" org and the donors are poor if the church uses all its donations on its donors and vice-versa.
Sadly, "Our Lady of Perpetual Exemption" was shut down...
https://www.youtube.com/watch?v=JcPeBAYYuhc
https://en.wikipedia.org/wiki/Our_Lady_of_Perpetual_Exemptio...
(Too many people contributed their seeds…)
https://www.youtube.com/watch?v=JcPeBAYYuhc
https://en.wikipedia.org/wiki/Our_Lady_of_Perpetual_Exemptio...
(Too many people contributed their seeds…)
Just get rid of corporate taxes, and get rid of capital gains taxes. Treat all income the same.
Kills the double taxation issue, and removes the incentives for corporations to avoid taxes.
Kills the double taxation issue, and removes the incentives for corporations to avoid taxes.
Double taxation is a talking point, not a philosophical problem. It's like rebranding the inheritance tax as the death tax to make it sound unfair or absurd ("they tax dying in this country!!!").
Double taxation happens constantly in all sorts of contexts, for instance, most of us pay income tax, and then pay sales tax using those already-taxed dollars, and then the seller pays income tax on the money received less sales tax.
The reason we tax in so many ways is mostly some combination of "hysterical raisins" and politics (it can be politically easier at different times to raise revenues in different ways, and restructuring the tax code will create winners and losers so maintaining the patchwork status quo is easier), but it's not necessarily a bad thing to tax with a variety of methods. There is a certain amount of administrative overhead in having a corporate and personal income tax, a payroll tax, a sales tax, a property tax, etc etc etc, but doing so also makes it harder for someone to dodge taxes entirely -- restructuring to avoid personal income taxes can put you in line for corporate income taxes and vice versa, for instance. Holding lots of land subjects you to property taxes instead of corporate taxes on the companies you own stock in. Meanwhile all of these separate taxes create paper trails that can be used in the mutual enforcement of all taxes. If you run a business and your sales tax receipts, corporate taxes, and personal income taxes don't roughly line up, it signals that an audit may be called for. The tax system becomes a checksum for itself.
Now, this may all just be status quo rationalization, but my point is, "double taxation" is just a shibboleth and not itself a reason to radically reform the tax code.
Double taxation happens constantly in all sorts of contexts, for instance, most of us pay income tax, and then pay sales tax using those already-taxed dollars, and then the seller pays income tax on the money received less sales tax.
The reason we tax in so many ways is mostly some combination of "hysterical raisins" and politics (it can be politically easier at different times to raise revenues in different ways, and restructuring the tax code will create winners and losers so maintaining the patchwork status quo is easier), but it's not necessarily a bad thing to tax with a variety of methods. There is a certain amount of administrative overhead in having a corporate and personal income tax, a payroll tax, a sales tax, a property tax, etc etc etc, but doing so also makes it harder for someone to dodge taxes entirely -- restructuring to avoid personal income taxes can put you in line for corporate income taxes and vice versa, for instance. Holding lots of land subjects you to property taxes instead of corporate taxes on the companies you own stock in. Meanwhile all of these separate taxes create paper trails that can be used in the mutual enforcement of all taxes. If you run a business and your sales tax receipts, corporate taxes, and personal income taxes don't roughly line up, it signals that an audit may be called for. The tax system becomes a checksum for itself.
Now, this may all just be status quo rationalization, but my point is, "double taxation" is just a shibboleth and not itself a reason to radically reform the tax code.
Agreed. Its infinite taxation, as the money goes around and around in a circle. It's all green, and all been taxed many times.
As the philosopher said, taxation is the art of plucking a goose so as to get the most feathers with the least squawking.
As the philosopher said, taxation is the art of plucking a goose so as to get the most feathers with the least squawking.
I just want healthcare. We pay more than enough taxes to get healthcare. Why do I not get healthcare for the taxes I pay? The government is busy trying to use my wealth to mine asteroids or shoot brown people or some stupid shit. I appear to get approximately zero benefit from the taxes I pay. Unlike, apparently, many americans, I am far more worried about blood pressure than I am about aggressive brown people and our failure to colonize mars.
They should have AMT for companies like they do for people. After all, corporations are people too!
The mechanics would be different, of course, as e.g. the whole point of AMT is to disallow some deductions, and many businesses would be bankrupt without (totally reasonable) deductions.
The problem in collecting these taxes is not the ability to do so, it is rather the will to do so.
The mechanics would be different, of course, as e.g. the whole point of AMT is to disallow some deductions, and many businesses would be bankrupt without (totally reasonable) deductions.
The problem in collecting these taxes is not the ability to do so, it is rather the will to do so.
"But corporations should be required to publicly account for the gap between the income they report to the IRS and the income that they report to their shareholders."
I suspect this is a far greater issue than companies who pay $0; his proposal would apply to ALL with shareholders, and I (as a layperson) believe most companies have some gap there.
I suspect this is a far greater issue than companies who pay $0; his proposal would apply to ALL with shareholders, and I (as a layperson) believe most companies have some gap there.
https://en.wikipedia.org/wiki/Gregory_v._Helvering - no obligation to maximize taxes - reinvest profits in company growth is the simplest way to avoid taxes, and arguably better for the economy
This is a US specific comment but I was reading the David Shor article yesterday and he pointed out that the (vast) majority of funding (for democrats?) comes from individual (wealthy) donors - ie not the corporations who tend not to own the politicians so much anymore.
"Good people do not need laws to tell them to act responsibly, while bad people will find a way around the laws." - Plato
"Life is nothing but a competition to be the criminal rather than the victim." - Bertrand Russell
Honestly those are the only nuggets of wisdom I can think about when I look at all the tax havens. The movie The Laundromat was also quite instructive.
The end of the cold war moved the ideological cursor "organized economy versus libertarian economy".
Governments are struggling hard to save their model so they can function properly. I really have a hard time seeing how this won't create problems, this is globalization at work. Not sure if states/borders will disappear.
"Life is nothing but a competition to be the criminal rather than the victim." - Bertrand Russell
Honestly those are the only nuggets of wisdom I can think about when I look at all the tax havens. The movie The Laundromat was also quite instructive.
The end of the cold war moved the ideological cursor "organized economy versus libertarian economy".
Governments are struggling hard to save their model so they can function properly. I really have a hard time seeing how this won't create problems, this is globalization at work. Not sure if states/borders will disappear.
Isn't that profit for shareholders taxed as cap gains?
Edit: I mean, if I own a share I pay taxes when I sell it and make money
Edit: I mean, if I own a share I pay taxes when I sell it and make money
Governments should pay the necessary salaries to hire some top tax-avoidance experts to help them close loopholes.
[deleted]
Most of the ways companies avoid taxes now used to be illegal.
The public also needs to learn about taxation escalation as a heist pulled off in the fog of the world wars that is ever increasing in burden. This as a counter to the increasingly corrupt assertion that tax is a moral obligation.
tldr; "If corporations are, in effect, U.S. citizens, surely their country is a stakeholder to whom they owe an obligation.... Based on public reporting, we calculate that in 2019, nearly 20 percent of large corporations that reported profits to shareholders of $100 million (or more) paid zero (or even negative) federal income taxes....
"there is no requirement for corporations to make public their taxable profits, or the ways in which they are avoided.... the IRS ... has since 2004 required the annual filing of Schedule M-3 .... this road map is available to the IRS alone, not to the public, who can hold companies accountable, nor to policymakers ...."
"there is no requirement for corporations to make public their taxable profits, or the ways in which they are avoided.... the IRS ... has since 2004 required the annual filing of Schedule M-3 .... this road map is available to the IRS alone, not to the public, who can hold companies accountable, nor to policymakers ...."
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I hate to break it to the author but no, you do not have that "right".
but...job creators...and trickle down...and bootstraps
good for them. you have absolutely no right to the labor of another and fuck you for thinking you do.
Can't wait to see how http://n-gate.com summarizes this one.
Let us make Companies comply with https://en.wikipedia.org/wiki/Freedom_of_Information_Act_(Un...
Not possible since TRUTH is suppressed in the name of trust/loyalty/compliance/privacy/conspiracy/discipline/patriotism/sedition/job/national security/intellectual property https://yts.mx/movies/citizenfour-2014
Taxation is theft, avoiding it is heroic.
i am not in the US but "many" countries around the world use something called "MAT" or minimum alternate tax, wherein if you calculate taxes which is like zero or even a percentage lower than the limits mentioned, you are forced to pay MAT instead.
forced as in, you can claim a loss and all but you still pay MAT taxes which usually are around 18%.
forced as in, you can claim a loss and all but you still pay MAT taxes which usually are around 18%.
If you claim a loss what are they taxing, revenue?
yes. the idea of MAT is like you can claim all the "expenses" and the result would be a loss but when MAT is taken up, you get only "certain" expenses meaning you cant just pull expenses out of thin air. you have to prepare an altogether different p&L with only specified expenses and that always results in a profit and you pay taxes on that figure.
its like saying to a kid who doesnt want to go to school because his knee is bruised. cry all you want, you will go to school.
its like saying to a kid who doesnt want to go to school because his knee is bruised. cry all you want, you will go to school.
The problem isn't "who's not paying taxes", the problem is "taxes". In the USA we pay extraordinary taxes for extraordinarily small returns. If the US government was on charity navigator, it would have a no-star rating.
This money is best left to the distributed wisdom of thousands of companies in millions of individuals who will look after every dollar and see to it's use rather than waste.
When I see headlines like this I'm not upset by them I'm sort of thankful they are not fueling reckless spending.
This money is best left to the distributed wisdom of thousands of companies in millions of individuals who will look after every dollar and see to it's use rather than waste.
When I see headlines like this I'm not upset by them I'm sort of thankful they are not fueling reckless spending.
Oh the internet is not without irony. On second page of HN today:
https://tunnelingonline.com/why-tunnels-in-the-us-cost-much-...
https://tunnelingonline.com/why-tunnels-in-the-us-cost-much-...
Imagine a world where instead of inventing new interpretations of the concept of 'rights', we respected private property rights.
"Lets not argue over the interpretation of the concept of rights, lets just accept my interpretation". Why didn't anybody think of it earlier!
Would you agree that a right to property would precede a right to interfere with another's property?
Would a right for the public to know the specific steps an entity uses to retain property go even further afield from the original premise?
Hopefully this clarifies my intent.
https://en.wikipedia.org/wiki/Negative_and_positive_rights#:....
Stacking new positive rights upon each other seems like an inferior solution as compared to the original, simple solution of respecting private property.
Where does the expansion of positive rights end?
Would a right for the public to know the specific steps an entity uses to retain property go even further afield from the original premise?
Hopefully this clarifies my intent.
https://en.wikipedia.org/wiki/Negative_and_positive_rights#:....
Stacking new positive rights upon each other seems like an inferior solution as compared to the original, simple solution of respecting private property.
Where does the expansion of positive rights end?
My intuition is that if I personally came up with a cute "gotcha" like this where I wound up paying zero in taxes because of some loophole, I would go to prison. Why isn't the same standard applied to rich companies?
"You're technically owned by an Irish company you invented to avoid taxes? Cool. The c-suite plus your accountants are going to prison for the next five years and we're seizing the X billion you actually owe plus a punitive fine."
These tax shenanigans would stop if laws were enforced.