Netflix Made Record Profits in 2020, Paid a Tax Rate of Less Than 1 Percent(itep.org)
itep.org
Netflix Made Record Profits in 2020, Paid a Tax Rate of Less Than 1 Percent
https://itep.org/pandemic-profits-netflix-made-record-profits-in-2020-paid-a-tax-rate-of-less-than-1-percent/
402 comments
> A lot of growing companies have US taxes that are quite low because they lose money for a long time while they're investing in growth. When they finally become profitable, they're allowed to roll forward those losses (within limits) to offset their profits.
Human beings cannot do the equivalent. Spend the entirety of your 20s making very little money because you are investing in growth and then make $800k as an orthopedic surgeon at age 30, and you’ll pay the top marginal rate. You don’t get to go back and use all the unused 24% bracket income from prior years. You also can’t deduct the interest on the loans you took to finance that growth.
Human beings cannot do the equivalent. Spend the entirety of your 20s making very little money because you are investing in growth and then make $800k as an orthopedic surgeon at age 30, and you’ll pay the top marginal rate. You don’t get to go back and use all the unused 24% bracket income from prior years. You also can’t deduct the interest on the loans you took to finance that growth.
> Human beings cannot do the equivalent.
They can to some extent, actually... See IRS publication Publication 536, "Net Operating Losses (NOLs) for Individuals, Estates, and Trusts".
> Spend the entirety of your 20s making very little money because you are investing in growth
To actually do the equivalent you would need to spend your 20s _losing_ money. And if you do (in the NOL sense per publication 536) then you can in fact keep rolling the losses forward to offset future income until the losses are exhausted.
Now one issue is that things like medical school tuition are not considered "losses" for individuals. So in that sense there is a definite asymmetry here.
But businesses can't "go back and use all the unused 24% bracket", not least because US federal corporate income tax does not have brackets. What they can do is that _if_ they have negative taxable income (i.e. revenues - deductible expenses is negative) then they can roll the "unused" part of the deduction into future years to offset future revenues, which is exactly how NOL works for individuals. The primary difference between businesses and individuals here is in what counts as "deductible expense". The business definition is much wider in general, not just for purposes of NOL.
> You also can’t deduct the interest on the loans you took to finance that growth.
Well, you can until you start making that $800k/year. And only up to a limit, etc. Just like so many other things in the personal tax code, there's an income phaseout and a cap for student loan interest deductions...
They can to some extent, actually... See IRS publication Publication 536, "Net Operating Losses (NOLs) for Individuals, Estates, and Trusts".
> Spend the entirety of your 20s making very little money because you are investing in growth
To actually do the equivalent you would need to spend your 20s _losing_ money. And if you do (in the NOL sense per publication 536) then you can in fact keep rolling the losses forward to offset future income until the losses are exhausted.
Now one issue is that things like medical school tuition are not considered "losses" for individuals. So in that sense there is a definite asymmetry here.
But businesses can't "go back and use all the unused 24% bracket", not least because US federal corporate income tax does not have brackets. What they can do is that _if_ they have negative taxable income (i.e. revenues - deductible expenses is negative) then they can roll the "unused" part of the deduction into future years to offset future revenues, which is exactly how NOL works for individuals. The primary difference between businesses and individuals here is in what counts as "deductible expense". The business definition is much wider in general, not just for purposes of NOL.
> You also can’t deduct the interest on the loans you took to finance that growth.
Well, you can until you start making that $800k/year. And only up to a limit, etc. Just like so many other things in the personal tax code, there's an income phaseout and a cap for student loan interest deductions...
If tuition is not considered a loss, surely every other expense would be considered a loss then. A medical school student isn't working a part time job to pay their rent and feed themselves; that's all out of pocket and a pure loss.
The set of things that are considered "losses" (i.e. deductible expenses) for personal tax filings in the US is pretty limited. State/local taxes (now up to a cap). Mortgage interest payments (also with some cap). Mortgage points, mortgage insurance premiums. Medical expenses exceeding some percentage of AGI. Investment interest expenses. Capital losses. Gifts to charity. Casualty/theft losses, subject to a bunch of constraints. Gambling losses (but can't exceed gambling winnings). Some other things I can't recall off the top of my head.
As I said above, corporation have a much larger set of things that are considered deductible against revenue to determine taxable income. Starting with the fact that corporations are generally taxed on "profit" while people are generally taxed on "income", which is closer to "revenue" in general.
As I said above, corporation have a much larger set of things that are considered deductible against revenue to determine taxable income. Starting with the fact that corporations are generally taxed on "profit" while people are generally taxed on "income", which is closer to "revenue" in general.
> Human beings cannot do the equivalent. Spend the entirety of your 20s making very little money because you are investing in growth
That’s not really an equivalent, though.
These companies aren’t simply giving up opportunity cost. They’re spending real money on real R&D expenditures. In software, that R&D expenditure is largely wages for developers like us.
The tax code gives companies benefits for spending this R&D money because we want to encourage them to make the R&D investment even if it comes at a loss (to the company, the employees still gain wages) for several years. We need to think long and hard about changing incentive structures in ways that reduce incentives for companies to invest in R&D and spend money on paying people.
That’s not really an equivalent, though.
These companies aren’t simply giving up opportunity cost. They’re spending real money on real R&D expenditures. In software, that R&D expenditure is largely wages for developers like us.
The tax code gives companies benefits for spending this R&D money because we want to encourage them to make the R&D investment even if it comes at a loss (to the company, the employees still gain wages) for several years. We need to think long and hard about changing incentive structures in ways that reduce incentives for companies to invest in R&D and spend money on paying people.
That doctor is spending real money on attending medical school, which pays professors. It is an equivalent.
Yes, the Doctor likely makes to much to even deduct the interest on student loans from their taxes where a company could in effect deduct both the interest and principal from those student loans as an expense.
Deducting every cost associated with a job would be a huge tax benefit that simply doesn’t apply to people. It’s one of the ways that referring to tax burdens based on income as defined by the tax code is misleading.
Deducting every cost associated with a job would be a huge tax benefit that simply doesn’t apply to people. It’s one of the ways that referring to tax burdens based on income as defined by the tax code is misleading.
First of all you can deduct interest but the standard tax deduction already given usually accommodates a lot of that deduction. Companies can’t deduct principal payments either. There is a crazy amount of people including this article that have no concept of what taxes are. Taxes are not on gross income they are on profit. Calculating taxes on gross income, as this article says, would be outrageous. Take this articles reference that a deduction on stock paid to employees should not be given. The employees who receive that stock have to pay taxes on that money so if it was taxed it would then be essentially double taxed. Also this article states that accelerated depreciation does not encourage investment, and that is just bollocks. Anyone who works in finance would know that accelerated depreciation allows better cash flow on your investment and can make a project feasible or not feasible.
> Companies can’t deduct principal payments either.
The initial cost would be tax deductible and could rollover across multiple years, therefore in effect the principle is deductible even if the specific payments aren’t. The way the deduction actually works is actually better than simply deducting principle payments from the loan due to time value of money.
The issue with accelerated depreciation is it’s a subsidy. The government is paying interest on it’s debt so companies can defer tax payments, that’s directly costing actual taxpayers money. Further, communism has already been tried and it’s a bad idea, we really don’t want central planning as part of the tax code because it’s a bad idea. Subsides for industry X over industry Y has all the same issues.
The initial cost would be tax deductible and could rollover across multiple years, therefore in effect the principle is deductible even if the specific payments aren’t. The way the deduction actually works is actually better than simply deducting principle payments from the loan due to time value of money.
The issue with accelerated depreciation is it’s a subsidy. The government is paying interest on it’s debt so companies can defer tax payments, that’s directly costing actual taxpayers money. Further, communism has already been tried and it’s a bad idea, we really don’t want central planning as part of the tax code because it’s a bad idea. Subsides for industry X over industry Y has all the same issues.
Principle is not at all “in effect deductible” in the slightest. If you spent money on expenses that is deductible whether you borrowed that money or not and has absolutely nothing to do with principal. On the second point accelerated depreciation is NOT a subsidy in the slightest either and not at all related to government debt. Depreciation is already a delayed acknowledgment of expenses. Without depreciation someone would deduct the entire amount of a cost immediately and pay much lower taxes. Accelerated depreciation costs taxpayers nothing. The government is not funding anything, the government is collecting less tax up front but more over time. Whether the government has liabilities is irrelevant. I don’t understand the point you are making on communism or how that relates at all unless you assume all tax collected is communist.
> Depreciation is already a delayed acknowledgment of expenses. Without depreciation someone would deduct the entire amount of a cost immediately and pay much lower taxes.
No, if a company buys say land they can’t deduct anything because land retains value until the point of sale. The same is true buying stock or other items that maintain value over time. The general rule is something is a deductible expense at the point of destruction or sale not purchase.
Depreciation is therefore an acceleration of that process. Companies for example used printing presses for a hundred years meanwhile during much of that time the actual value increased above it’s purchase price due to inflation. It’s surprisingly common for companies to sell something for a profit that they have already fully deprecated.
> I don’t understand the point you are making on communism
All specific tax exemptions for business are communist in nature because they replace market forces with government choices. It’s very obvious in the case of farm subsidies for example, but it’s a generalizable rule that government subsidies reduce market efficiency by incentivizing inefficiency.
No, if a company buys say land they can’t deduct anything because land retains value until the point of sale. The same is true buying stock or other items that maintain value over time. The general rule is something is a deductible expense at the point of destruction or sale not purchase.
Depreciation is therefore an acceleration of that process. Companies for example used printing presses for a hundred years meanwhile during much of that time the actual value increased above it’s purchase price due to inflation. It’s surprisingly common for companies to sell something for a profit that they have already fully deprecated.
> I don’t understand the point you are making on communism
All specific tax exemptions for business are communist in nature because they replace market forces with government choices. It’s very obvious in the case of farm subsidies for example, but it’s a generalizable rule that government subsidies reduce market efficiency by incentivizing inefficiency.
Your comment again makes no sense. Land is NOT depreciable and neither is stock. Depreciation is not an exemption of taxes. You must realize that selling something that has been depreciated results in you selling it for a profit and thus is taxable. Depreciation reduces the cost basis. I’m not sure if at this point you are trolling by your comments always saying the opposite of the actual tax laws.
I never said land deprecated try reading my comment again: “if a company buys say land they can’t deduct anything” that’s an example of default behavior. Try rereading what I actually said where again you can deduct the purchase price at the time of sale not purchase.
As to depreciation being an exception that’s what it means when you change the baseline rules of a system with new rules. By default you take the deduction on sale, depreciation means you can take deduction early. It’s literally called “Modified Accelerated Cost Recovery System (MACRS)” the entire point of it is to speed things up rather than as you suggest slow anything down. Thus removing depreciation from the tax code and companies would need to wait years or even decades or deduct these costs from their profits. Thus as I said before it’s a hand out which happens to be built into the tax code.
As to depreciation being an exception that’s what it means when you change the baseline rules of a system with new rules. By default you take the deduction on sale, depreciation means you can take deduction early. It’s literally called “Modified Accelerated Cost Recovery System (MACRS)” the entire point of it is to speed things up rather than as you suggest slow anything down. Thus removing depreciation from the tax code and companies would need to wait years or even decades or deduct these costs from their profits. Thus as I said before it’s a hand out which happens to be built into the tax code.
It’s not a hand out whatsoever. Firstly you are making an assumption that everything that is depreciated can be sold when the majority of depreciated items are not sold, ever. They get used up over time, kind of like... depreciation. That is why that capitalized items are capitalized, not land, which again _does not get depreciated_ so I don’t know why you would use that as your comparison for normal deduction. You are looking at this absolutely backwards. Let’s say depreciation was eliminated completely in your perfect world, because you say it’s a hand out right? Now you buy something for $100,000, say construction of a building, that building falls apart and breaks down after 39 years, it was not sold. Now you have nothing to sell and never got any deduction. Now who wants to spend their money on something that is never recognized as a cost? Depreciation is there to normalize the recognition of that building falling apart. Of course all types of items depreciate at different time periods which are all defined by law. Unless you are in favor of there being no deductions for taxes of all costs, meaning you tax gross revenue, there is no reason not to depreciate. Accelerated depreciation means you pay less tax and have more money at the start of a project when it is needed and pay more to the government later when it has stabilized. Again depreciation reduces cost basis, so even if you sold it, you pay additional taxes on that when you sell it, offsetting the benefit of your depreciation. Now where is the hand out in that?
Also, if the doctor goes into private practice, they will live with significant loses until the practice is established:
Expenses such as:
1. Rent 2. Marketing 3. Equipment 4. Student loans 5. Malpractice insurance 6. Billing service, unless they want to do this themselves 7. Staff
All these expenses can be written off until the business is established and profitable.
Expenses such as:
1. Rent 2. Marketing 3. Equipment 4. Student loans 5. Malpractice insurance 6. Billing service, unless they want to do this themselves 7. Staff
All these expenses can be written off until the business is established and profitable.
Can you deduct the interest paid on student loans in subsequent years? I think this is possible in some countries (iirc Belgium always deducting certain interest payments for personal taxes)
There’s a low cap ($2500) on the amount of interest that can be deducted and if the tax payers income gets too high ($85k for a single filer) you can’t deduct anything.
Not to mention that unless you're taking losses from other investments or doing fairly complicated things with your income, the standard deduction is likely high enough that you don't benefit at all from student loan interest deductions. So other people without interest get the same deduction as you anyway.
That’s the one bright spot, student loan interest is above the line (i.e. can be taken in addition to the std deduction). But the other limitation are very low.
The medical school is the equivalent, which likely deducts the salary of the professors (if it’s private). Most private schools also pay no taxes.
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> Human beings cannot do the equivalent
Some can. Those with assets to depreciate, for example.
Frankly, the whole corporate tax debate seems manufactured to obscure the top personal tax bracket being about $500,000. Raise corporate taxes and you tax everyone with shares. That hits the rich, sure [1], but it also hits every pension fund and middle class saver. And if the corporate tax rate goes up instead of a $1mm, $2mm, $4mm and $8mm tax bracket being created, everyone at the top comes out ahead.
[1] Screw with the tax code for companies, legal fictions, enough and they’ll magically start moving. Then it’s a game of whack-a-mole. People are much less likely to change their way of life in response to tax codes; this is well documented.
Some can. Those with assets to depreciate, for example.
Frankly, the whole corporate tax debate seems manufactured to obscure the top personal tax bracket being about $500,000. Raise corporate taxes and you tax everyone with shares. That hits the rich, sure [1], but it also hits every pension fund and middle class saver. And if the corporate tax rate goes up instead of a $1mm, $2mm, $4mm and $8mm tax bracket being created, everyone at the top comes out ahead.
[1] Screw with the tax code for companies, legal fictions, enough and they’ll magically start moving. Then it’s a game of whack-a-mole. People are much less likely to change their way of life in response to tax codes; this is well documented.
the ultra rich are paid in stocks, not salary. Raising the tax brackets wouldn't do anything
if you receive stock as compensation, it is taxed as income. if the stock wildly appreciates after that event (and is later sold), it is capital gains.
Stocks paid to employees are taxed at the same exact rate as cash salary income.
There is so much politically motivated misinformation going around on social media - it's really concerning.
There is so much politically motivated misinformation going around on social media - it's really concerning.
So, new brackets or not, tax capital gains, gifts, and inheritances as regular income to the recipient.
Also, apply taxes (and corresponding benefit eligibility) equivalent to payroll/self-employment taxes to that income.
At the same time, allow corporations to expense disbursements: you are taxing individual income fairly, corporate tax just is a tool to prevent indefinite tax-free deferral of income.
Also, apply taxes (and corresponding benefit eligibility) equivalent to payroll/self-employment taxes to that income.
At the same time, allow corporations to expense disbursements: you are taxing individual income fairly, corporate tax just is a tool to prevent indefinite tax-free deferral of income.
it doesn't really make sense to tax long-term capital gains as income, especially under a progressive system. if I hold an asset for ten years and then sell it, a significant part of the nominal gain will be due to inflation (though this is also a problem with the existing cap gain rules). but conceptually, an LTCG is not a sudden windfall, and should not be taxed as such. it is the result of one or more years' appreciation that happens to be realized all at once.
> it doesn't really make sense to tax long-term capital gains as income, especially under a progressive system.
Yes it does.
OTOH, it doesn't make sense to not have a means of spreading out irregular income by recognizing it for tax purposes over several years in advance of realization if it can be anticipated, or deferring it over several years otherwise, in a progressive tax system. Which is why you should provide that, too (it applies to some subset of LTCG, especially that earned by the middle class, if taxing LTCG as income, but it would apply to lots of non-capital income, too—the income pattern for say, a novelist eho sends several years writing each book thar is a hit isn’t flat or steadily growing year-to-year, but spiky, and ir should be possible to smooth it for tax purposes.)
You don’t have to structurally preference capital income to deal with the fact that, as is true for other income, some capital income is the result of processes that the taxpayer can’t expect the same realized gain from year-to-year.
Yes it does.
OTOH, it doesn't make sense to not have a means of spreading out irregular income by recognizing it for tax purposes over several years in advance of realization if it can be anticipated, or deferring it over several years otherwise, in a progressive tax system. Which is why you should provide that, too (it applies to some subset of LTCG, especially that earned by the middle class, if taxing LTCG as income, but it would apply to lots of non-capital income, too—the income pattern for say, a novelist eho sends several years writing each book thar is a hit isn’t flat or steadily growing year-to-year, but spiky, and ir should be possible to smooth it for tax purposes.)
You don’t have to structurally preference capital income to deal with the fact that, as is true for other income, some capital income is the result of processes that the taxpayer can’t expect the same realized gain from year-to-year.
I posted elsewhere that it would make sense to allow individuals to apply some smoothing to their yearly income to reduce the impact that progressive brackets have on highly variable incomes.
so let me rephrase my statement about capital gains. it doesn't make sense to treat LTCG as income unless we first make significant changes to the way we assess income tax in the first place. obviously this would be a lot more complicated. imo the existing cap gain rules is a somewhat reasonable solution for a tax system that mostly looks at each year in isolation. the 15% rate is really not much of a concession to a retirement saver who has held a lot of those assets for decades and has experienced meaningful inflation. but the whole system leaves a lot to be desired.
so let me rephrase my statement about capital gains. it doesn't make sense to treat LTCG as income unless we first make significant changes to the way we assess income tax in the first place. obviously this would be a lot more complicated. imo the existing cap gain rules is a somewhat reasonable solution for a tax system that mostly looks at each year in isolation. the 15% rate is really not much of a concession to a retirement saver who has held a lot of those assets for decades and has experienced meaningful inflation. but the whole system leaves a lot to be desired.
> so let me rephrase my statement about capital gains. it doesn't make sense to treat LTCG as income unless we first make significant changes to the way we assess income tax in the first place.
I disagree. LTCG as income without smoothing makes exactly as much sense as taxing regular income without smoothing does.
Yes, there’s a strong case for smoothing. There’s, independently, a strong case for not structurally favoring capital income and not structurally disfavoring labor income. While it is desirable to address both of those (and doing so simultaneously would be a good idea since there is no conflict), there is no dependency between them.
(Likewise, indexing capital asset basis values for inflation is a third thing that there is a good case for, but neither of the other two things depends on it to be a good idea; I’d oppose furthering the favoring of capital by doing it without first taxing capital income as income, though.)
> obviously this would be a lot more complicated.
Smoothing doesn’t have to add significant complication. The essence can boil down to:
(1) a taxpayer may freely recognize any amount of as-yet-unrealized income for tax purposes in any tax year and pay appropriate income tax on it. Any amount of the unused balance may be freely applied to reduce taxable income in any future year to no less than $0 (with one exception, see below.) Unused balances are indexed for inflation.
(2) a taxpayer may defer to the following year recognition of any amount of income over the greater of the top of the lowest marginal rate bracket or prior year taxable income (after applying any deferrals or advance recognition), with thr caveat that no more than 90% of any previously-deferred income may be deferred again.
(3) In final taxes after death, all remaining advance/deferred amounts are applied, with negative taxable income resulting in a refund calculated by applying the minimum marginal rate to the balance.
I disagree. LTCG as income without smoothing makes exactly as much sense as taxing regular income without smoothing does.
Yes, there’s a strong case for smoothing. There’s, independently, a strong case for not structurally favoring capital income and not structurally disfavoring labor income. While it is desirable to address both of those (and doing so simultaneously would be a good idea since there is no conflict), there is no dependency between them.
(Likewise, indexing capital asset basis values for inflation is a third thing that there is a good case for, but neither of the other two things depends on it to be a good idea; I’d oppose furthering the favoring of capital by doing it without first taxing capital income as income, though.)
> obviously this would be a lot more complicated.
Smoothing doesn’t have to add significant complication. The essence can boil down to:
(1) a taxpayer may freely recognize any amount of as-yet-unrealized income for tax purposes in any tax year and pay appropriate income tax on it. Any amount of the unused balance may be freely applied to reduce taxable income in any future year to no less than $0 (with one exception, see below.) Unused balances are indexed for inflation.
(2) a taxpayer may defer to the following year recognition of any amount of income over the greater of the top of the lowest marginal rate bracket or prior year taxable income (after applying any deferrals or advance recognition), with thr caveat that no more than 90% of any previously-deferred income may be deferred again.
(3) In final taxes after death, all remaining advance/deferred amounts are applied, with negative taxable income resulting in a refund calculated by applying the minimum marginal rate to the balance.
> I disagree. LTCG as income without smoothing makes exactly as much sense as taxing regular income without smoothing does.
> Yes, there’s a strong case for smoothing. There’s, independently, a strong case for not structurally favoring capital income and not structurally disfavoring labor income. While it is desirable to address both of those (and doing so simultaneously would be a good idea since there is no conflict), there is no dependency between them.
in theory yes, in practice no. the current system treats the common case where wages slowly increase pretty well. people with highly variable income get screwed, but it's much more common to get a yearly 2-5% salary bump.
in contrast, assets are much more likely to be sold in chunks. I haven't realized any capital gains over $100 in the last five years. but soon I will have to liquidate a large portion of my holdings for a down payment on a house. having those gains taxed at my highest marginal rate would be far worse than the fact that I can't smooth out my yearly raises. it would almost double my taxable income for the year.
aside from that, I agree with what you wrote. I would certainly vote for your solution.
> Yes, there’s a strong case for smoothing. There’s, independently, a strong case for not structurally favoring capital income and not structurally disfavoring labor income. While it is desirable to address both of those (and doing so simultaneously would be a good idea since there is no conflict), there is no dependency between them.
in theory yes, in practice no. the current system treats the common case where wages slowly increase pretty well. people with highly variable income get screwed, but it's much more common to get a yearly 2-5% salary bump.
in contrast, assets are much more likely to be sold in chunks. I haven't realized any capital gains over $100 in the last five years. but soon I will have to liquidate a large portion of my holdings for a down payment on a house. having those gains taxed at my highest marginal rate would be far worse than the fact that I can't smooth out my yearly raises. it would almost double my taxable income for the year.
aside from that, I agree with what you wrote. I would certainly vote for your solution.
The thing that would make the most sense to me for smoothing out irregular income is to have progressive taxation with the bracket based on cumulative lifetime earnings so far, not on current-year income.
I should also note that even our current tax code admits that the setup with marginal taxes we have is kind of insane. See "Schedule J: Income Averaging for Farmers and Fishermen" which allows those occupations to do exactly what you suggest: average income over multiple years for tax purposes (can average with the previous 3 years). Why only farmers and fishermen? And why do you not get to do the averaging for AMT purposes? That's back to the "insane" part....
I should also note that even our current tax code admits that the setup with marginal taxes we have is kind of insane. See "Schedule J: Income Averaging for Farmers and Fishermen" which allows those occupations to do exactly what you suggest: average income over multiple years for tax purposes (can average with the previous 3 years). Why only farmers and fishermen? And why do you not get to do the averaging for AMT purposes? That's back to the "insane" part....
it doesn't really make sense to tax long-term capital gains as income, especially under a progressive system.
LTCG is simply any capital asset held for longer than 365 days. It makes perfect sense to tax gains on assets held for a year or two.
Moreover, capital assets include real estate and other items that appreciate faster than inflation. It absolutely makes sense to tax those assets, since those assets are generally not held for productive use. (See, for example, all the empty storefronts in NYC. Those properties are held with an eye toward making money on the eventual sale of the building without regard to ongoing income; the finances work out as long as incoming cash flow from rents in other units covers debt service payments.)
Indeed, not taxing long-term capital gains would be the biggest subsidy to the wealthy that the world has ever seen. It would encourage the wealthy to acquire assets en masse, hold them without use for long periods, and then sell them at appreciated and untaxed values despite having done nothing to earn the appreciated value.
LTCG is simply any capital asset held for longer than 365 days. It makes perfect sense to tax gains on assets held for a year or two.
Moreover, capital assets include real estate and other items that appreciate faster than inflation. It absolutely makes sense to tax those assets, since those assets are generally not held for productive use. (See, for example, all the empty storefronts in NYC. Those properties are held with an eye toward making money on the eventual sale of the building without regard to ongoing income; the finances work out as long as incoming cash flow from rents in other units covers debt service payments.)
Indeed, not taxing long-term capital gains would be the biggest subsidy to the wealthy that the world has ever seen. It would encourage the wealthy to acquire assets en masse, hold them without use for long periods, and then sell them at appreciated and untaxed values despite having done nothing to earn the appreciated value.
A flat reduced rate after a year isn’t much of a fix to that problem. Given that we have CPI and use it in lots of other government programs it’d be easy enough to just adjust the basis for inflation (and while we are at it we can get rid of the step up basis at death.)
my preferred solution would be to (after adjusting for inflation) calculate the annualized gain over the years the asset was held. then go back and tax it as if it were additional income in each of those years, using the historical brackets, adjusting (again?) for inflation.
unfortunately I don't write tax law. maybe I could get the tax prep companies to lobby on my behalf.
unfortunately I don't write tax law. maybe I could get the tax prep companies to lobby on my behalf.
I'd be very curious to see HN's perspective on Biden's plan to scrap the LTCG tax (aka tax it the same as income.) On the one hand, it would be a fairly clean way to tax the wealthy (basically nobody poor has LTCGs.) On the other hand, it disincentivizes long term investing. It'd also cost a lot of people here a lot of money, so I imagine that would make it at least mildly unpopular.
I can’t speak for HN as a whole, but to me I can see an argument for dividends to be taxed favorably but why all capital gains? If I buy a collectible stamp and later sell it for a big gain, there’s no double taxation argument. Adjust the basis for inflation, sure, but that’s about it.
That would also incentivize companies to pay dividends, which I think is good for various reasons.
That would also incentivize companies to pay dividends, which I think is good for various reasons.
> I'd be very curious to see HN's perspective on Biden's plan to scrap the LTCG tax (aka tax it the same as income.)
That’s not Biden’s plan. Biden’s plan is to limit the tax preference for capital gains by setting the top rate for LTCG equal to the top rate he has proposed for income taxes, with the top LTCG rate kicking in at $1 million+, while the same rate for normal income would at ~$400K.
> On the other hand, it disincentivizes long term investing.
Even if we assume an actual elimination of the preference, it would only “disincentivize” long teem investing to the same extent that taxes on normal income disincentivize income-producing activities generally, and still less than the even higher taxes on labor income (thanks to payroll/self-employment taxes) discourage labor and its employment.
That’s not Biden’s plan. Biden’s plan is to limit the tax preference for capital gains by setting the top rate for LTCG equal to the top rate he has proposed for income taxes, with the top LTCG rate kicking in at $1 million+, while the same rate for normal income would at ~$400K.
> On the other hand, it disincentivizes long term investing.
Even if we assume an actual elimination of the preference, it would only “disincentivize” long teem investing to the same extent that taxes on normal income disincentivize income-producing activities generally, and still less than the even higher taxes on labor income (thanks to payroll/self-employment taxes) discourage labor and its employment.
Thank you for the clarification! Somehow I didn't see that detail in an article I read about Biden's plans.
And yes, I generally agree with your last paragraph. But that said, it is worth noting that taxes on normal income do discourage people from making money. (I'm not saying this to support a reduction in income tax, just as an interesting note.) So I think it is worthwhile to consider incentives. For example, income at x%, short term cap gains at x+10% and long term cap gains at x-5%.
Of course, if you really want to go all the way regarding fairness and incentives, you'll tend towards entirely different systems (Georgism, for example)
And yes, I generally agree with your last paragraph. But that said, it is worth noting that taxes on normal income do discourage people from making money. (I'm not saying this to support a reduction in income tax, just as an interesting note.) So I think it is worthwhile to consider incentives. For example, income at x%, short term cap gains at x+10% and long term cap gains at x-5%.
Of course, if you really want to go all the way regarding fairness and incentives, you'll tend towards entirely different systems (Georgism, for example)
If you spent your 20s making money, little or no, you didn't have losses.
If you spent your 20s conducting losing trades in the stock market, you accumulate capital gains losses that you can only apply $3,000 per year against your regular income. If at age 30 you made $800,000 in capital gains you are able to apply all those unused losses against those gains.
So "human beings" aren't much different.
If you spent your 20s conducting losing trades in the stock market, you accumulate capital gains losses that you can only apply $3,000 per year against your regular income. If at age 30 you made $800,000 in capital gains you are able to apply all those unused losses against those gains.
So "human beings" aren't much different.
A difference is that just about everything a business spends money on is a business expense, while many of the things people spend money on aren’t treated like business expenses. Travel is an example where buying exactly the same thing can have very different tax consequences depending on whether it’s considered for business or not.
To some extent this is made up for with the standard deduction and various other deductions, but you can’t carry it forward if you made less than the standard deduction, even if you actually are spending more than you make.
The idea of carrying forward losses is unintuitive to most people because we mostly don’t get to do that.
To some extent this is made up for with the standard deduction and various other deductions, but you can’t carry it forward if you made less than the standard deduction, even if you actually are spending more than you make.
The idea of carrying forward losses is unintuitive to most people because we mostly don’t get to do that.
Personal expenses are just that, personal. While some have a limited effect on your ability to earn a living, most are just consumption.
Business expenses are almost always only the costs of actually generating revenues. Thats why there are strict limits on travel & entertainment deductions. Of course there are always exceptions, does the company need that private jet? But their accountants have to justify private jets, etc to ensure the company doesn't face tax fraud charges.
Business expenses are almost always only the costs of actually generating revenues. Thats why there are strict limits on travel & entertainment deductions. Of course there are always exceptions, does the company need that private jet? But their accountants have to justify private jets, etc to ensure the company doesn't face tax fraud charges.
The purpose is to equalize the amount of tax that companies pay. Consider the following example: Assuming a tax rate of 30%, Company A has net income (profit) of $100 in year 1 and $100 in year two pays $60 in tax on a total profit of $200. Company B has a net loss of $100 in year 1 and net income of $300 ni year 2 has a total profit still of $200. Assuming loss carryforwards are allowed, Company B pays $60 in tax still. Without loss carryforwards, Company B ends up paying $90 in tax on the same amount of profit.
It leads to bad headlines when companies claim a bunch of loss carryforwards, but it actually is a fair practice. The other thing to keep in mind is that losses are only paid out in refunds when you actually pay tax. Company B does not earn $30 back from the government for losing money in year 1, it instead gets money back once it starts making profit.
Note that at least in Canada, these rules apply to all types of income, not just business income, although losses on employment income basically never happen.
It leads to bad headlines when companies claim a bunch of loss carryforwards, but it actually is a fair practice. The other thing to keep in mind is that losses are only paid out in refunds when you actually pay tax. Company B does not earn $30 back from the government for losing money in year 1, it instead gets money back once it starts making profit.
Note that at least in Canada, these rules apply to all types of income, not just business income, although losses on employment income basically never happen.
I understand why the rule exists. What I don’t understand is why a similar rule doesn’t exist for people.
Here’s another example of where it could help. Take two men, one earns $75k/year (let’s say inflation adjusted) for thirty years as a bus driver. The other plays in the NFL for 1 year makes $2MM and thereafter only makes $250k over the next twenty five years. They’ve made the same amount of money over their lifetimes but the second man paid much higher taxes.
Here’s another example of where it could help. Take two men, one earns $75k/year (let’s say inflation adjusted) for thirty years as a bus driver. The other plays in the NFL for 1 year makes $2MM and thereafter only makes $250k over the next twenty five years. They’ve made the same amount of money over their lifetimes but the second man paid much higher taxes.
that's not really the same thing. the football player didn't realize a loss in any of those years, at least not in the same way that a company can. they just made less money over time. the real difference here is there are no marginal brackets for taxes paid by a company.
it makes sense that companies are taxed differently than individuals. corporate revenues and assets ultimately end up in the pockets of real people, either as wages or capital gains.
that said, I do think you make a good point about income tax. it would be more fair if there were some smoothing over time. another example of someone who might get screwed is a contractor with highly variable income. if I make $75k every year, and you oscillate back and forth between $25k and $125k, you pay a lot more income tax for no real reason.
it makes sense that companies are taxed differently than individuals. corporate revenues and assets ultimately end up in the pockets of real people, either as wages or capital gains.
that said, I do think you make a good point about income tax. it would be more fair if there were some smoothing over time. another example of someone who might get screwed is a contractor with highly variable income. if I make $75k every year, and you oscillate back and forth between $25k and $125k, you pay a lot more income tax for no real reason.
> it makes sense that companies are taxed differently than individuals. corporate revenues and assets ultimately end up in the pockets of real people, either as wages or capital gains.
But only some of those real people are subject to the jurisdiction of the country taxing the corporation. So while some corporate income is subject to double taxation some is not.
> the real difference here is there are no marginal brackets for taxes paid by a company.
Companies can smear revenue out over time to optimize the taxes they face. People cannot. The marginal part is orthogonal.
But only some of those real people are subject to the jurisdiction of the country taxing the corporation. So while some corporate income is subject to double taxation some is not.
> the real difference here is there are no marginal brackets for taxes paid by a company.
Companies can smear revenue out over time to optimize the taxes they face. People cannot. The marginal part is orthogonal.
Your example is bad one because of time value of money and because the rates aren't equal. Better example is someone who invented an amazing technology after 25 years of failure, or someone who works for the same hourly rate but does 3000 hrs one year and 1000 hrs the next.
NOL (net operating loss) carryforwards, which is what is being described above, would not make a difference in the situation you have laid out here - it sounds like your issue is the fact that we have a progressive tax for personal income (versus a flat tax for corporations)
That's not equivalent. An equivalent example would be a person who makes a large amount of money in their 20s, but spends the majority of it on things that could conceivably appreciate, such that their income artificially represents a loss. Then all of a sudden, whatever they spent money on becomes extremely profitable in their mid 30s.
Someone doing that will normally do it within the confines of an LLC by convention (because it almost always implies a business). But you could do it with investing, too. In either case you need not be a megacorp.
There are also income tax offsets for education, provided your tax bracket isn't too high.
Someone doing that will normally do it within the confines of an LLC by convention (because it almost always implies a business). But you could do it with investing, too. In either case you need not be a megacorp.
There are also income tax offsets for education, provided your tax bracket isn't too high.
> That's not equivalent. An equivalent example would be a person who makes a large amount of money in their 20s, but spends the majority of it on things that could conceivably appreciate, such that their income artificially represents a loss. Then all of a sudden, whatever they spent money on becomes extremely profitable in their mid 30s.
Like someone getting a $150k student loan to go to college and/or post-college education?
Like someone getting a $150k student loan to go to college and/or post-college education?
No, because that's a loan rather than an R&D expenditure from income. I guess that probably sounds flippant, but the mechanics are different. If a business received a loan, the tax prospects wouldn't be as favorable as expenditure either.
Different how? Different in practice or in tax law?
The point of the thread is that the two are essentially the same in practice (investing current monetary influxes towards future revenues) but the tax law differences favor one over the other.
The point of the thread is that the two are essentially the same in practice (investing current monetary influxes towards future revenues) but the tax law differences favor one over the other.
I see your point, but who would benefit most from making loans function the way you're suggesting? It obviously would be businesses.
True, but I think the sentiment isn't "make individual loans work like business investments" so much as it is "make business investments work like individual loans". In other words, if individuals are expected to pay taxes, businesses should be expected to pay taxes as well (rather than being allowed to minimize them due to earlier losses).
It's not black and white, of course, and I'm not an accountant, so my knowledge is limited and most likely filled with holes and misunderstandings. But I imagine there's also a matter of scale that's at play here, with tax laws meant to make things easier on small, privately owned businesses in their early years, having unintended consequences to the benefit of companies already behemoth in size investing in getting even bigger. Bigger in ways only made possible in the new digital, globalized world.
It's not black and white, of course, and I'm not an accountant, so my knowledge is limited and most likely filled with holes and misunderstandings. But I imagine there's also a matter of scale that's at play here, with tax laws meant to make things easier on small, privately owned businesses in their early years, having unintended consequences to the benefit of companies already behemoth in size investing in getting even bigger. Bigger in ways only made possible in the new digital, globalized world.
loans are different for corporations due to the interest being deductible (colloquially called 'tax shields'). along with the carryforward provision, that can so valuable that it's the principal reason why a given company is bought. personal loans have no such leeway and value.
The interest on personal loans is also deductible, if used for (a) education, (b) buying a residence, or (c) for business activities of the individual.
> (a) education, (b) buying a residence
Only up to some low limit. Netflix can deduct unlimited interest.
Only up to some low limit. Netflix can deduct unlimited interest.
No, it can't. Business interest deduction is limited to 30% of taxable income...
it's difficult to get to 30% of EBITDA (the actual yardstick) in interest payments, but if you do, the carryforward is unlimited, so it's effectively unlimited.
The actual yard stick is only EBITDA through this year, and EBIT thereafter, and moreover, it's the tax versions of EBITDA and EBIT, not the accounting versions. For starters, the tax versions use taxable income as the base, not book income, and don't add back in most non-cash items, so the threshold is much lower.
Many businesses were hit by this interest limitation in 2018 and 2019. There are dozens of articles from major tax firms about it. Yes, a business can carryforward their unused interest to a future year in which they have spare income to apply it. But that means they have to have sufficient profits and reduced loans in order to take advantage of their interest expenses. If a business is unprofitable, churn loans, or increases its debt load, the business effectively loses out on a lot of the benefit of most of its interest expense.
Many businesses were hit by this interest limitation in 2018 and 2019. There are dozens of articles from major tax firms about it. Yes, a business can carryforward their unused interest to a future year in which they have spare income to apply it. But that means they have to have sufficient profits and reduced loans in order to take advantage of their interest expenses. If a business is unprofitable, churn loans, or increases its debt load, the business effectively loses out on a lot of the benefit of most of its interest expense.
ok, i'll take your word for it since it's not something i follow that closely.
i'd just also reiterate that all this rigamarole is not worth it (for the generally claimed increase in productivity and investment), and we should just simplify and equalize individual and corporate tax law.
i'd just also reiterate that all this rigamarole is not worth it (for the generally claimed increase in productivity and investment), and we should just simplify and equalize individual and corporate tax law.
sure, there are a few exceptions, but carveouts result in distortions that lead to unintended consequences, as we see in all of those instances (e.g., higher economic rents). for greater fairness and more efficiency in markets, we should reduce carveouts for both corporations and individuals, not try to justify the ones we have.
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A loan isn’t a loss. A business can’t deduct that either.
Of course not. The $155k tuition is the loss. The $150k loan is just a sudden influx of money used to compensate for the investment losses, the same as a company receiving investment funding.
It's not a loss - it's training. If the individual created a sole proprietorship it might be deductible, too.
It can deduct the interest. It can also get an R&D credit+ for how it spent the proceeds of the loan.
+Depending on a lot of details
+Depending on a lot of details
Yeah, and if an individual creates a sole proprietorship they could probably hire an instructor and deduct that R&D.
If you do that by investing, it does work the same way. You can roll forward capital losses indefinitely and offset them against future capital gains, something which investors in 2000 and 2008 became well-acquainted with.
The difference is few people start with financing that allows them to amass large investable sums without showing a cash income early in life. That’s because companies can raise VC and sell equity while we (rightly, of course) banned the equivalent practice for people.
The difference is few people start with financing that allows them to amass large investable sums without showing a cash income early in life. That’s because companies can raise VC and sell equity while we (rightly, of course) banned the equivalent practice for people.
Individual humans don’t employ large groups of people and don’t move forward the economy like a company does.
I don’t understand why we want to equate rules for companies to rules for individuals? People say “it’s not fair”?
Who’s going to employ people? The government can’t produce your salary, companies do that.
Btw, many countries should regulate companies more IMO, but that’s not to say companies shouldn’t be encouraged to grow and prosper.
Of course companies and individuals should have different rules and of course tax should be one of them. Help companies start and grow and salaries will be paid to people.
I don’t understand why we want to equate rules for companies to rules for individuals? People say “it’s not fair”?
Who’s going to employ people? The government can’t produce your salary, companies do that.
Btw, many countries should regulate companies more IMO, but that’s not to say companies shouldn’t be encouraged to grow and prosper.
Of course companies and individuals should have different rules and of course tax should be one of them. Help companies start and grow and salaries will be paid to people.
Why not let people employ each other where they are instead of importing grandpa’s beliefs about how money is produced?
It’s the workers doing that produce the real value, not a rich person holding capital they’ll only spend on us if we capitulate.
Why do we need the age old tale of a shared ephemeral store like religion and fiat finance when we see those things become monopolized and gamed by the previous generation every time?
We need to believe one old person is literally worth 100x the average person?
Who does that benefit?
It’s the workers doing that produce the real value, not a rich person holding capital they’ll only spend on us if we capitulate.
Why do we need the age old tale of a shared ephemeral store like religion and fiat finance when we see those things become monopolized and gamed by the previous generation every time?
We need to believe one old person is literally worth 100x the average person?
Who does that benefit?
Most companies are not AT&T. To cite one European example, in Spain 80% of companies are 1-3 employees. Giving the entrepreneur a tax break is a great way to help 80% of employers.
In the US that number might be even higher [0] (99% percent according to that article but we’d have to cross check what “small business” means in this context).
Your rhetoric seems to imply that all companies are owned and managed by greedy monopoly-esque despots wearing a penguin suit and smoking a cigar, but reality just doesn’t follow.
You should also consider the alternative. Where is wealth generated if not through companies? Is it the government? In this scheme, the government is the company and covers 100% of business. How’s a government different than the closed board of a monopolic company? Or are they just “the good ones” and therefore somehow immune to produce injustice? To me, as you can probably tell, this notion is naive at best.
I have no issues with taxing the super rich a lot more. I don’t think anyone needs to be worth USD 185 Billion. However, I’m not sour about it and don’t believe a “revolution” is the only solution. Far from it. We’ve dealt with this before: it’s about regulation and policy. Very incremental.
IMHO what makes fairness is a social ladder. As long as there’s a way for the willing, there’s fairness. Any immigrant will tell you as much.
[0] https://www.fundera.com/blog/small-business-employment-and-g...
In the US that number might be even higher [0] (99% percent according to that article but we’d have to cross check what “small business” means in this context).
Your rhetoric seems to imply that all companies are owned and managed by greedy monopoly-esque despots wearing a penguin suit and smoking a cigar, but reality just doesn’t follow.
You should also consider the alternative. Where is wealth generated if not through companies? Is it the government? In this scheme, the government is the company and covers 100% of business. How’s a government different than the closed board of a monopolic company? Or are they just “the good ones” and therefore somehow immune to produce injustice? To me, as you can probably tell, this notion is naive at best.
I have no issues with taxing the super rich a lot more. I don’t think anyone needs to be worth USD 185 Billion. However, I’m not sour about it and don’t believe a “revolution” is the only solution. Far from it. We’ve dealt with this before: it’s about regulation and policy. Very incremental.
IMHO what makes fairness is a social ladder. As long as there’s a way for the willing, there’s fairness. Any immigrant will tell you as much.
[0] https://www.fundera.com/blog/small-business-employment-and-g...
Why must the masses be tethered to a monopolized ephemeral value store?
None of us owe servitude to old debts, contracts, wives tales, sonnets, limericks, hymns, poems, stories.
When the world changes it does so because society decides there are different words to better represent its goals.
Laws are no longer based upon the words of Gods. The rich are not Gods. They don’t represent meritorious effort when they’re inheriting and being gifted wealth with no strings (see Trump admin and covid payouts, it’s still happening under Biden; he’s just less gaudy.)
Why not just logistical distribution of materials to boost communal health, etc.
The masses are already used to only being able afford a vacation every X months. Working off a home for X years.
Why do we still enable a minority to shrug off the same responsibility in deference to old contracts none of us are legally obligated to mind?
None of us owe servitude to old debts, contracts, wives tales, sonnets, limericks, hymns, poems, stories.
When the world changes it does so because society decides there are different words to better represent its goals.
Laws are no longer based upon the words of Gods. The rich are not Gods. They don’t represent meritorious effort when they’re inheriting and being gifted wealth with no strings (see Trump admin and covid payouts, it’s still happening under Biden; he’s just less gaudy.)
Why not just logistical distribution of materials to boost communal health, etc.
The masses are already used to only being able afford a vacation every X months. Working off a home for X years.
Why do we still enable a minority to shrug off the same responsibility in deference to old contracts none of us are legally obligated to mind?
You're not reading me. We are the companies. 99% of companies are small business. No such monopoly.
I’m not disputing the value of collective effort.
I’m disputing our implementation that favors minority capture of collective effort.
Why do I need to be a “company”?
We already have a system of collective effort called “government”.
Why another layer of abstraction?
Why must they run on grandpa’s fiscal beliefs, and previously brokered debt servicing and network effects?
I’m disputing our implementation that favors minority capture of collective effort.
Why do I need to be a “company”?
We already have a system of collective effort called “government”.
Why another layer of abstraction?
Why must they run on grandpa’s fiscal beliefs, and previously brokered debt servicing and network effects?
> Why not let people employ each other where they are instead of importing grandpa’s beliefs about how money is produced?
Corporations and small businesses already do this
> It’s the workers doing that produce the real value, not a rich person holding capital they’ll only spend on us if we capitulate.
Yes, but the worker is fungible. The capital holder was entrusted with the money and risk. Workers have little risk, they can walk away from a company at any time. The capital holder is stuck.
> Why do we need the age old tale of a shared ephemeral store like religion and fiat finance when we see those things become monopolized and gamed by the previous generation every time?
What is the alternative? It isn't communism or socialism, both have failed numerous times before.
Also, you're posting on a board for capitalists. YC literally bets capital on moonshots to get a return on investment.
> We need to believe one old person is literally worth 100x the average person?
If the old person, had the capital and took the risk, then yes financial value is higher. In terms of being a person, no, they both go in the same box at the end.
> Who does that benefit?
Society. Jobs created a new economy by introducing the iPhone. YC gambles on new companies that benefit society. The phone in your pocket, the internet and computer you use employees tons of people. More than any government jobs program could.
Corporations and small businesses already do this
> It’s the workers doing that produce the real value, not a rich person holding capital they’ll only spend on us if we capitulate.
Yes, but the worker is fungible. The capital holder was entrusted with the money and risk. Workers have little risk, they can walk away from a company at any time. The capital holder is stuck.
> Why do we need the age old tale of a shared ephemeral store like religion and fiat finance when we see those things become monopolized and gamed by the previous generation every time?
What is the alternative? It isn't communism or socialism, both have failed numerous times before.
Also, you're posting on a board for capitalists. YC literally bets capital on moonshots to get a return on investment.
> We need to believe one old person is literally worth 100x the average person?
If the old person, had the capital and took the risk, then yes financial value is higher. In terms of being a person, no, they both go in the same box at the end.
> Who does that benefit?
Society. Jobs created a new economy by introducing the iPhone. YC gambles on new companies that benefit society. The phone in your pocket, the internet and computer you use employees tons of people. More than any government jobs program could.
But the example you're responding to does employ people. A surgeon will have to hire a whole host of employees to run his outpatient clinic. Or if she works in a hospital, an entire team will be built around her.
Plus there is the fairness issue. Corporations are just groups of people working together. So why does a single surgeon not get to be treated as the economic growth engine she is, but two surgeons can incorporate and get special treatment?
Plus there is the fairness issue. Corporations are just groups of people working together. So why does a single surgeon not get to be treated as the economic growth engine she is, but two surgeons can incorporate and get special treatment?
Because if the surgery/hospital operates at a loss (which they often do), they also get to carry forward those losses to deduct in future years. That's just notionally separate from the salary that the surgeon personally receives from the practice.
None of that makes sense. The corporation they work for employs people, and you can start a company by yourself.
How is a company the same as an individual? How do you compare risk the company takes when investing in research, marketing, hiring, etc to a person going to medical school?
This is an apples and oranges comparison at best. If companies were treated exactly as individuals in this case, I don’t think many companies would survive. With less of the pie to go around, that’s effectively fewer jobs and less wealth created for people who work at these companies.
This is an apples and oranges comparison at best. If companies were treated exactly as individuals in this case, I don’t think many companies would survive. With less of the pie to go around, that’s effectively fewer jobs and less wealth created for people who work at these companies.
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You can do what describe with education credits, along with other tools.
And in your example you could also use student loan repayments for taxable income reductions in the same manor. Only the interest, but that is the same a business not being able to deduct capital investment.
With the assumption that we are treating debt like income for the individual, except that individuals do not report that as other income.
And in your example you could also use student loan repayments for taxable income reductions in the same manor. Only the interest, but that is the same a business not being able to deduct capital investment.
With the assumption that we are treating debt like income for the individual, except that individuals do not report that as other income.
Paying tuition is more like an investment in a non-depreciating asset.
How is it non-depreciating? You can’t practice medicine forever.
we really should do away with tax-advantaging corporations. those regulations have done the work they were designed to do, which is not, strictly speaking, to 'encourage investment', but rather to juice the american economy into global competitiveness. now what we need is to more widely disperse capital to again encourage competitiveness, an edge we're losing rapidly as capital stagnates in the west (as opposed to the vibrancy of the east and global emerging markets).
Why would you expect it to be the same (besides some nonsense appeal to 'corporations are people')?
not sure what side you are trying to argue?
The whole point, is corporations get the benefits of both, and the downside of neither. They have liability and tax advantages that people don't have, yet they also have tremendous politic power as if acting with personal free speech (citizens united)
The whole point, is corporations get the benefits of both, and the downside of neither. They have liability and tax advantages that people don't have, yet they also have tremendous politic power as if acting with personal free speech (citizens united)
Well, and US corporations are taxed on profits, not income...like people are.
> Human beings cannot do the equivalent
Please do not spread disinformation. This is some Qanon level bs.
https://www.irs.gov/taxtopics/tc409
Please do not spread disinformation. This is some Qanon level bs.
https://www.irs.gov/taxtopics/tc409
Student loans interest is deductible at lower incomes. You can deduct mortgage interest (investing in long term housing). You can defer taxes on income through a 401k.
It’s not like individuals don’t have mechanisms to save on taxes.
It’s not like individuals don’t have mechanisms to save on taxes.
This isn't really equivalent. The current maximum deduction for tuition is 4000$, and that gets phased out at incomes above ~150000$ if you are filing jointly. I have no idea what the limit on a corporation carrying forward losses is, but I'm sure the percentage is significantly greater.
Yes, individuals can save on taxes, but can most of us get an effective tax rate of 1%? And, many of the common deductions (mortgage interest, charitable deductions, tuition) all have caps. I don't believe there's a cap on a corporation carrying forward losses from year to year.
Yes, individuals can save on taxes, but can most of us get an effective tax rate of 1%? And, many of the common deductions (mortgage interest, charitable deductions, tuition) all have caps. I don't believe there's a cap on a corporation carrying forward losses from year to year.
There are all sorts of limitations on carrying forward corporate losses.
There was a 20-year cap on corporations carrying forward losses.I had clients that actually timed-out on using carried-forward losses because they had insufficient profits to use their losses against. However, since 2017, losses can be carried forward indefinitely, but in any given year may only offset up to 80% of taxable income. (As a result of the CARES Act, losses between 2018 and 2021 are not subject to the 80% limitation.)
There are section 382 limitations on losses of acquired companies. (In a nutshell, the idea is to discourage a company from being acquired so that the acquirer can use those losses to offset their own taxable profits.)
There are other limitations on loss carrying as well but they tend to be pretty esoteric.
Yes, individuals can save on taxes, but can most of us get an effective tax rate of 1%?
Yes, you can get a 0% (combined tax rate) as an individual if your income is primarily municipal bonds or other tax-free government bonds, even before taking into account deductions. And wage-earners can get single-digit combined tax rates if they are below the poverty line (the exact threshold varies from state to state).
There was a 20-year cap on corporations carrying forward losses.I had clients that actually timed-out on using carried-forward losses because they had insufficient profits to use their losses against. However, since 2017, losses can be carried forward indefinitely, but in any given year may only offset up to 80% of taxable income. (As a result of the CARES Act, losses between 2018 and 2021 are not subject to the 80% limitation.)
There are section 382 limitations on losses of acquired companies. (In a nutshell, the idea is to discourage a company from being acquired so that the acquirer can use those losses to offset their own taxable profits.)
There are other limitations on loss carrying as well but they tend to be pretty esoteric.
Yes, individuals can save on taxes, but can most of us get an effective tax rate of 1%?
Yes, you can get a 0% (combined tax rate) as an individual if your income is primarily municipal bonds or other tax-free government bonds, even before taking into account deductions. And wage-earners can get single-digit combined tax rates if they are below the poverty line (the exact threshold varies from state to state).
Why should there be a cap on carrying forward losses? There’s no cap on individuals carrying forward capital losses.
Why should there be a cap and income phaseout on student loan interest deductions?
In my opinion, there should not be caps on anything productive that we allow deductions for.
When you want to tax high-income people at a higher rate, have the courage and forthrightness to simply raise their rate; don't do it via the backdoor complexity of phaseouts.
When you want to tax high-income people at a higher rate, have the courage and forthrightness to simply raise their rate; don't do it via the backdoor complexity of phaseouts.
Because progressive income tax rates.
Adding one thing: in the past, mega-companies spent money on tangible assets which were depreciated over time as they produced income. Now mega-companies spend money on intangible assets but they can expense immediately, so tax is deferred and they can grow without that tax friction. Dollars spent are the same, but expensing is accelerated, shrinking tax and unleashing growth, and the cycle continues. It’s kind of a cheat, or at least an unintended omission from old laws designed before intangible assets became the biggest assets on the planet.
Now mega-companies spend money on intangible assets but they can expense immediately, so tax is deferred and they can grow without that tax friction.
Acquired intangible assets must be amortized (aka depreciation for things that don't physically exist) over 15 years, not immediately (some intangibles can be amortized over a 3-5 year time frame). And self-developed intangible assets cannot be amortized at all.
Acquired intangible assets must be amortized (aka depreciation for things that don't physically exist) over 15 years, not immediately (some intangibles can be amortized over a 3-5 year time frame). And self-developed intangible assets cannot be amortized at all.
I don’t see the assets on their balance sheets? I.e, they’re being expensed. Our disagreement is about the definition of intangible asset. Under current regulations, intangible assets are understated versus reality. This is my point.
Those changes are often political incentives to sellers of the capital equipment. If you want to stimulate the sales of earth moving equipment or business jets, allow buyers to write it off faster. (Frankly, I’d rather encourage the sale of durable productive equipment than other types of tax incentives which stimulate less future productive activity.)
Controversial opinion: companies with zero profits should be encouraged, not vilified.
A company that isn't profitable means every dollar that flows into the company flows out. It flows out to other companies, to payroll, to R&D, to charities. That's where the real economic engine is -- money flowing, investment happening.
And plenty of taxes come from it, too.
Companies pay taxes when they start hoarding profits instead of investing them. That's a good thing.
A company that isn't profitable means every dollar that flows into the company flows out. It flows out to other companies, to payroll, to R&D, to charities. That's where the real economic engine is -- money flowing, investment happening.
And plenty of taxes come from it, too.
Companies pay taxes when they start hoarding profits instead of investing them. That's a good thing.
Companies with lots of cash on the balance sheet aren't necessarily just lazily "hoarding profits." Having cash on hand lets them nimbly acquire smaller companies, them lets them lock in lower interest rates on any debt, and helps them make it through rough spots without government aid (like the recent pandemic, for example).
I'd argue that these are also "good things". There's a reason corporate income taxes aren't tremendously popular among economists (even many economists on the left). Companies are capable of deciding how much cash to keep on their balance sheet, and any government nudges via tax policy are probably introducing some distortions. If we want to tax piles of stagnant wealth, we should tax the wealth directly: estate taxes and land value taxes don't introduce many distortions. If we want to tax companies, we should look at VATs (which are relatively non-distortionary), or perhaps heavy pigouvian taxes to offset negative externalities (e.g. a carbon tax).
I'd argue that these are also "good things". There's a reason corporate income taxes aren't tremendously popular among economists (even many economists on the left). Companies are capable of deciding how much cash to keep on their balance sheet, and any government nudges via tax policy are probably introducing some distortions. If we want to tax piles of stagnant wealth, we should tax the wealth directly: estate taxes and land value taxes don't introduce many distortions. If we want to tax companies, we should look at VATs (which are relatively non-distortionary), or perhaps heavy pigouvian taxes to offset negative externalities (e.g. a carbon tax).
> A lot of growing companies have US taxes that are quite low
Netflix has been around for 20+ years
Netflix has been around for 20+ years
But they pivoted models (twice, if you count both streaming and the shift to original content over other companies IP). There’s a ton of spending with that, and they are still gaining subscribers.
They are still growing, growth can happen at any and often multiple times
Amazon and Google are still growing too.. I don't feel like these are good basis to decide who pay or not taxes.
Should we only tax companies that are collapsing ?
Should we only tax companies that are collapsing ?
Define growth? How do you prove: "Hi I'm company X and I'm growing so I shouldn't have to pay taxes" isn't full of BS and slick accounting? Because you know if there are rules corporations are going to lie their way around them. Better have fewer rules and more consistent taxes. But lobbyist love to make things complex so that corporations can cheat.
So Amazon is loosing money is the US? Starbucks is loosing money in UK and Disneyland is loosing money in France? Please shifting profit is not normal there is no reason a company can do it and average people can't.
In many industries it's hard to quantify the value of imports from the parent company.
What is the value of the software engineering services Amazon US provide to Amazon UK, maintaining amazon.co.uk? Because, rationally, that's an expense of the UK company.
How much in the Starbucks brand worth? How do you distinguish a franchise from a subsidiary? If Starbucks split in two, with Starbucks Corporation maintaining only the trademarks and associated IP, and sold all the actual stores it owns to a second company Coffee Shop Corporation which started off as a franchise (and there exist franchised Starbucks stores today), which then paid licensing fees to the franchisor, would that be any different?
Like, there's definitely questions to be had about international accounting, but some of the complexity is because national subsidiaries rarely operate in isolation, and valuing much of what they get from their parent organisation is exceptionally hard.
What is the value of the software engineering services Amazon US provide to Amazon UK, maintaining amazon.co.uk? Because, rationally, that's an expense of the UK company.
How much in the Starbucks brand worth? How do you distinguish a franchise from a subsidiary? If Starbucks split in two, with Starbucks Corporation maintaining only the trademarks and associated IP, and sold all the actual stores it owns to a second company Coffee Shop Corporation which started off as a franchise (and there exist franchised Starbucks stores today), which then paid licensing fees to the franchisor, would that be any different?
Like, there's definitely questions to be had about international accounting, but some of the complexity is because national subsidiaries rarely operate in isolation, and valuing much of what they get from their parent organisation is exceptionally hard.
Like, there's definitely questions to be had about international accounting, but some of the complexity is because national subsidiaries rarely operate in isolation, and valuing much of what they get from their parent organisation is exceptionally hard.
The very, very easy solution is for every corporate entity to be taxed on revenue in each jurisdiction. E.g. if I am in the UK and I spend £4 on a coffee in Starbucks then their legal entity in the UK now owes the taxman £0.40 (for example). How they pay their operating costs and internally transfer the remainder of £3.60 to their parent company is up to them.
The very, very easy solution is for every corporate entity to be taxed on revenue in each jurisdiction. E.g. if I am in the UK and I spend £4 on a coffee in Starbucks then their legal entity in the UK now owes the taxman £0.40 (for example). How they pay their operating costs and internally transfer the remainder of £3.60 to their parent company is up to them.
You just reinvented VAT.
You just reinvented VAT.
VAT is passed “through” a company, I mean for this to be charged to the company on what is normally considered income. Essentially, since corporations are supposedly people, they can pay income tax like people.
VAT is passed “through” a company, I mean for this to be charged to the company on what is normally considered income. Essentially, since corporations are supposedly people, they can pay income tax like people.
So you're just replacing a profit tax with a revenue tax? For low-margin industries that'll have a significant impact, and grocery stores for example will be heavily hit by it (Tesco, for example, made £1.3B pre-tax profit on £64.8B revenue, which is roughly expected for the industry), with consequential rises in the prices of food.
A revenue tax disproportionately hits low-margin industries, which typically account for a disproportionate amount of expenditure of low-income households, which is likely a bad thing.
A revenue tax disproportionately hits low-margin industries, which typically account for a disproportionate amount of expenditure of low-income households, which is likely a bad thing.
> deductions for property transactions.
Can u give an example for this? Especially in the context on a large, growing tech firm.
I understand the basic stuff like accelerated depreciation, location arbitrage, etc
Can u give an example for this? Especially in the context on a large, growing tech firm.
I understand the basic stuff like accelerated depreciation, location arbitrage, etc
Wasn't that the point of GILTI legislation in the Trump administration's final tax bill? I would think it's no longer as easy as it was to store IP earnings overseas as it was during the Double Irish days.
[deleted]
I wonder what would happen if an entirely new approach to taxation were tested. A jury of 12 random people would inspect a companies accounts, assets etc and decide if the tax paid is "fair". The jury would have no training in tax matters, but would be presented documents produced by the government and the company to argue their cases.
If the tax paid is found to be unfair by the jury, the company gets nationalised with no compensation to shareholders. The government could re-privatize it by auctioning it off again.
If the tax paid is found to be unfair by the jury, the company gets nationalised with no compensation to shareholders. The government could re-privatize it by auctioning it off again.
Predictability is one of the biggest determining factors in economic stability. Places with a weak rule of law are typically not places that people consider well run.
So it would be like a criminal trial and be swayed by emotion and presentation-- not the law. I would imagine companies would just move out of the country's jurisdiction, be founded elsewhere, or shut down. I think this would devolve into show trials led by fickle public opinion. Sounds like a bad idea.
That sounds sure to spur a lot of productive activity and long-term investing to support same.
Nobody in their right mind would ever create a company in that environment. No bank would lend you money. Nobody would invest. Would you invest your life savings in a company when a random jury could just take it away?
That is just a very terrible idea.
This is crazy how economy is tilted in favour of these big corporations. If you are a worker, it is not uncommon to pay over 40% of tax and if you work on your own small business you can pay even more and have very little left to reinvest. Then you have progressive tax that is preventing you from saving much - if you want to save for a deposit to buy a house, spend time on education and getting a better job, you'll get hit by much higher tax and it will take ages to save anything. Such taxes are often sold to the public as taxes on the rich, but rich people can easily afford ways around it.
I'll vote for any party that will reshuffle the tax system, so that big corporations will have to pay tax just as any other business and tax progression will be removed, so that people will have a chance of levelling up.
They should also add a tax on spending money with offshore cards, dividends and so on so that the rich will pay what they are supposed to pay.
> tax progression will be removed, so that people will have a chance of levelling up
Progressive taxation has the exact opposite function to what you're suggesting. It's a mechanism designed to reduce economic inequality and the poverty among the low income workers.
Your comment sounds like a rationalization from a middle/upper income person.
> it is not uncommon to pay over 40% of tax
That figure is misleading, because it includes a set of expenses like social security, health insurance, government pension plans etc. Corporations don't pay that and that's why the difference may seems so big.
But I too am quite unhappy with the way the whole taxation system is constructed. But I would go in the opposite direction to the one you described. More in the way to progressive taxation, even negative taxation for the very low income people, basic income.
I would also work a bit towards making corporation pay more for all their externalities.
Progressive taxation has the exact opposite function to what you're suggesting. It's a mechanism designed to reduce economic inequality and the poverty among the low income workers.
Your comment sounds like a rationalization from a middle/upper income person.
> it is not uncommon to pay over 40% of tax
That figure is misleading, because it includes a set of expenses like social security, health insurance, government pension plans etc. Corporations don't pay that and that's why the difference may seems so big.
But I too am quite unhappy with the way the whole taxation system is constructed. But I would go in the opposite direction to the one you described. More in the way to progressive taxation, even negative taxation for the very low income people, basic income.
I would also work a bit towards making corporation pay more for all their externalities.
It's a mechanism designed to reduce economic inequality
Income inequality. Totally different thing; really wealthy people can play all sorts of games with income, so it’s not relevant to them. And that’s the way they like this debate framed: ignore their enormous piles of wealth and instead focus on the earnings distribution of ordinary people.
If anything, it just stops you getting anywhere near to joining their ranks on an honest wage.
Income inequality. Totally different thing; really wealthy people can play all sorts of games with income, so it’s not relevant to them. And that’s the way they like this debate framed: ignore their enormous piles of wealth and instead focus on the earnings distribution of ordinary people.
If anything, it just stops you getting anywhere near to joining their ranks on an honest wage.
Really wealthy people are probably not paying much income taxes to begin with
Let me introduce you to the HELOC.
Wealthy people do not take out mortgages. They borrow cash against their existing wealth. They then buy things with that. Then pay back against the loan. Writing it off too (as per tax law). The 'rich' have sold everyone a bill of goods how they are redoing the tax system for 'the people'. When the reality is they are writing a bunch more exemptions for themselves.
You can do the same thing. Many people when they figure it out 'level up'.
Wealthy people do not take out mortgages. They borrow cash against their existing wealth. They then buy things with that. Then pay back against the loan. Writing it off too (as per tax law). The 'rich' have sold everyone a bill of goods how they are redoing the tax system for 'the people'. When the reality is they are writing a bunch more exemptions for themselves.
You can do the same thing. Many people when they figure it out 'level up'.
> Let me introduce you to the HELOC
Home equity loans are predominantly used by middle income households [0].
The rich can borrow against securities at the call money rate, currently 2% [1]. Much cheaper than borrowing against real estate [2]. The less rich swap it to a fixed rate for added security; the richer take the rate risk. (They likely have natural hedges.) The super rich seek to borrow at or close to the SOFR [3], typically having Treasuries or similar structured products for the purpose. (If they have a business with float, that could be even cheaper than SOFR.)
[0] http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.574...
[1] https://www.bankrate.com/rates/interest-rates/call-money.asp...
[2] https://www.bankrate.com/home-equity/heloc-rates/
[3] https://apps.newyorkfed.org/markets/autorates/SOFR
Home equity loans are predominantly used by middle income households [0].
The rich can borrow against securities at the call money rate, currently 2% [1]. Much cheaper than borrowing against real estate [2]. The less rich swap it to a fixed rate for added security; the richer take the rate risk. (They likely have natural hedges.) The super rich seek to borrow at or close to the SOFR [3], typically having Treasuries or similar structured products for the purpose. (If they have a business with float, that could be even cheaper than SOFR.)
[0] http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.574...
[1] https://www.bankrate.com/rates/interest-rates/call-money.asp...
[2] https://www.bankrate.com/home-equity/heloc-rates/
[3] https://apps.newyorkfed.org/markets/autorates/SOFR
point taken! I like to use the HELOC as it is something most people can do.
That's his point. The income tax is not as effectively redistributive as a wealth tax would be.
System is screwed, I am paying 40-50% effect tax rate combined. Housing is going up, food is going up, everything is inflating....
This must get fixed or we all screwed. We are at the end of this system. this system is designed to help the rich, the wealthy, not the man or woman working while in middle class... we are getting screwed.
This must get fixed or we all screwed. We are at the end of this system. this system is designed to help the rich, the wealthy, not the man or woman working while in middle class... we are getting screwed.
It sounds like both of you want Fair Tax
https://en.wikipedia.org/wiki/FairTax
https://en.wikipedia.org/wiki/FairTax
This tax proposal makes no sense. It's very easy to dodge sales taxes and VAT taxes by doing under the table deals.
If anything, you want to replace all consumption taxes with a flat income tax (always 40% for example) combined with a flat deduction (first $40k are not taxed).
If you absolutely must replace income taxes, then replace them with land value taxes because it is impossible to avoid them as the owner (who may not be in the country) or as a person living in the country (because all land is taxed).
If anything, you want to replace all consumption taxes with a flat income tax (always 40% for example) combined with a flat deduction (first $40k are not taxed).
If you absolutely must replace income taxes, then replace them with land value taxes because it is impossible to avoid them as the owner (who may not be in the country) or as a person living in the country (because all land is taxed).
I very much doubt that the person who wants a progressive tax policy supports a consumption-only tax that disproportionately impacts lower-income earners (well, earners between $40k & $200k) supported primarily by right-wing and libertarian thinkers. I also doubt that poster will be excited by the drastically-reduced revenues likely to result.
> Your comment sounds like a rationalization from a middle/upper income person.
In most countries that I am aware of, the tax rate becomes essentially flat at, or relatively close to, a median income.
If you tax people on a lower income at that same rate, then that is highly punitive and is likely to put people into poverty.
It's immediately advantageous for governments to set a "progressive" lower tax rate, to avoid paying the cost of resources dealing with poverty.
Aside from this, governments are continuing to tax people up to and approaching median incomes at the highest rate that they can bear.
It's only once you get significantly above median that the tax rate doesn't continue to be punitive - for example, in terms of young people being able to access security of housing.
I'd argue these [existing tax schemes] aren't therefore progressive at all. It's just a different mechanism to provide minimal/essential support to people in poverty.
In most countries that I am aware of, the tax rate becomes essentially flat at, or relatively close to, a median income.
If you tax people on a lower income at that same rate, then that is highly punitive and is likely to put people into poverty.
It's immediately advantageous for governments to set a "progressive" lower tax rate, to avoid paying the cost of resources dealing with poverty.
Aside from this, governments are continuing to tax people up to and approaching median incomes at the highest rate that they can bear.
It's only once you get significantly above median that the tax rate doesn't continue to be punitive - for example, in terms of young people being able to access security of housing.
I'd argue these [existing tax schemes] aren't therefore progressive at all. It's just a different mechanism to provide minimal/essential support to people in poverty.
> Progressive taxation has the exact opposite function to what you're suggesting. It's a mechanism designed to reduce economic inequality and the poverty among the low income workers.
I am not advocating that low income workers pay higher taxes - in fact they should be exempt. I am saying that if you are from such family, progressive tax ensures you'll stay in your lane.
> That figure is misleading, because it includes a set of expenses like social security, health insurance, government pension plans etc. Corporations don't pay that and that's why the difference may seems so big
My number is based on what you get in your pocket from your salary (plus employer's national insurance that is most of the time hidden from the payslip) I didn't include local taxes (like council tax) and so on. Corporations are supposed to pay Corporation Tax, but they can too easily transfer profits offshore and largely avoid that in contrast to SME who mostly pay this tax.
Progressive tax ensures that person from poor background will stay poor.
I am not advocating that low income workers pay higher taxes - in fact they should be exempt. I am saying that if you are from such family, progressive tax ensures you'll stay in your lane.
> That figure is misleading, because it includes a set of expenses like social security, health insurance, government pension plans etc. Corporations don't pay that and that's why the difference may seems so big
My number is based on what you get in your pocket from your salary (plus employer's national insurance that is most of the time hidden from the payslip) I didn't include local taxes (like council tax) and so on. Corporations are supposed to pay Corporation Tax, but they can too easily transfer profits offshore and largely avoid that in contrast to SME who mostly pay this tax.
Progressive tax ensures that person from poor background will stay poor.
> Progressive tax ensures that person from poor background will stay poor.
How so? With progressive tax there is no point at which you make less money than if you had less income.
How so? With progressive tax there is no point at which you make less money than if you had less income.
This statement becomes less true if you take into effect entitlement and assistance programs in the US atleast.
If you cross a threshold from 20% to 40%, for every £1000 made over that threshold you pay £400 instead of £200. Sure you are still making more money, but suddenly you don't have that £200 that you could save or invest.
[deleted]
A linear tax would mean a person trying to move up the income ladder is more encumbered by tax for the same amount of tax revenue on a given population.
Your suggestion above that low income workers are exempt from taxes, is a description of a progressive tax.
I’m not really sure I understand what you’re suggesting should be done.
Your suggestion above that low income workers are exempt from taxes, is a description of a progressive tax.
I’m not really sure I understand what you’re suggesting should be done.
Are you saying that 40% of tax is less than 20% of tax? I don't follow.
My point is that the tax should be linear with tax free allowance. That is everyone pays 20% on income above tax free allowance.
You can call it a progression, but this way anyone can level up if they want to. If you add 40% and more further down the line you are slowing down how people from poor background can improve their living.
For a government to make the same revenue with a linear tax as they do with a progressive tax, this mathematically implies that a tax increase for poorer people and a tax cut for lower people.
Alternatively, you can cut government spending, which normally means cutting services that disproportionately affects the poor.
Either way, moving from a progressive tax to a flat tax is a guaranteed net negative for the poor.
Alternatively, you can cut government spending, which normally means cutting services that disproportionately affects the poor.
Either way, moving from a progressive tax to a flat tax is a guaranteed net negative for the poor.
My original point is that corporation do not pay as much tax as they should. The come down from progression should be gradual - as corporate tax holes are plugged, the higher tax rates could be reduced. So that wouldn't affect the poor. It only slightly changes who pays for it.
I think what you're missing here is the alternative to progressive tax is all income is taxed at or close to the existing highest rates, as that is where by a very large margin most tax is collected. Ultimately this leads to those poorest in society suffering the most.
Because this 40% of tax only applies to what you earn above a certain threshold, at which point you are no longer considered to be a poor person.
That's true for all taxes, If tax is at 0%, you'll have all the money. Idea is for a person making 20k, tax is going out of food/shelter money, for someone making 100k, it is going out of vacation/investing, for one making millions, it is going out of extra money.
If you are paying 40%-50% you will never move up classes. It is a tool to prevent the middle class from reaching rich person status.
For the poorest many are paying no or little income taxes so the income is the issue not the taxes.
For the poorest many are paying no or little income taxes so the income is the issue not the taxes.
That makes no sense. How can you do away with progressive taxation without increasing the tax burden on the lower and middle classes?
It seems like you don't know what progressive taxation is since it's what you're actually arguing for...
> Then you have progressive tax that is preventing you from saving much - if you want to save for a deposit to buy a house, spend time on education and getting a better job, you'll get hit by much higher tax and it will take ages to save anything.
I'm having a hard time understanding the logic here. The government needs a certain amount of money to run [1]. If you make the tax rate flat then, in order to bring in the same amount of money, the lower incomes _must_ pay more taxes. While I'm open to an argument that this is false, I cannot come up with any way it could possibly be. As such, your argument seems to be
> When a person makes over X amount of money, a progressive tax makes it hard for them to save any of that money over X because the amount they make over X is taxed higher. As such, we should tax earnings below X higher, so there's less of a jump.
And that ^ argument makes no sense to me.
[1] This is arguable, but it's fair to say that the amount the government needs is orthogonal to whether taxes are progressive or not.
I'm having a hard time understanding the logic here. The government needs a certain amount of money to run [1]. If you make the tax rate flat then, in order to bring in the same amount of money, the lower incomes _must_ pay more taxes. While I'm open to an argument that this is false, I cannot come up with any way it could possibly be. As such, your argument seems to be
> When a person makes over X amount of money, a progressive tax makes it hard for them to save any of that money over X because the amount they make over X is taxed higher. As such, we should tax earnings below X higher, so there's less of a jump.
And that ^ argument makes no sense to me.
[1] This is arguable, but it's fair to say that the amount the government needs is orthogonal to whether taxes are progressive or not.
Yes, but...
Decades and decades ago, corporations paid most of the tax. People paid very little.
Then things shifted. Instead of taxing corporations, people were taxed. Said people, with less money in their pocket, required raises. And so, over time, tax shifted from corporate to personal, but with people in the end taking home approximately as much as they had before.
For example, you have $60k pretax, $50k take home. Tax rate goes up. You have less, demand a raise. You now make $65k pretax, yet have $50k take home.
Of course, the numbers are merely there for example.
Why all of this? Why a reduction on corporate taxes?
Well, because now corporations can exist anywhere on the planet. If you tax a corporation too high, it can move, and you have nothing to tax. It used to be that this thing called 'tariffs' and 'duties' were an equalizing factor.
If a car manufacturer moved off short to save corporate tax, why then you'd add import tariffs. The point being, the tariff was there to replace the lost corporate tax.
Of course, tariffs are 'bad', and the goal of international trade now, seems to be to lift the third world out of poverty. Which is a laudable goal, however, with no import taxes on many things, and with corporations able to move at whim?
You must keep corporate tax low, or you lose out to competing regions. This is doubly troublesome in a new economy, in which many goods are entirely virtual, and fly across borders on the Internet.
Thus, taxes remain at the personal level -- for people cannot easily move.
Right or wrong? Well, you have to get tax somewhere. And under the current model, it is hard to get it from corporations, squeeze too much, and they're gone. And this model is enabled by most 1st world governments world wide, which have decided that import tax, tariffs, are a bad thing.
The only alternative to more corporate tax, and less personal tax, is to re-enact import taxes, duty, that sort of thing. Else, how do you prevent corporations from moving?
Of course, it's not entirely as simple as all of this, but nothing at a 10000 foot view is. It's just an overview.
Decades and decades ago, corporations paid most of the tax. People paid very little.
Then things shifted. Instead of taxing corporations, people were taxed. Said people, with less money in their pocket, required raises. And so, over time, tax shifted from corporate to personal, but with people in the end taking home approximately as much as they had before.
For example, you have $60k pretax, $50k take home. Tax rate goes up. You have less, demand a raise. You now make $65k pretax, yet have $50k take home.
Of course, the numbers are merely there for example.
Why all of this? Why a reduction on corporate taxes?
Well, because now corporations can exist anywhere on the planet. If you tax a corporation too high, it can move, and you have nothing to tax. It used to be that this thing called 'tariffs' and 'duties' were an equalizing factor.
If a car manufacturer moved off short to save corporate tax, why then you'd add import tariffs. The point being, the tariff was there to replace the lost corporate tax.
Of course, tariffs are 'bad', and the goal of international trade now, seems to be to lift the third world out of poverty. Which is a laudable goal, however, with no import taxes on many things, and with corporations able to move at whim?
You must keep corporate tax low, or you lose out to competing regions. This is doubly troublesome in a new economy, in which many goods are entirely virtual, and fly across borders on the Internet.
Thus, taxes remain at the personal level -- for people cannot easily move.
Right or wrong? Well, you have to get tax somewhere. And under the current model, it is hard to get it from corporations, squeeze too much, and they're gone. And this model is enabled by most 1st world governments world wide, which have decided that import tax, tariffs, are a bad thing.
The only alternative to more corporate tax, and less personal tax, is to re-enact import taxes, duty, that sort of thing. Else, how do you prevent corporations from moving?
Of course, it's not entirely as simple as all of this, but nothing at a 10000 foot view is. It's just an overview.
I'll add this as a reply, so as to not edit the original.
The downside of all of this, is that workers in regions with abysmal workers rights, win. No health care? No paid holidays? No sick leave? Work 6 or 7 days a week, 12 hour days?
Yay! Your region gets more jobs (China), because your workers cost less.
Government doesn't tax corporations OR workers much? Well, then the worker's wages are even cheaper. The Government can't afford schools, police, etc, etc, but.. yay! You now took jobs from regions which have these things.
Which is what 'fair trade', and 'child labour' campaigns work against, but of course have limited success sadly.
Point is, I really think tariffs and a reduction in free trade, is the only way to prevent a race to the bottom.
People wonder why wages have continuously slipped in the US for the average Joe? Well, how can you compete with places that have workers working in such conditions. Who have abysmal human rights? Have no schools, or infrastructure.
Of course products are cheaper! And thus, with no tariffs, you lose in the end.
The downside of all of this, is that workers in regions with abysmal workers rights, win. No health care? No paid holidays? No sick leave? Work 6 or 7 days a week, 12 hour days?
Yay! Your region gets more jobs (China), because your workers cost less.
Government doesn't tax corporations OR workers much? Well, then the worker's wages are even cheaper. The Government can't afford schools, police, etc, etc, but.. yay! You now took jobs from regions which have these things.
Which is what 'fair trade', and 'child labour' campaigns work against, but of course have limited success sadly.
Point is, I really think tariffs and a reduction in free trade, is the only way to prevent a race to the bottom.
People wonder why wages have continuously slipped in the US for the average Joe? Well, how can you compete with places that have workers working in such conditions. Who have abysmal human rights? Have no schools, or infrastructure.
Of course products are cheaper! And thus, with no tariffs, you lose in the end.
> Decades and decades ago, corporations paid most of the tax. People paid very little.
Regarding corporations paying most of the tax, according to the data at FRED (b. 1947) there has never been a point at which corporate tax receipts have exceeded individual income tax receipts: https://fred.stlouisfed.org/graph/?g=CTxn
Regarding people paying very little, all taxes (the main federal types are income, payroll, corporate, excise, and "other") are ultimately paid by people: customers, employees, shareholders, etc.
Regarding corporations paying most of the tax, according to the data at FRED (b. 1947) there has never been a point at which corporate tax receipts have exceeded individual income tax receipts: https://fred.stlouisfed.org/graph/?g=CTxn
Regarding people paying very little, all taxes (the main federal types are income, payroll, corporate, excise, and "other") are ultimately paid by people: customers, employees, shareholders, etc.
I think this is a good overview of some of the challenges in taxing corporations. Personally, I don't mind keeping taxes on corporate profits low given their ability to be gained (not just by shifting across borders, but through many other accounting tricks). The problem right now, in the U.S. at least, is two-fold: (1) smaller companies are still taxed at a relatively high-rate and (2) individuals pay a significantly lower tax on "capital gains" because it is assumed that investment income has already been taxes at the corporate level.
I would like to see an across the board lowering of the corporate tax rate, remove the capital gains exception counting all income as income, and making up any losses through a VAT. This would go a long way to decreasing the ability to gain the current system.
I would like to see an across the board lowering of the corporate tax rate, remove the capital gains exception counting all income as income, and making up any losses through a VAT. This would go a long way to decreasing the ability to gain the current system.
With corporations paying more for labour, they start looking for cheaper labour costs. They look for jurisdictions where there is a greater supply of labour and lower labour standards. This reduces the negotiating power of labour in regions with higher taxation, resulting in the stagnation or reduction of wages. In turn, this results in lower tax revenues which results in higher taxation or cuts to government spending.
Whether this is good or bad is a matter of perspective. Some people are all for lower government spending (sometimes for justifiable reasons) and labour in the lower tax jurisdictions may benefit. What doesn't change is the balance of power: the wealthy will virtually always benefit it. The people at the bottom have very little autonomy since they have to roll with the punches to simply survive.
Whether this is good or bad is a matter of perspective. Some people are all for lower government spending (sometimes for justifiable reasons) and labour in the lower tax jurisdictions may benefit. What doesn't change is the balance of power: the wealthy will virtually always benefit it. The people at the bottom have very little autonomy since they have to roll with the punches to simply survive.
Slavery (in many forms) continues to be very attractive for business purposes
>And under the current model, it is hard to get it from corporations, squeeze too much, and they're gone
How can that possibly be? All corporations cannot just move elsewhere. There is not infinite space or talent or customers in this magical 'elsewhere' that everyone fears the corporations will move to. There are simply not enough trained people while, on the other hand, there are people right here right now currently working the very job in question at these corporations. Sure, out of 1000 companies, maybe 10 would find enough skilled workers to fully staff an office in Germany or Singapore or Australia, but the other ones will have just shot themselves in the foot and they know it. That's why they currently pay the premium to have an American office and not one in Bangladesh today, because if cost was end all be all these companies would have left for Bangladesh in the 1980s. Twitter would be a Bangladeshi company. We would be posting on news.ycombinator.bd right now. It's not cost, it's talent. It's also access to the American market of 400 million people at a higher standard of living than the median person on Earth. If we are worried Ford is going to take their manufacturing jobs to Bangladesh and make us buy Bangladeshi Fords, we could just sanction these industries such that the only legal Ford is an American one, like how we make Honda assemble Civics domestically. We already do this with domestic auto markets to an extent, having certain regulations means certain companies do not bother selling cars here, and vis versa, despite the car being an in demand product world wide.
How can that possibly be? All corporations cannot just move elsewhere. There is not infinite space or talent or customers in this magical 'elsewhere' that everyone fears the corporations will move to. There are simply not enough trained people while, on the other hand, there are people right here right now currently working the very job in question at these corporations. Sure, out of 1000 companies, maybe 10 would find enough skilled workers to fully staff an office in Germany or Singapore or Australia, but the other ones will have just shot themselves in the foot and they know it. That's why they currently pay the premium to have an American office and not one in Bangladesh today, because if cost was end all be all these companies would have left for Bangladesh in the 1980s. Twitter would be a Bangladeshi company. We would be posting on news.ycombinator.bd right now. It's not cost, it's talent. It's also access to the American market of 400 million people at a higher standard of living than the median person on Earth. If we are worried Ford is going to take their manufacturing jobs to Bangladesh and make us buy Bangladeshi Fords, we could just sanction these industries such that the only legal Ford is an American one, like how we make Honda assemble Civics domestically. We already do this with domestic auto markets to an extent, having certain regulations means certain companies do not bother selling cars here, and vis versa, despite the car being an in demand product world wide.
Does this argument imply that there is a race to the bottom for all metrics a corporation might care about?
For example, wages moving to countries with less worker protections. Couldn't the same argument advocate for lowering worker protections in the US, so that the jobs don't move to China? Which many of the jobs have done anyway, despite low corporate taxes?
For example, wages moving to countries with less worker protections. Couldn't the same argument advocate for lowering worker protections in the US, so that the jobs don't move to China? Which many of the jobs have done anyway, despite low corporate taxes?
Flaw in argumemt: real wages not improving for several decades. Can you please provide sources where corporations were the primary tax vehicle?
See my reply to my original post.
Tax rate changes are well known, but here's an example. Click on 'max' for a decades long look.
https://tradingeconomics.com/canada/corporate-tax-rate
In terms of 'real world' wages not improving, that's a somewhat arbitrary term. If you mean 'pre-tax', wages HAVE improved over time pre-tax. We're talking over 50+ years here.
'post-tax', they did improve, but that was before the great exodus of manufacturing overseas. Since that time, since 'free trade' was a 'good thing', they have fallen steadily.
Tax rate changes are well known, but here's an example. Click on 'max' for a decades long look.
https://tradingeconomics.com/canada/corporate-tax-rate
In terms of 'real world' wages not improving, that's a somewhat arbitrary term. If you mean 'pre-tax', wages HAVE improved over time pre-tax. We're talking over 50+ years here.
'post-tax', they did improve, but that was before the great exodus of manufacturing overseas. Since that time, since 'free trade' was a 'good thing', they have fallen steadily.
> Since that time, since 'free trade' was a 'good thing', they have fallen steadily.
There is a savings glut and free trade definitively did contribute to it but it's not the only factor. There are dozens of other factors that play a role as well.
Here is how the loop works. China buys dollars with yuan to maintain a certain rate. China ends up with excess dollars. The dollar gets stronger and people stop buying from USA. The Yuan gets weaker and people buy more from China. China buys US treasury bonds with the USD, which is equivalent to saying that the US government can manage the money better than China (China is probably saving for pensions). The only way the US government can access the money is by issuing debt. If the US government doesn't issue debt then there are excess savings. Savings are deferred consumption and since consumption is paying the wage of a worker it is also deferred employment. If the US government refuses to spend the money then you get unemployment. The truth is that this isn't where it ends. If the US government does issue debt, then it can invest it into infrastructure, education, housing and so on. The US ends up both with infrastructure and low unemployment. It could be worse, Americans would otherwise have to spend their days working in factories and there wouldn't be any time left to build infrastructure.
There is a savings glut and free trade definitively did contribute to it but it's not the only factor. There are dozens of other factors that play a role as well.
Here is how the loop works. China buys dollars with yuan to maintain a certain rate. China ends up with excess dollars. The dollar gets stronger and people stop buying from USA. The Yuan gets weaker and people buy more from China. China buys US treasury bonds with the USD, which is equivalent to saying that the US government can manage the money better than China (China is probably saving for pensions). The only way the US government can access the money is by issuing debt. If the US government doesn't issue debt then there are excess savings. Savings are deferred consumption and since consumption is paying the wage of a worker it is also deferred employment. If the US government refuses to spend the money then you get unemployment. The truth is that this isn't where it ends. If the US government does issue debt, then it can invest it into infrastructure, education, housing and so on. The US ends up both with infrastructure and low unemployment. It could be worse, Americans would otherwise have to spend their days working in factories and there wouldn't be any time left to build infrastructure.
Further to this ; in Canada, we have to constantly, and directly, worry about the US corporate tax rate. If it drops too low, compared to our tax rate? Companies can VERY easily flee to the US, and with the FTA/NAFTA/whatever it's called now?
No issues with product across the border.
So even though many Canadians are in favour of a higher corporate tax rate, it would literally be deadly. We must compete, we must race to the bottom, else corporations will move South.
No issues with product across the border.
So even though many Canadians are in favour of a higher corporate tax rate, it would literally be deadly. We must compete, we must race to the bottom, else corporations will move South.
Canada has a lower corporate tax rate than the US, at least prior to the Trump tax cuts.
Hey, I sell the biggest pigs you can buy at a bovine stockyards. Also the best wheat forward contracts you'll find in the metals futures market.
Facetciousness aside, the Canadian experience is not comparable to the US experience, which is the subject of the article.
Facetciousness aside, the Canadian experience is not comparable to the US experience, which is the subject of the article.
Why is your link about Canada?
National Sales Tax - tax the purchase of goods at services. Then it doesn't matter where the corporation has their HQ. No import tax needed.
The problem with sales tax/VAT is they’re regressive - the lower your income the proportionally more you pay.
> if you want to save for a deposit to buy a house, spend time on education and getting a better job, you'll get hit by much higher tax and it will take ages to save anything.
I actually disagree. The issue isn't the tax rate, the issue is the arms races we have embedded all over our economy. Take housing, for example. No matter what you put as your tax rate the people in the region are going to compete for the limited amount of housing stock. The same is true for premier universities or top medical care. These arms races in our economies are eating up all the real productivity gains we've made in physical goods. If you compare the cost of a small home across time in something physical like eggs the cost has absolutely sky rocketed and it has nothing to do with tax. There are certain sectors of the economy that the market can't produce more of efficiently, like housing.
I actually disagree. The issue isn't the tax rate, the issue is the arms races we have embedded all over our economy. Take housing, for example. No matter what you put as your tax rate the people in the region are going to compete for the limited amount of housing stock. The same is true for premier universities or top medical care. These arms races in our economies are eating up all the real productivity gains we've made in physical goods. If you compare the cost of a small home across time in something physical like eggs the cost has absolutely sky rocketed and it has nothing to do with tax. There are certain sectors of the economy that the market can't produce more of efficiently, like housing.
Higher tax bracket reduces the pool of people competing for properties in favour of people who already have money - from wealthy parents or their businesses, if they are lucky or depending how easily they can get a loan (here we have a plague of buy to let loans that let people with some money buy properties left and right)
In my opinion housing here is artificially limited as it is over-regulated and you can't simply buy a land and build a house on it.
All that combined it makes it accessible only for the rich and if you are from a poor background you are unlikely to join them because of numerous stops put in place.
I remember reading that employment numbers is often a case big Corps make when they warrant dodging tax. “We employe X thousand people who contribute Y to the tax base so we really do pay tax”.
It gets worse when you think about how few people technology companies really employ when compared to more traditional companies (Alphabet employs 130k, Walmart 2.2 million). They have annual profits of 40billion and ~4billion (2019) respectively. It’s bonkers that employing people is a good enough reason to warrant not paying tax.
It gets worse when you think about how few people technology companies really employ when compared to more traditional companies (Alphabet employs 130k, Walmart 2.2 million). They have annual profits of 40billion and ~4billion (2019) respectively. It’s bonkers that employing people is a good enough reason to warrant not paying tax.
I'm sure I just got hit by a not-so-new idea: to tax corporations on profit-per-employee basis. Automation tax, efficiency tax. Imagine the discourse!
To add to that - they essentially appropriate taxes workers pay as their own taxes - as if they owned the work that worker put their life into. This is insanely evil.
No. They appropriate the employment taxes that they themselves are paying. Most folks aren't aware that employees in the US only pay half of the income tax for their employment. The company pays the other half. And those taxes usually aren't counted in these dramatic "blah company paid zero taxes" headlines. They also usually don't include real property taxes, sales taxes, etc.
Also to note, the US (now) has somewhat competitive corporate tax rates compared to its peer countries. However, most countries have a lower (or much lower) corporate tax rate than the US has. We shouldn't be comparing corporate tax rates with personal income tax rates... we should be comparing corporate tax rates amongst similar countries.
The lack of understanding of the tax rules by folks writing these dramatic headlines is really irritating.
Also to note, the US (now) has somewhat competitive corporate tax rates compared to its peer countries. However, most countries have a lower (or much lower) corporate tax rate than the US has. We shouldn't be comparing corporate tax rates with personal income tax rates... we should be comparing corporate tax rates amongst similar countries.
The lack of understanding of the tax rules by folks writing these dramatic headlines is really irritating.
Isn't an employment contract a worker entering an agreement to give work to an employer? Why is it evil for a corporation to own the work a worker is paid to do?
I am sorry, I probably didn't word it too well. My point is that corporation may say that the tax a worker pays is actually their tax and they use that to justify why they pay next to no tax themselves.
For example it is said that Amazon pays little tax in comparison to their profits and politicians use the argument that Amazon provide jobs and the workers pays tax, as if it was the Amazon who pays those taxes.
Shifting the blame on the victim. One reason that workers pay so much tax is because corporations don't. Corporations then enjoy multi billion profits and workers barely can get by.
Yep. I just got an equity payout from an acquisition. It’s a lot of money, though it isn’t going to allow me to retire early. Would be enough for a house down payment, which is good enough for me!
However, I am paying literally 40% in taxes due to how it was paid out. As someone who desperately needs this money, it’s devastating. To hear that large corps can weasel their way out of paying is extremely infuriating.
However, I am paying literally 40% in taxes due to how it was paid out. As someone who desperately needs this money, it’s devastating. To hear that large corps can weasel their way out of paying is extremely infuriating.
Needing the equity payment from your acquisition, untaxed, to put a down payment down on a house is not what the vast majority of people would think of as desperation.
You're going to get enough tax breaks and subsidy for buying the house anyway.
You're going to get enough tax breaks and subsidy for buying the house anyway.
What kind of tax breaks and subsidies are available for home buying?
The big one is deducting interest paid. It greatly reduced the amount of money the government takes from me every year
> However, I am paying literally 40% in taxes due to how it was paid out. As someone who desperately needs this money, it’s devastating. To hear that large corps can weasel their way out of paying is extremely infuriating.
You can weasel out of it as well. You need to exercise your options at least a year before acquisition. Often you can do this even if you haven't vested the options yet.
You can weasel out of it as well. You need to exercise your options at least a year before acquisition. Often you can do this even if you haven't vested the options yet.
“small” corporations could do exactly the same - if you find employment easier than starting your own company and fighting to get customers, maybe everyone else does too? But if there is an economic benefit to people starting companies, shouldn’t tax policy also recognize that and try to make it easier? You never see headlines saying “$blahCo lost $400 million dollars of their own money last year, of which $50 million was taxes to the government and $300 million was payment to employees”. Doesn’t that suggest you’re only hearing one side of the story now?
How was it paid out that your federal income tax liability is 40%
Or are you talking about withholding? Which is not accurate to describe as “taxes paid”. Also, if including state tax, then it might be higher, but I would still be surprised if your total tax liability was over 40%.
Or are you talking about withholding? Which is not accurate to describe as “taxes paid”. Also, if including state tax, then it might be higher, but I would still be surprised if your total tax liability was over 40%.
They didn’t claim their federal tax liability was 40%; they claimed they were paying 40% total tax rate on the acquisition-related income, something which is true for most employees in most states for many acquisitions.
I’m aware, but I don’t see how that has a relevance to discussion Netflix’s federal income tax liability. My point was people in these comments are throwing out personal tax liability figures for comparison including various things such as state taxes, social security, Medicare, which makes things not very comparable.
Because people are people and not math proof generation engines.
Someone worked hard, achieved an intermediate goal that they hoped was going to move them one rung up the economic ladder only to find out that taxes took a much larger bite than they’d hoped or previously considered. So, they’re naturally discouraged to read about some big company somewhere paying a much lower overall rate while comparing it to their own.
Perhaps the real question is why the authors of these articles don’t put everything into terms more directly relatable to the people reading the article? That’s because doing so makes for less outrage-sharing of the article.
Someone worked hard, achieved an intermediate goal that they hoped was going to move them one rung up the economic ladder only to find out that taxes took a much larger bite than they’d hoped or previously considered. So, they’re naturally discouraged to read about some big company somewhere paying a much lower overall rate while comparing it to their own.
Perhaps the real question is why the authors of these articles don’t put everything into terms more directly relatable to the people reading the article? That’s because doing so makes for less outrage-sharing of the article.
Yep, total tax rate.
If it's paid out as ordinary (W-2) income, then your top federal tax rate right this minute is 39.35% (37% regular tax, 1.45% medicare tax, 0.9% medicare surtax).
If it's paid out as some sort of investment income not subject to long-term capital gains treatment (e.g. interest, non-qualified dividends), then your top federal rate is 40.8% (37% regular, 3.8% net investment tax).
That does assume $500k of taxable income not counting the payout we're talking about here, to hit that 37% tax bracket.
If you have kids, you can hit these sorts of marginal rates at lower incomes too, because of the 5% marginal tax rate from the child credit phaseout.
I should note that money is fungible, so the fact that some of this is claimed to be "medicare" tax and some is claimed to be "income" tax is irrelevant to both the person paying the tax and the government collecting the tax. Medicare is not funded solely by the "medicare" tax in practice, so the fact that there's a separate tax is more or less an accounting oddity.
If it's paid out as some sort of investment income not subject to long-term capital gains treatment (e.g. interest, non-qualified dividends), then your top federal rate is 40.8% (37% regular, 3.8% net investment tax).
That does assume $500k of taxable income not counting the payout we're talking about here, to hit that 37% tax bracket.
If you have kids, you can hit these sorts of marginal rates at lower incomes too, because of the 5% marginal tax rate from the child credit phaseout.
I should note that money is fungible, so the fact that some of this is claimed to be "medicare" tax and some is claimed to be "income" tax is irrelevant to both the person paying the tax and the government collecting the tax. Medicare is not funded solely by the "medicare" tax in practice, so the fact that there's a separate tax is more or less an accounting oddity.
>> If it's paid out as ordinary (W-2) income, then your top federal tax rate right this minute is 39.35% (37% regular tax, 1.45% medicare tax, 0.9% medicare surtax).
There is also state tax, which can be significant (double digits), esp for top brackets.
There is also state tax, which can be significant (double digits), esp for top brackets.
Indeed. That varies widely, though, and corporations are subject to it too, with its own weirdnesses, so I was trying to stick to apples-to-apples federal tax comparisons.
I does vary widely, but the weighted majority of all such cases are in California (and NY might be next.) Those two states happen to have among the highest state taxes also.
Consider this: Where were the last 20 major IPOs? The last 20 major acquisitions? Where were the founding teams (i.e., the ones with the most stock facing such issues.) ...I'll bet 80% or more of these were in CA. I'm only pointing this out because once you're a super-successful startup and you've gone thru all the steps for a successful liquidity event, there is the final bath of taxes :-/
Consider this: Where were the last 20 major IPOs? The last 20 major acquisitions? Where were the founding teams (i.e., the ones with the most stock facing such issues.) ...I'll bet 80% or more of these were in CA. I'm only pointing this out because once you're a super-successful startup and you've gone thru all the steps for a successful liquidity event, there is the final bath of taxes :-/
Dont forget: consumers also pay the taxes of the companies as they are factored into the costs of products and services. What matters here is the relative incentive/disincentive that taxation signals.
40% on income from labour shows: dont get income from labour! Small percent on income from property (dividents, etc) show that that's the best place to get money from. Almost zero percent on pollution signals: go for it!
40% on income from labour shows: dont get income from labour! Small percent on income from property (dividents, etc) show that that's the best place to get money from. Almost zero percent on pollution signals: go for it!
More precisely: corporate income tax incidence is split between consumers (higher prices), shareholders (lower dividends) and employees (lower salaries). The exact split is a topic of hot debate in the economics literature, and likely depends on the exact market conditions facing that specific company...
Similarly, the incidence of things like the employer half of FICA is somewhat split between the employer and the employee (in the form of lower salary for the latter). Here, as I understand it, the general consensus is that the incidence falls mostly on the employee, except in cases of binding constraints like the minimum wage.
Similarly, the incidence of things like the employer half of FICA is somewhat split between the employer and the employee (in the form of lower salary for the latter). Here, as I understand it, the general consensus is that the incidence falls mostly on the employee, except in cases of binding constraints like the minimum wage.
What is the source for 40% tax on income for labor?
https://www.irs.com/articles/2020-federal-tax-rates-brackets...
If you’re adding state taxes, note that the linked article is discussing federal income taxes only. Even then, including state taxes does not get you to 40% for 99% of people.
https://www.irs.com/articles/2020-federal-tax-rates-brackets...
If you’re adding state taxes, note that the linked article is discussing federal income taxes only. Even then, including state taxes does not get you to 40% for 99% of people.
For (single) self-employed people making between ~$85k and $137k, the marginal federal tax rate they face is a little under 40%, with 24% from your link, ~12% from Social security, and ~3% from Medicare. This excludes the effect of phaseouts of various deductions (eg, student loan interest), which can easily drive that higher while remaining within the context of federal taxation only.
Everybody forgets about Social Security and Medicare. Writing out the federal marginal rates for the different income brackets with SS and Medicare included is very eye-opening.
The other thing people forget are means-tested aid programs each of which is seemingly designed without considering interactions with the other ones. There are various places in the 0-$40k income range where people face >100% marginal rates due to the combination of actual taxes and benefit phaseouts...
If you have a company, you can do this as well. This isn't unique to big corporations. This is why I went from sole proprietor -> llc -> s-corp. It took one successful year for me to figure this out. If you don't want to spend your income on taxes then reinvest into your business or donate to charities.
Investors almost always pay a minimum of 40% in taxes on earnings from their investments in corporations.
First the corporation pays 20% (soon to be 28% again) on the profits. Then it pays state income taxes on the remaining profits (0-11%). Then the investor pays capital gains or dividend taxes (10-20%). Finally they pay their state taxes (0-12%).
First the corporation pays 20% (soon to be 28% again) on the profits. Then it pays state income taxes on the remaining profits (0-11%). Then the investor pays capital gains or dividend taxes (10-20%). Finally they pay their state taxes (0-12%).
The 10% capital gains tax rate is history. Now it’s been merged into the 15% bracket.
To the rest of your comment: interesting point. I wonder if there’s a certain tax rate where it makes sense to change how you invest. Sort of like the difference in investing in Voyager digital (VYVGF) or the Voyager token (VGX). Stock buybacks are not tax deductible but buying a cryptocurrency can be a business expense.
Last, I think the business tax rate hardly matters because so much can be written off and justified as business expenses. Just look at Amazon, Netflix and Tesla as examples. Amazon receives customer money before it has to pay suppliers. Thus, it can quickly go spend that surplus money on reinvesting into more distribution centers, better salaries, and automation until the taxable profit is $0.
To the rest of your comment: interesting point. I wonder if there’s a certain tax rate where it makes sense to change how you invest. Sort of like the difference in investing in Voyager digital (VYVGF) or the Voyager token (VGX). Stock buybacks are not tax deductible but buying a cryptocurrency can be a business expense.
Last, I think the business tax rate hardly matters because so much can be written off and justified as business expenses. Just look at Amazon, Netflix and Tesla as examples. Amazon receives customer money before it has to pay suppliers. Thus, it can quickly go spend that surplus money on reinvesting into more distribution centers, better salaries, and automation until the taxable profit is $0.
> If you are a worker, it is not uncommon to pay over 40% of tax and if you work on your own small business you can pay even more and have very little left to reinvest.
Not true according to this:
https://files.taxfoundation.org/20200225094221/FF697-01.png
https://taxfoundation.org/summary-of-the-latest-federal-inco...
Not true according to this:
https://files.taxfoundation.org/20200225094221/FF697-01.png
https://taxfoundation.org/summary-of-the-latest-federal-inco...
I am writing from European perspective, I should add that. However I read that in some states it is quite similar.
The linked article is referencing federal income tax in the US.
If state and other local taxes need to be factored in, the situation becomes much more complex and almost impossible to compare.
If state and other local taxes need to be factored in, the situation becomes much more complex and almost impossible to compare.
In pretty much every western European country your tax rates can easily hit 60%+ (like the 100k 60% cliff in the UK). The budgets of these governments are all largely funded on the backs of middle class income tax - 40% of all receipts in the UK, plus another 10-15% from VAT - compared to a lowly 9% from corporation tax [1]. You have to wonder how the economy can ever evolve given everything is geared towards suppressing middle class earners from ever having significant capital.
1: https://commonslibrary.parliament.uk/research-briefings/cbp-...
1: https://commonslibrary.parliament.uk/research-briefings/cbp-...
The 60% effective tax rate is only on earnings between 100k and 125k, and only because of the loss of certain tax benefits. After 125k it drops back to 40%. It's really silly that it exists, but isn't representative of UK tax rates, it is just a weird side effect of the loss of the personal allowance.
And I reckon most earning between 100k and 125k would avoid that 60% by contributing to their pension, so I don't think many are affected by it.
And I reckon most earning between 100k and 125k would avoid that 60% by contributing to their pension, so I don't think many are affected by it.
[deleted]
If you make £60k before tax, your effective rate is still about 40% (if you add employer's NI which does not appear on payslips). Then you also have to add local taxes like council tax etc. It's not looking good.
From tomorrow we are also going to get this - https://norightsemployee.uk/faq - workers on such contracts will have to factor employer's NI and apprenticeship levy in their rates.
That’s the same kind of nuance which makes the linked article’s claim of 1% tax paid a non story (at least in the context of talking about Netflix specifically).
Nearly every European country has yet to recover to pre-2000 crash market levels. Western Europe's economy has yet yo fully integrate with the 21st century.
> If you are a worker, it is not uncommon to pay over 40% of tax and if you work on your own small business you can pay even more and have very little left to reinvest.
First: "if you work on your own small business you can pay even more" ... huh? If you own a small business, you're getting the corporate tax rate, and chances are you're not paying much of taxes anyway because your net revenues probably are $0 or close to $0. What are you talking about here?
Anyway, it's weird to state it as corporation vs worker with respect to tax rate. Those are different kinds of things. Every worker in a corporation pays personal income tax. Shareholders also pay taxes on capital gains and dividends. A corporations also pay plethora of other taxes (like payroll taxes). So let's not pretend there is no tax benefit to having corporations do business in your nation. The vast majority of corporations also have a profit margin in the range of 5%-10% - so it's not like you see crazy profits all over the place.
And given the nature of a corporation and the role it plays, increasing taxes (to say, the level of personal income taxes) to fulfil the fantasies of anti-capitalists, will have disastrous effects on the wider economy of a nation because increasing cost of doing business will be passed down to consumers and workers and possibly lead to large-scale dissolution or abandonment of your region. The vaunted nordic countries opted for a model where personal income is taxed very high, but corporate income is taxed competitively (until the Trump tax cuts, Nordic corporate tax rates were universally lower than those of US).
Finally, tax policy is an area replete with potential 'unintended consequences'. Most people (myself included and you as well - after reading your comment) don't really understand why everything is the way it is (and there are good reasons for many tax regulations), so I would be careful with advocating for restructuring the entire system - you're going to screw it up worse than you think it is now.
First: "if you work on your own small business you can pay even more" ... huh? If you own a small business, you're getting the corporate tax rate, and chances are you're not paying much of taxes anyway because your net revenues probably are $0 or close to $0. What are you talking about here?
Anyway, it's weird to state it as corporation vs worker with respect to tax rate. Those are different kinds of things. Every worker in a corporation pays personal income tax. Shareholders also pay taxes on capital gains and dividends. A corporations also pay plethora of other taxes (like payroll taxes). So let's not pretend there is no tax benefit to having corporations do business in your nation. The vast majority of corporations also have a profit margin in the range of 5%-10% - so it's not like you see crazy profits all over the place.
And given the nature of a corporation and the role it plays, increasing taxes (to say, the level of personal income taxes) to fulfil the fantasies of anti-capitalists, will have disastrous effects on the wider economy of a nation because increasing cost of doing business will be passed down to consumers and workers and possibly lead to large-scale dissolution or abandonment of your region. The vaunted nordic countries opted for a model where personal income is taxed very high, but corporate income is taxed competitively (until the Trump tax cuts, Nordic corporate tax rates were universally lower than those of US).
Finally, tax policy is an area replete with potential 'unintended consequences'. Most people (myself included and you as well - after reading your comment) don't really understand why everything is the way it is (and there are good reasons for many tax regulations), so I would be careful with advocating for restructuring the entire system - you're going to screw it up worse than you think it is now.
Companies in the US are people until it comes to taxes, then all of a sudden they're not. There is a lot to fix...
>"This is crazy how economy is tilted in favor of these big corporations."
Corporations are allowed to bribe (sorry lobby) the government and many politicians end up on board of directors of the same corps after their marriage with the government is done away with. Do you really expect any different outcome in such conditions? In combination with this 2 major political parties ping pong I think the system is pretty much has reached an equilibrium point and nothing short of major turmoil is going to change anything.
On top of that Covid 19 pretty much played to the advantage of big corporations annihilating many small businesses. Some big ones (hotel chains, aviation) got hit as well but they'll come back after a while. Small businesses however may not.
Corporations are allowed to bribe (sorry lobby) the government and many politicians end up on board of directors of the same corps after their marriage with the government is done away with. Do you really expect any different outcome in such conditions? In combination with this 2 major political parties ping pong I think the system is pretty much has reached an equilibrium point and nothing short of major turmoil is going to change anything.
On top of that Covid 19 pretty much played to the advantage of big corporations annihilating many small businesses. Some big ones (hotel chains, aviation) got hit as well but they'll come back after a while. Small businesses however may not.
> Among the mechanisms Netflix is using to achieve its next-to-nothing tax liability are accelerated depreciation (which appears to have cut the company’s tax expense by $148 million); deductions for stock options for Netflix executives and other employees ($339 million); and research and development tax credits ($113 million).
These are straightforward deductions.
These are straightforward deductions.
> and research and development tax credits ($113 million).
This is why you fill out your timesheets people!
This is why you fill out your timesheets people!
It seems wild to me that this R&D credit is probably targeted towards new technology that will improve the world, and not Netflix working out how to reduce video lag by an additional 0.2%
Have you ever heard of Chaos Monkey?
https://netflix.github.io/
https://netflix.github.io/
>> Among the mechanisms Netflix is using to achieve its next-to-nothing tax liability are accelerated depreciation (which appears to have cut the company’s tax expense by $148 million); deductions for stock options for Netflix executives...
Remember the corps used to get in trouble for not deducting stock options. Now it has turned into a "mechanism to achieve its next-to-nothing tax liability"
Remember the corps used to get in trouble for not deducting stock options. Now it has turned into a "mechanism to achieve its next-to-nothing tax liability"
Journalists just trying to make them look like tax dodgers.
Which they are, as discussed elsewhere in this thread, but the journalist doesn't know enough to point to the actual problematic behaviour.
Which they are, as discussed elsewhere in this thread, but the journalist doesn't know enough to point to the actual problematic behaviour.
They are. I’d be pretty upset if I wasn’t able to deduct such expenses from my taxes.
It’s almost predictable which “hot takes” will get clicks/attention.
I don't think it's almost predictable, I think it is predictable and that's why editors do it.
It would be perfectly fine for corporations to pay comically low taxes--- IF they also had NO ability to fund large-scale lobbying operations and were not allowed to put unlimited amounts of money into political campaigns. That's NOT ever going to happen.
But now is the best time for the tax part to change. The economy has been floated by unprecedented government pay-outs, narrowly avoiding a deep depression that would have crushed even the most cash-flush corporations. If certain people have their way, the working class will foot the bill for this for decades to come. Maybe it's time for those who thrived through this to pay their share just like in the post-WWII era where max tax rates reached 80+% up until the early 60's?
But now is the best time for the tax part to change. The economy has been floated by unprecedented government pay-outs, narrowly avoiding a deep depression that would have crushed even the most cash-flush corporations. If certain people have their way, the working class will foot the bill for this for decades to come. Maybe it's time for those who thrived through this to pay their share just like in the post-WWII era where max tax rates reached 80+% up until the early 60's?
>> It would be perfectly fine for corporations to pay comically low taxes
No it wouldn't
No it wouldn't
Why should corporations pay taxes on their profits? What's the argument for it?
For the privilege of continued access to a workforce that was educated by public schooling
For access to roads that are maintained by tax dollars
For environmental damages and other negative externalities that the tax payer has to pay to clean up
For an army and police system that allows the flow of commerce to continue without attacks and interruption
For a sovereign wealth fund if there is a surplus of tax revenue one year
For a court system so that corporations can continue to sue each other
To secure the population access to vaccines to reduce the spread of Covid and other diseases
To fund libraries that help the local population
To build sea ports and airports that provide the economy with better trade and transportation
These are some common things taxes are spent on but they are not reasons why corporations shouldn’t pay taxes on their free cash flow, revenue, or some other financial statement line item (FSLI) instead of their profit.
For access to roads that are maintained by tax dollars
For environmental damages and other negative externalities that the tax payer has to pay to clean up
For an army and police system that allows the flow of commerce to continue without attacks and interruption
For a sovereign wealth fund if there is a surplus of tax revenue one year
For a court system so that corporations can continue to sue each other
To secure the population access to vaccines to reduce the spread of Covid and other diseases
To fund libraries that help the local population
To build sea ports and airports that provide the economy with better trade and transportation
These are some common things taxes are spent on but they are not reasons why corporations shouldn’t pay taxes on their free cash flow, revenue, or some other financial statement line item (FSLI) instead of their profit.
You’re describing taxes. But why specifically taxes on profits? Why not taxes on things like property? Payroll? Sales taxes on things they buy? The myriad of taxes their employees pay?
Why tax profits?
Why tax profits?
We now have a situation were the tax code is intractably complex because of DECADES of finagling by the wealthy and their corporations to set things up strictly and shamelessly in their favor.
Sorry, but I just can't feel any sympathy for corporations and the wealthy who reap massive profit, in part, because they've long ago set up loopholes and laws to avoid paying a fair share.
So what is a fair share? Well, for starters, one that doesn't rely on a 2+ million word tax code and reams of related laws most of which serve to make exceptions for the wealthy.
Sorry, but I just can't feel any sympathy for corporations and the wealthy who reap massive profit, in part, because they've long ago set up loopholes and laws to avoid paying a fair share.
So what is a fair share? Well, for starters, one that doesn't rely on a 2+ million word tax code and reams of related laws most of which serve to make exceptions for the wealthy.
You're dodging the question: why tax profits?
Why not?
If you strictly and only tax consumption and property, you will have large segments of the population living hand-to-mouth, trapped in a vicious cycle of poverty and and hard labor in a hole that requires super-human or generational effort to get out of. Meanwhile, those who started with a leg up will continue to accelerate their net-worth. There are people who "make money" by "having money" and under your rules those people would only pay taxes on the fees they pay to their money manager. We aren't THAT far from that now were it not for the miserly 15% investment income tax.
I realize the typical HN-libertarian-calvinist view is that everything needs to be transactional. Transactional down to the level that the taxes someone pays would ideally go towards the services that they as an individual use, and that everyone needs to work in order order to be "worthy" of a social-safety-net (assuming a safety-net has to exist, which isn't a given in such points of view). It doesn't have to be that way but sadly there are motions in that direction.
If you strictly and only tax consumption and property, you will have large segments of the population living hand-to-mouth, trapped in a vicious cycle of poverty and and hard labor in a hole that requires super-human or generational effort to get out of. Meanwhile, those who started with a leg up will continue to accelerate their net-worth. There are people who "make money" by "having money" and under your rules those people would only pay taxes on the fees they pay to their money manager. We aren't THAT far from that now were it not for the miserly 15% investment income tax.
I realize the typical HN-libertarian-calvinist view is that everything needs to be transactional. Transactional down to the level that the taxes someone pays would ideally go towards the services that they as an individual use, and that everyone needs to work in order order to be "worthy" of a social-safety-net (assuming a safety-net has to exist, which isn't a given in such points of view). It doesn't have to be that way but sadly there are motions in that direction.
Still, why tax profits? Why not tax net worth? Why not revenue? Humans get taxed on their "revenue" (income).
Net worth taxes exist in a small number of places in Europe. It appears to be unpopular because it causes people to hide their assets and invest in assets that are harder to place a value on. Some places just have a property tax instead.
Revenue is taxed in many places; it’s called sales tax. Profit is also taxed. It is called an income tax / corporate tax.
Revenue is taxed in many places; it’s called sales tax. Profit is also taxed. It is called an income tax / corporate tax.
Humans can deduct things so they are taxed at their profits. It's just that rules are not straightforward and what counts as a deductible expense is not the same for both. So you are aiming at the wrong level for a critique. See https://news.ycombinator.com/item?id=26698446
I am just trying to highlight the fact that corporations have a double advantage: Low-to-no taxes + oversized political influence.
It would be an almost level playing field if they had only ONE of those advantages.
It would be an almost level playing field if they had only ONE of those advantages.
To me, it seems that discussing about corporations vs. individuals is the wrong kind of discussion to have. At the end corporations are groups of individuals, and whenever someone argues about unfairness of different treatment, there's an implicit "and that's bad because some individuals end up on a better position than others" that, I think, should be talked more explicitly.
At the end of the day, a corporation is an instrument, and its wealth is the wealth of some individuals. Corporations are instruments to coordinate wealth creation, so perhaps the issue is how/whether rich people are profiting too much from "The System" we have in place, be it through an excessive command of corporations (which are allowed certain things) or through other means. I mean, if wealth inequality among individuals were close to nil, then it would not be too polemic to raise taxes if we need more public budget, or lower them if we need to push the economy forward - the issue when taxes need to increase or decrease is where do you cut / take.
So perhaps we're focusing our analysis on optimizing the wrong thing.
At the end of the day, a corporation is an instrument, and its wealth is the wealth of some individuals. Corporations are instruments to coordinate wealth creation, so perhaps the issue is how/whether rich people are profiting too much from "The System" we have in place, be it through an excessive command of corporations (which are allowed certain things) or through other means. I mean, if wealth inequality among individuals were close to nil, then it would not be too polemic to raise taxes if we need more public budget, or lower them if we need to push the economy forward - the issue when taxes need to increase or decrease is where do you cut / take.
So perhaps we're focusing our analysis on optimizing the wrong thing.
Of course it would, the government is already taking taxes from employees by means of income tax. Double dipping by taking from the company means less money for the employees.
No, employee compensation is an expense to the company, the more they pay the employees, the lower the eventual profit, which is the basis upon which income tax is determined.
Still, this left over money will be available to spend in other areas like R&D, marketing, etc. The government does not have a right to 30% of it or whatever the corporate tax rate is.
No, you are repeating your mistake. Companies are free to spend on marketing or R&D, which are common expenses, thereby reducing their profit and by extension, reducing the amount upon which they are taxed.
>> The government does not have a right to 30%
Apparently it does, since governments all over the globe have been levying taxes on corporations for decades. Unless you think the Cayman Islands, Bahrain, and Isle of Man should be the model for industrial countries.
>> The government does not have a right to 30%
Apparently it does, since governments all over the globe have been levying taxes on corporations for decades. Unless you think the Cayman Islands, Bahrain, and Isle of Man should be the model for industrial countries.
The Gulf countries don't charge corporate taxes as far as I'm aware, not just Bahrain. Also, the company might want to spend the money on R&D and marketing the following year, so having a spend it or lose it model is backward.
And, just because the rest of the world's governments are stealing does not make it ok.
And, just because the rest of the world's governments are stealing does not make it ok.
Corporations enjoy signficant benefits of being in the state, including, for example, a police force that protects them from attack, and a legal system that will resolve disputes they have both internally and with others.
They should pay reasonable (not low) taxes in any event, not subject to the caveat you identify.
They should pay reasonable (not low) taxes in any event, not subject to the caveat you identify.
Everyone they employ already pays tax.
Everyone that gets a dividend pays tax.
Everyone that enjoys capital growth pays tax.
Just looking at the direct corporate tax rate is grossly myopic.
Everyone that gets a dividend pays tax.
Everyone that enjoys capital growth pays tax.
Just looking at the direct corporate tax rate is grossly myopic.
> Everyone they employ already pays tax.
But this is their tax they pay on the money _they_ earned. Not sure why this is okay for corporations to appropriate this tax as theirs.
> Everyone that gets a dividend pays tax.
In my country dividend tax has a lower rate. You have this insanity where a person making money out of their hard work pays more tax than a person living off dividends and doing nothing.
But this is their tax they pay on the money _they_ earned. Not sure why this is okay for corporations to appropriate this tax as theirs.
> Everyone that gets a dividend pays tax.
In my country dividend tax has a lower rate. You have this insanity where a person making money out of their hard work pays more tax than a person living off dividends and doing nothing.
>In my country dividend tax has a lower rate. You have this insanity where a person making money out of their hard work pays more tax than a person living off dividends and doing nothing.
You have to put this into perspective, there are ways to obtain profits from capital gains without doing any work whatsoever, without employing employees at all. Dividends are quite harmless, because those people living off of dividends give people jobs who are then doing productive work. Compare that to getting rich off a stock market bubble, where literally nothing productive was done and no jobs were created.
You have to put this into perspective, there are ways to obtain profits from capital gains without doing any work whatsoever, without employing employees at all. Dividends are quite harmless, because those people living off of dividends give people jobs who are then doing productive work. Compare that to getting rich off a stock market bubble, where literally nothing productive was done and no jobs were created.
But does your tax system allow for company tax payments to be offset against the tax liabilities of those receiving dividends? Here in Australia/NZ companies can provide shareholders with franking/imputation credits.
No, here dividends cannot be offset, but there used to be tax credits to improve the effective double taxation. However, I don't think this is a problem as the right way of getting money out of company should be a salary, not dividend.
The money used to purchase shares has already been taxed as income. A person receiving dividends is enjoying the benefit of their own hard work in the past.
In a corporation who is this "they", employees? (paying taxes), c-suite? (paying taxes), stockholders (paying taxes)
The problem, there is no "they".
The problem, there is no "they".
That's the whole problem, the finger pointing ends in everyone pointing at eachother equally. It's why corporations can do atrocious deeds to human life or the environment and people end up with bonuses instead of handcuffs.
But imagine you are some unethical person looking to ensure as little of of your hard earned cash goes to things like a subsidized meal to a hungry person as possible. Your company is raking in millions and you want that money, but you know Uncle Sam is going to take his cut. Maybe you set your personal salary at minimum wage, and have the corporation own your nice house and nice car instead, and use the corporate card for your airfare and dining. IIRC, setting up a corporate trust similar to this was how Jeffrey Epstein was able to get Les Wexner's multimillion dollar Manhattan townhouse for nothing at all on paper. The Trump foundation also got into similar trouble for misuse of funds a few years ago. No doubt a lot of people in this world are abusing the tax advantages offered for corporations towards personal gain, and no doubt they lobby lawmakers to keep things this way.
But imagine you are some unethical person looking to ensure as little of of your hard earned cash goes to things like a subsidized meal to a hungry person as possible. Your company is raking in millions and you want that money, but you know Uncle Sam is going to take his cut. Maybe you set your personal salary at minimum wage, and have the corporation own your nice house and nice car instead, and use the corporate card for your airfare and dining. IIRC, setting up a corporate trust similar to this was how Jeffrey Epstein was able to get Les Wexner's multimillion dollar Manhattan townhouse for nothing at all on paper. The Trump foundation also got into similar trouble for misuse of funds a few years ago. No doubt a lot of people in this world are abusing the tax advantages offered for corporations towards personal gain, and no doubt they lobby lawmakers to keep things this way.
> You have this insanity where a person making money out of their hard work pays more tax than a person living off dividends and doing nothing.
It's not insanity. They worked and paid taxes on the money they used to buy those dividend bearing stocks, why punish them?
It's not insanity. They worked and paid taxes on the money they used to buy those dividend bearing stocks, why punish them?
Isn't that a consequence of "buying" liability protection by becoming a C-Corp? There are other forms of incorporation that allow for pass-through taxation. There is a reason those are only used in specific situations.
If we are going to treat corporations as a fictional person, we should only be looking at the direct corporate tax rate.
If we are going to treat corporations as a fictional person, we should only be looking at the direct corporate tax rate.
You’re right, capital gains should be taxed at the normal tax rate too.
> ... unprecedented government pay-outs ...
The G.I. Bill after World War 2 is a precedent. Do you think CARES is larger, or smaller?
The G.I. Bill after World War 2 is a precedent. Do you think CARES is larger, or smaller?
It's larger, but less effective. The G.I. bill gave resources to veterans to advance their lives while the 'rona-based payouts disproportionately affected the already-wealthy individuals and businesses due to the military-industrial-congressional complex.
It's not so much whether it's larger or smaller, but how well it was spent. Free college and the myriad other benefits in the G.I. bill helped build the US into a superpower (well combined with other fortuitous things, like being the only major industrial power that hadn't been bombed to smithereens). The bailout of large industries that a lot of the CARES act went to were not well spent: it was cronyism to prop up underprepared corporate structures (i.e. those that have hollowed out any "emergency fund" due to it being an overhead to their bottom line) and prevent bankruptcy from enabling other folks to come in and perhaps run things better.
It's not so much whether it's larger or smaller, but how well it was spent. Free college and the myriad other benefits in the G.I. bill helped build the US into a superpower (well combined with other fortuitous things, like being the only major industrial power that hadn't been bombed to smithereens). The bailout of large industries that a lot of the CARES act went to were not well spent: it was cronyism to prop up underprepared corporate structures (i.e. those that have hollowed out any "emergency fund" due to it being an overhead to their bottom line) and prevent bankruptcy from enabling other folks to come in and perhaps run things better.
> prevent bankruptcy from enabling other folks to come in and perhaps run things better.
Yeah, while I think the CARES act helped individuals, there's no need to try and save every business. Take restaurants for example. In good times, most restaurants fail, and new ones start. The narrative that if restaurants failed they would never come back was simply untrue.
Yeah, while I think the CARES act helped individuals, there's no need to try and save every business. Take restaurants for example. In good times, most restaurants fail, and new ones start. The narrative that if restaurants failed they would never come back was simply untrue.
I agree, what is going on is legalized corruption. Tax rates are too high, so no one is paying while lawmakers are getting compensated (in one form or another) for introducing and maintaining tax loopholes
Then advocate to remove every form of regressive taxation that takes away poorest already limited wealth.
Abolish sales tax, and punitive fines at the very least, theses are highly regressive in nature.
Though i suspect quite a few don't believe the poor should have more wealth but rather that the government should just get bigger.
Abolish sales tax, and punitive fines at the very least, theses are highly regressive in nature.
Though i suspect quite a few don't believe the poor should have more wealth but rather that the government should just get bigger.
> It would be perfectly fine for corporations to pay comically low taxes
Strong disagree.
Strong disagree.
I actually don't get why corporation should pay taxes.
When the profit of the company is distributed, or paying the employees, the employees/shareholders will be taxed on that money.
Corporate taxes allow governments some level over control over corporate policy by incentivizing certain behaviors through deductions/credits etc. Also, dropping the corporate tax rate to 0 would probably be politically impossible, even an identical amount was then taxed on the individuals who benefit.
On the other hand, corporate taxes advantage large multi-national corporations over smaller companies because they have the resources and capability to manoeuvre around the rules and pay a lower relative tax rate.
A government should be able to achieve control through Pigovian taxation, regulations and fines. I'm not convinced that a blanket corporate tax (which does indeed facilitate targeted tax breaks) is necessary beyond the other tools that already exist.
A government should be able to achieve control through Pigovian taxation, regulations and fines. I'm not convinced that a blanket corporate tax (which does indeed facilitate targeted tax breaks) is necessary beyond the other tools that already exist.
Corporate taxes should be structured more like usage fees instead of being a tax on profits. Want to emit carbon? It costs $X/ton. You shouldn't get away with doing bad stuff for free just because you did it unprofitably.
>Corporate taxes allow governments some level over control over corporate policy by incentivizing certain behaviors through deductions/credits etc.
Money is fungible. From an accounting perspective $1 given via tax credits is identical to $1 check given by the government. That said, your point is still valid because the former is much more politically palatable than the latter.
Money is fungible. From an accounting perspective $1 given via tax credits is identical to $1 check given by the government. That said, your point is still valid because the former is much more politically palatable than the latter.
What about the benefits that flow to foreign shareholders? You can’t effectively tax their capital gains.
Why not just tax any sale of a stock or a divident payout in the country of the company, - not the country of owner of said stock? These operations have to go through country of company anyway...
They don’t. Suppose I incorporate a company in Grand Bahama “Shell” and fund it with $10,000. The company turns around and buys $10,000 worth of Apple stock. A year later, Apple has doubled and I sell my company Shell to my friend John. If John and I are both non-Americans then the US taxing authority will never hear about this transfer or be able to tax the capital gain.
So you and your friend John are foreigners investing foreign capital in the U.S. company Apple. Why do we want to use the tax system to discourage this?
To realize that gain you actually need to sell the Apple stock. It would be perfectly possible (as I am proposing) and viable to make that transaction be forced to go through US. You could still sell the "Shell" to someone without US knowing about it, but once you actually would want to do something with that gained money - you would need to sell the underlying stock and deal with IRS.
Why should we tax foreigners for investing the in the U.S?
Instead, companies are incentivized to hold cash offshore.
Well, one problem is this just encourages companies to collect and never disburse funds to employers or shareholders. Companies in some cases are holding onto hundreds of billions in cash offshore.
Your idea would make that money free to keep out of the economy and out of employee's hands.
Your idea would make that money free to keep out of the economy and out of employee's hands.
What would be the incentive for this?
The whole point is for stakeholders to eventually get paid in a taxable event; either shareholders through a capital gains taxable event or employees through an income taxable event.
Some tech companies are hoarding cash but I don't believe this is due to incentives created by taxation, although I could be mistaken.
The whole point is for stakeholders to eventually get paid in a taxable event; either shareholders through a capital gains taxable event or employees through an income taxable event.
Some tech companies are hoarding cash but I don't believe this is due to incentives created by taxation, although I could be mistaken.
What share price is higher? The lemonade stand, or the identical lemonade stand with a huge bag of money kept beneath the table? If you are a shareholder you only care about one thing.
If the first lemonade stand did a stock buyback it would be worth just as much as the second lemonade stand. If the first lemonade stand issues a dividend and holders of the stock automatically buy more stock, then the share price will also be exactly the same as the second lemonade stand.
Why do companies do dividends or stock buybacks? Because they think investors can do better investments elsewhere with the money.
Why do companies do dividends or stock buybacks? Because they think investors can do better investments elsewhere with the money.
What about a third lemonade stand that took their huge sack of cash and instead paid their employees six figures? This would be the stand that is worth less to the shareholder, as that money in the sack has left the lemonade stand entirely and is now being spent by the employee elsewhere in the economy with a portion of it used for different taxes. This is also the stand that is worth the most to the public, as this sack of cash is no longer kept under a lemonade stand and is instead being used to pay sales taxes, property taxes, and income taxes. The fallacy is that many believe corporations are like this third stand, when really they are much more like the first or the second, where it is better for the shareholder and worse for the public to keep as high of a portion of money out of taxable pockets as possible and to pay as little as possible for labor.
But that's marked to market value.
The shareholder still has to receive a dividend or sell that higher priced stock, which are both taxable events.
So I still don't get it.
The shareholder still has to receive a dividend or sell that higher priced stock, which are both taxable events.
So I still don't get it.
[deleted]
> What would be the incentive for this?
Greed, son, greed. That is why 5 people in the US have more money than the bottom 100 million. They didn't work hard to become that rich, they stole it by not paying wages, health care, benefits, or sharing the wealth. Because they do not have to, nothing prevents them from keeping it and paying low wages in an economy where the ONLY jobs are working for them. (Look at the most recent jobs reports, delivery and couriers grew by double digits, most everything else fell: what do you do when there literally are no other jobs except delivering goods to people and peeing in bottles because you don't get a break?)
Greed, son, greed. That is why 5 people in the US have more money than the bottom 100 million. They didn't work hard to become that rich, they stole it by not paying wages, health care, benefits, or sharing the wealth. Because they do not have to, nothing prevents them from keeping it and paying low wages in an economy where the ONLY jobs are working for them. (Look at the most recent jobs reports, delivery and couriers grew by double digits, most everything else fell: what do you do when there literally are no other jobs except delivering goods to people and peeing in bottles because you don't get a break?)
Actually behavior rebuts your theory.
Apple has paid hundreds of billions of dividends to shareholders the last few years. It's borrowed money to do it because it would be taxed if it repatriated funds to pay dividends with.
If the corporate tax rate was reduced to zero it would have zero reason to keep foreign profits offshore, it would just repatriate them and pay dividends directly.
Apple has paid hundreds of billions of dividends to shareholders the last few years. It's borrowed money to do it because it would be taxed if it repatriated funds to pay dividends with.
If the corporate tax rate was reduced to zero it would have zero reason to keep foreign profits offshore, it would just repatriate them and pay dividends directly.
/china enters chat/
Right. That's great: the richest employees of apple get richer, and the people doing the worst labor live in dorms and work 18 hour days.
> If the corporate tax rate was reduced to zero it would have zero reason to keep foreign profits offshore,
Again, you seem to be ignoring the abundant evidence. Trickle down has never worked. Corporate tax rates are the lowest they've EVER been (down from >80% in the early 80's) and money still flows out of the US.
Please, study history and try again.
Right. That's great: the richest employees of apple get richer, and the people doing the worst labor live in dorms and work 18 hour days.
> If the corporate tax rate was reduced to zero it would have zero reason to keep foreign profits offshore,
Again, you seem to be ignoring the abundant evidence. Trickle down has never worked. Corporate tax rates are the lowest they've EVER been (down from >80% in the early 80's) and money still flows out of the US.
Please, study history and try again.
The vast majority of Apple dividends are paid to investors, not employees.
The "worst labor" are jobs that are so much better than typically brutal Chinese rural labor jobs that thousands of applicants stand in line for hours to get them. And Apple audits its labor practices, unlike solely owned Chinese companies.
And the corporate tax rate has never been 80% in the U.S. it was 40-46% in the 1980s and highest ever was 53% in late 1960s. And corporate tax rates were lower than todays rates for the first 163 years of U.S. history, they were first raised above 20% in 1940 to help fund the war.
And even though the current corporate tax rate is historically low, it's still an impediment to returning foreign profits. Repatriating foreign profits costs a minimum of 21%, more with state taxes. For companies it's still cheaper (and legal) to keep the profits in their foreign subsidiaries and wait for a repatriation window, or borrow against some of the deposits to pay dividends.
You should try studying history as well.
The "worst labor" are jobs that are so much better than typically brutal Chinese rural labor jobs that thousands of applicants stand in line for hours to get them. And Apple audits its labor practices, unlike solely owned Chinese companies.
And the corporate tax rate has never been 80% in the U.S. it was 40-46% in the 1980s and highest ever was 53% in late 1960s. And corporate tax rates were lower than todays rates for the first 163 years of U.S. history, they were first raised above 20% in 1940 to help fund the war.
And even though the current corporate tax rate is historically low, it's still an impediment to returning foreign profits. Repatriating foreign profits costs a minimum of 21%, more with state taxes. For companies it's still cheaper (and legal) to keep the profits in their foreign subsidiaries and wait for a repatriation window, or borrow against some of the deposits to pay dividends.
You should try studying history as well.
I don't think the argument is trickle down economics. The argument is that there is a race to the bottom and simply opting out from the race is the only way to win.
Trickle down doesn't work because republicans love pumping the supply side of the economy even when it is fully saturated. The days of a weak US economy are long gone. The real problem is that savings exceed investments. You either let the government create viable investments for the private market, or you just let the government invest directly.
Trickle down doesn't work because republicans love pumping the supply side of the economy even when it is fully saturated. The days of a weak US economy are long gone. The real problem is that savings exceed investments. You either let the government create viable investments for the private market, or you just let the government invest directly.
There has never been anything such as "trickle down economics", it's merely a political label to demonize lowering the tax rates on investments.
Arthur Laffer tried to argue that tax cuts would lead to an increase in growth enough to produce the same or more tax revenues, which clearly didn't happen. But tax cuts did clearly lead to an increase in growth.
Right now, even under the lower Trump corporate rates, if you want to invest in a U.S. Business you will lose 33-50% of your profits to Federal and State taxes. Thats a tax on investment, reinvestment and savings. If you want to convert savings to investment, just cut those taxes.
Arthur Laffer tried to argue that tax cuts would lead to an increase in growth enough to produce the same or more tax revenues, which clearly didn't happen. But tax cuts did clearly lead to an increase in growth.
Right now, even under the lower Trump corporate rates, if you want to invest in a U.S. Business you will lose 33-50% of your profits to Federal and State taxes. Thats a tax on investment, reinvestment and savings. If you want to convert savings to investment, just cut those taxes.
>Apple has paid hundreds of billions of dividends to shareholders the last few years. It's borrowed money to do it because it would be taxed if it repatriated funds to pay dividends with.
Yeah, the reason why this strategy works is because Apple can pay dividends today and just wait for the inevitable tax holiday that comes when a republican president enters the white house. Similar schemes work with cryptocurrency in Germany. Holding onto Bitcoin for one year grants you tax exemption from capital gains. So you just borrow against your Bitcoin for one year.
Corporate taxes have been gamed so much they are purely cosmetic at this point, with some harm done to smaller companies. A better tax code is needed.
Yeah, the reason why this strategy works is because Apple can pay dividends today and just wait for the inevitable tax holiday that comes when a republican president enters the white house. Similar schemes work with cryptocurrency in Germany. Holding onto Bitcoin for one year grants you tax exemption from capital gains. So you just borrow against your Bitcoin for one year.
Corporate taxes have been gamed so much they are purely cosmetic at this point, with some harm done to smaller companies. A better tax code is needed.
I'd argue no tax code is needed, just treat C corps like S corps and LLCs.
1) Increase the incentives to save and invest in the U.S/
2) Restore progressivity to the tax code by taxing profits when paid to investors on a progressive rate based on their tax brackets.
3) Repurpose hundreds of thousands of accountants into doing actual business finance and development of wasting their efforts reconciling the differences between GAAP & a super convoluted Tax code accounting (and searching for loopholes)
4) Simplify business decisions and reward honest management based solely on GAAP accounting with no more "angles" to take advantage of tax code loopholes.
1) Increase the incentives to save and invest in the U.S/
2) Restore progressivity to the tax code by taxing profits when paid to investors on a progressive rate based on their tax brackets.
3) Repurpose hundreds of thousands of accountants into doing actual business finance and development of wasting their efforts reconciling the differences between GAAP & a super convoluted Tax code accounting (and searching for loopholes)
4) Simplify business decisions and reward honest management based solely on GAAP accounting with no more "angles" to take advantage of tax code loopholes.
No-no doubts the incentive of rich people wanting to be richer but I don't see how greed answers the question. What would the incentive be to just let the money sit in the company forever? Greed would be to maximize the outtake.
I don't understand this.
If I'm a greedy shareholder, then I want dividends and cap gains, which are both taxable outside of company tax.
How does hoarding cash inside a company, which is out of my personal reach, help me to satisfy my greed? I can't buy a yacht with it until I get the money out.
If I'm a greedy shareholder, then I want dividends and cap gains, which are both taxable outside of company tax.
How does hoarding cash inside a company, which is out of my personal reach, help me to satisfy my greed? I can't buy a yacht with it until I get the money out.
First of all, that money is never "out of the economy" whether its in a bank-account or a dividend it's circulating in the economy, either here or overseas.
Second, the main reason U.S. companies keep foreign profits offshore is they would be taxed if brought back to the U.S.
Your understanding of the problem is exactly backwards.
Second, the main reason U.S. companies keep foreign profits offshore is they would be taxed if brought back to the U.S.
Your understanding of the problem is exactly backwards.
Why would a company just sit on funds like that? It makes no sense. Any cash a company has is usually in short term investments.
The current offshore “hoarding” is actually due to the current tax code.
The current offshore “hoarding” is actually due to the current tax code.
Is the problem the current tax code, or the fact that companies know they can pay politicians to change the tax code in their future to favor them, and they just need to wait it out?
If companies knew they were going to pay the tax one way or the other, there would be no point in hoarding overseas.
We should penalize companies for the behavior until it makes more sense for them to repatriate it immediately.
If companies knew they were going to pay the tax one way or the other, there would be no point in hoarding overseas.
We should penalize companies for the behavior until it makes more sense for them to repatriate it immediately.
Corporations benefit from the lawful society, the road system, the public-educated workforce, the clean water, the geopolitical ties of the US, etc...
The government needs to collect money to pay for current and futures investments that created that environment... no? What's the most effective way?
The government needs to collect money to pay for current and futures investments that created that environment... no? What's the most effective way?
Netflix makes a lot of money in Europe. Most of that profit would move to the US... even more than it currently does.
From the perspective of the US this is an argument against corporate taxes. There is a global corporate tax race to the bottom and some European countries are taking advantage of that.
The easy ( yeah right ) fix would be single universal sales tax. You buy something - you pay. Does not matter corporation or person. No expense claims on that either. This will also eliminate need to count assets as the taxes has already been paid on those. Tax can be progressive with the possibility of rate going negative for low income people.
The easy fix would be to have a land value tax that pays for everything. You can trivially dodge sales taxes by not declaring them. There are legal ways and illegal ways to not declare them.
Meanwhile with land value taxes, you either own the land and you pay, or you don't own the land and you don't pay. The only way you can dodge this is by not owning assets in the US and by not living in the US. Landlords pass the land value taxes onto renters (individuals and companies) who then end up paying their fair share of the US taxes.
Meanwhile with land value taxes, you either own the land and you pay, or you don't own the land and you don't pay. The only way you can dodge this is by not owning assets in the US and by not living in the US. Landlords pass the land value taxes onto renters (individuals and companies) who then end up paying their fair share of the US taxes.
I used to think this was a good idea but it ends up really, really favoring big corporations.
Startup A wants to get into a market and it buys Zoom licenses, GSuite, AWS servers, etc and pays a hefty tax bill.
Microsoft wants to get into that market? They don't have to buy any of that stuff, they already own everything. No tax dollars, lower cost to the incumbent.
Startup A wants to get into a market and it buys Zoom licenses, GSuite, AWS servers, etc and pays a hefty tax bill.
Microsoft wants to get into that market? They don't have to buy any of that stuff, they already own everything. No tax dollars, lower cost to the incumbent.
I am a startup among the other things. So far I feed myself and was for the last 20 years ( startup of course is not that old ). I host my own servers and also rent dedicated servers elsewhere. I have no need for GSuite and Zoom. I talk using Skype which is free. I use vertical scalability and my servers are C++ so this infrastructure serves thousands requests per second without breaking sweat from a single server. In the end my current app serves tens of thousands of clients with very little monthly costs.
Microsoft and other do own their infrastructure but if they're not renting it to clients it wastes money as it has ongoing costs so not, them using their own infra is anything but free.
Microsoft and other do own their infrastructure but if they're not renting it to clients it wastes money as it has ongoing costs so not, them using their own infra is anything but free.
You're missing the point. You still need to buy servers, right? You still pay for electricity to power those servers, right? You buy hard drives, right? Those would all be taxed transactions. Whereas Microsoft's startup would use Microsoft's existing infrastructure. Even Microsoft's hardware costs are pennies on the dollar compared to yours, so their sales tax revenue would be also.
yeah, the vast majority of government taxes and regulations on paper sound like they'll hurt the big guys but really just hurt the small ones
That's if you faithfully operate your corporation. You can set yourself up a corporation and pay yourself from that a very small salary on paper, while enjoying the funds through other means. Trump can't be on the board of any charities in the State of New York anymore after similar misuse of funds with his Trump Foundation nonprofit.
So it would be fine if only corporations would pay taxes? Get rid of all income tax, sales tax, etc...
[deleted]
People love to vote for politicians who promise massive, but vague, tax credits for green energy, for worker education programs, for locating in "opportunity zones," for making capital investments, all kinds of stuff ... and then they love to be outraged when companies actually do those things and eliminate the majority of their tax bill.
Is your concern about the vagueness of the proposed plans or the outrage at tax bills?
My concern is that Americans consistently support and vote for bills and tax laws that ultimately work against most regular people (of which I am a member), because politicians use words like "green energy" and "get Americans back to work", etc. Sometimes politicians even pay $1400 per person so people won't question the rest of the bill. What are you concerned about?
Is that calculation really correct? Does it count tax for all the employees? Does it count all specialized tax for things like gas or VAT, for all the things Netflix buys in their operation? What about all the media that Netflix buys and produces? What about all the taxes levied there on salaries and other activities? The article also talks about "income" and not "revenue"...
The numbers don't make sense to me. Their annual report [0] says pre-tax income of $2 billion, not $2.8 billion (p41). Even if you disallow deducting interest expense and use operating income, that's still only $2.6 billion. Meanwhile, they're paying $400 million in taxes (p43). That looks a lot more like 20% to me than 1%. What am I missing?
[0] https://www.annualreports.com/HostedData/AnnualReports/PDF/N...
[0] https://www.annualreports.com/HostedData/AnnualReports/PDF/N...
Does anyone know the appropriate metric here to use/term to look up? I too wish that was taken into account.
The first couple of paragraphs specifies that they’re looking specifically at income taxes
They are selective in only direct taxes.
> Does it count tax for all the employees?
Why do you think it is okay for a corporation to appropriate the tax employees pay as theirs? Employee pays this tax, not the corporation.
Why do you think it is okay for a corporation to appropriate the tax employees pay as theirs? Employee pays this tax, not the corporation.
They are probably referring to the fact that 1/2 the payroll tax is paid by the employer. The employee does not pay this tax, and it is directly paid by the employer for every employee.
That's not how payroll taxes work in the US. The employee only pays a fraction of their taxes.
Well it is tax money that is sent to the government and that is taken from the total amount of money that the company receives for the products it provides. If we are talking about some moral side of the issue (as the articles tries to, if I'm not mistaken), then why wouldn't we count it?
I'm not saying that the company shouldn't pay a direct tax on their profit, but that I want to know the real number counting everything. Focusing on some fraction of that number can be misleading, especially when the editors try to distill it into a short title, with possible agendas no less.
I'm not saying that the company shouldn't pay a direct tax on their profit, but that I want to know the real number counting everything. Focusing on some fraction of that number can be misleading, especially when the editors try to distill it into a short title, with possible agendas no less.
That is true that in some countries the employee income is taxed at source, but it doesn't mean that the tax is not paid by the employee just because the company sends it on his or hers behalf.
It is happening this way because governments don't trust people that they would send that money each month.
What employees pay should be a completely separated equation, as this is what employee makes with their own hard work, not the corporation.
You have taxes deducted from your salary but the company pays an additional payroll tax on top of this, outside of your salary.
One aspect I haven’t seen mentioned in the comments or in the article: double taxation. One of the drawbacks of structuring a business as a c-corp is that you have double taxation: once, at the corporate rate then again at the individual income tax rate if the corporation distributed earnings to shareholders. An advantage of that, however, is that if you’re investing for the future, double taxation can be more efficient. If my business makes $100 before taxes, I can reinvest about $80 for future growth if it’s a c-Corp but if it’s a pass-through entity (like an LLC or S-Corp designated as a pass-through), I may only be able to invest $60 because I pay ordinary income rates on earnings.
Put another way: in the steady-state, corporate shareholders end up paying big taxes because distributions are taxed once again at ordinary income rates.
Put another way: in the steady-state, corporate shareholders end up paying big taxes because distributions are taxed once again at ordinary income rates.
That's the price of using a fictional entity to shield one from liability.
Both entities provide liability protection. And the taxes are simply differed not omitted.
This is always brought up but it isn't double taxation, the individual is paying income tax and that has nothing to do with the corporation tax.
The government takes tax from the same amount of money twice. How is that not well described by the term "double taxation"?
The government also collect payroll tax on the employee income from the employer. So it double-taxation+
Money is not taxed [1], transactions are taxed.
[1] At least, not yet. Elizabeth Warren would like it to be.
Edited for formatting
[1] At least, not yet. Elizabeth Warren would like it to be.
Edited for formatting
The entire concept of "double taxation" is BS. All money is taxed multiple times as it moves around.
If I get paid a wage, my employer pays payroll tax, then I pay income tax. Then when I buy something with it, I pay sales tax. Then the company I bought it from pays payroll tax on it when they pay it out to an employee, then the employee pays income tax on it. Then they pay sales tax when they buy something with it, and so on.
If I get paid a wage, my employer pays payroll tax, then I pay income tax. Then when I buy something with it, I pay sales tax. Then the company I bought it from pays payroll tax on it when they pay it out to an employee, then the employee pays income tax on it. Then they pay sales tax when they buy something with it, and so on.
The concept of double taxation is incredibly important. When you pay income and payroll taxes on your wages, its important to understand what your real tax rate is, and its a lot higher than either individually.
So what's the real tax rate in investments in the U.S? Well it's the corporate tax rate. Plus the investors capital gains or dividend tax rate. Plus the state corporate income tax rate. And the investors state income tax rate.
All these layers of taxation means it's almost impossible for taxes on profits to be less than 40% for an investor, and can reach 60%.
And sales tax isn't part of the double taxation layer, because it's voluntary. You could have spent your net earnings on things that don't have a sales tax, or saved it. And sales tax applies equally to the investor receiving a dividend.
So what's the real tax rate in investments in the U.S? Well it's the corporate tax rate. Plus the investors capital gains or dividend tax rate. Plus the state corporate income tax rate. And the investors state income tax rate.
All these layers of taxation means it's almost impossible for taxes on profits to be less than 40% for an investor, and can reach 60%.
And sales tax isn't part of the double taxation layer, because it's voluntary. You could have spent your net earnings on things that don't have a sales tax, or saved it. And sales tax applies equally to the investor receiving a dividend.
You have a point in that money does get taxed multiple times as it moves around. But I don’t believe that makes the term “double taxation” BS. It’s a useful term in a world where there are two structures for business entities (a) the “double taxation” corporate structure where lower corporate taxes allow increased investment at the expense of less efficient shareholder distributions or (b) the “single taxation” structure of partnership-type entities where earnings are only taxed once, but at the higher rate.
I don’t use the term “double taxation” to imply corporations are necessarily a worse structure compared to partnerships; that depends on context. But it’s a useful descriptive term.
I don’t use the term “double taxation” to imply corporations are necessarily a worse structure compared to partnerships; that depends on context. But it’s a useful descriptive term.
Scott Galloway made an interesting point in this Land of the Giants podcast about Amazon. He points out that Amazon convinced Wall Street it doesn't need to show profits and can reinvest more capital into growth than their competitors. Walmart and Target are expected to show profits to their investors on a quarterly basis while Amazon (and Netflix in this case) get to invest more cash that isn't taxed yet. This gives them a competitive advantage unless Walmart can convince investors that it will stop showing profits in order to reinvest in some growth opportunity.
https://podcasts.google.com/feed/aHR0cHM6Ly9mZWVkcy5tZWdhcGh...
https://podcasts.google.com/feed/aHR0cHM6Ly9mZWVkcy5tZWdhcGh...
If GAAP earnings were the same as taxable earnings at least a company would have to go convince Wall Street. As it stands a company can tell Wall Street its wildly profitable and the IRS it makes nothing.
According to the article most of their write-offs were from the exercise of ISOs, which is treated differently in tax caclulations than in GAAP accounting. So the company reports a different profit to it's public shareholders than it does to the IRS.
When Sarah the employee gets options to buy 1,000 shares of company stock at $10, and the stock is trading at $10, those options have value. GAAP has the value estimated based on standard options pricing models (Black Scholes presumably), ie. the volatility of the stock implies how often the options will vest with value. So the company takes a GAAP expense for Sarah's options grant, lets guess $2 per option which would reduce reported profits by $2,000 total that year.
But the IRS doesn't allow this expense for tax calculations. For taxes the company has to wait until the employee exercises the option, then it is required to deduct the difference between what the current stock price is and what the employee paid. So a years later when the stock is at $100, Sarah exercises her options for a windfall of $100,000 in stock that only costs her $10,000, the company gets a tax deduction of $90,000.
The site (in a linked essay) points out how much larger these tax deductions are than the actual GAAP expense and tries to spin this as some sort of tax dodge (even though companies are required by law to follow tax accounting and GAAP rules). But here is the problem with their perspective.
What if the stock price went down? If Sarah does not ever exercise her options, the company never gets any tax expense for them, even though the OPTIONS CLEARLY WERE A COST TO THE COMPANY. The author is making the old have your cake and eat it too argument. In reality only if the company is successful is the tax code treatment of options beneficial, when it's not successful the treatment is unfair.
Note: If you don't think out of the money stock options are valuable, go to your broker and demand some September Tesla $1,000 call options for free because they "aren't worth anything yet" and see how far that gets you.
When Sarah the employee gets options to buy 1,000 shares of company stock at $10, and the stock is trading at $10, those options have value. GAAP has the value estimated based on standard options pricing models (Black Scholes presumably), ie. the volatility of the stock implies how often the options will vest with value. So the company takes a GAAP expense for Sarah's options grant, lets guess $2 per option which would reduce reported profits by $2,000 total that year.
But the IRS doesn't allow this expense for tax calculations. For taxes the company has to wait until the employee exercises the option, then it is required to deduct the difference between what the current stock price is and what the employee paid. So a years later when the stock is at $100, Sarah exercises her options for a windfall of $100,000 in stock that only costs her $10,000, the company gets a tax deduction of $90,000.
The site (in a linked essay) points out how much larger these tax deductions are than the actual GAAP expense and tries to spin this as some sort of tax dodge (even though companies are required by law to follow tax accounting and GAAP rules). But here is the problem with their perspective.
What if the stock price went down? If Sarah does not ever exercise her options, the company never gets any tax expense for them, even though the OPTIONS CLEARLY WERE A COST TO THE COMPANY. The author is making the old have your cake and eat it too argument. In reality only if the company is successful is the tax code treatment of options beneficial, when it's not successful the treatment is unfair.
Note: If you don't think out of the money stock options are valuable, go to your broker and demand some September Tesla $1,000 call options for free because they "aren't worth anything yet" and see how far that gets you.
Netflix paid no dividend right?
And Netflix has not (so far) run a share buy back.
So they're either sitting on the excess cash, or they've spent it making more programs. In either case this is exactly what the current tax code is designed to incentivise. Businesses should invest. That's the whole point of taxing profits not net income...
And Netflix has not (so far) run a share buy back.
So they're either sitting on the excess cash, or they've spent it making more programs. In either case this is exactly what the current tax code is designed to incentivise. Businesses should invest. That's the whole point of taxing profits not net income...
If they're using their profits for purchases or hiring folks for new shows, the "tax" comes out of the sales tax and the income tax. I mean, this isn't as mustache twirling as people are making it out to be. The tax code is not that messed up. It has problems yes, but being pissed at a company that's reinvesting their income and not showing a profit is like complaining that the guy/gal that's been running for years won a race. It's not like the tax code is reserved only for a select few. It applies to all Americans. Play the game.
After a decade or two of these stories it’s clear this won’t change until someone offers a retail solution for everyday small businesses and individuals to enjoy the same level of “tAx PlAnNiNg.”
It’s the only thing that will motivate the rest of the legislature to plug the holes.
It’s the only thing that will motivate the rest of the legislature to plug the holes.
Loss deductions are not complicated. I have a small business and built a building year before last. Deducted the expenses from that half last year and half this year. It cost me 500 bucks for an accountant that I would pay anyways. It is no different from home office remodel deductions or anything similar.
[deleted]
At least in the UK all the deductions the article lists are open to all sized businesses and are regularly used by small companies, I would assume the same in the US as they are very basic deductions.
> won’t change until someone offers a retail solution for everyday small businesses and individuals to enjoy the same level of “tAx PlAnNiNg.”
Couple of years back when I heard about tax havens, I had an idea why not create a service for individuals/small business people who can use it to open offshore bank accounts and use the same loopholes to save/ minimize taxes legally.
Ofcourse I did not have the motivation to do all the research needed for this service but I still wonder if there is such a service for the little guy.
Couple of years back when I heard about tax havens, I had an idea why not create a service for individuals/small business people who can use it to open offshore bank accounts and use the same loopholes to save/ minimize taxes legally.
Ofcourse I did not have the motivation to do all the research needed for this service but I still wonder if there is such a service for the little guy.
I don't approve of tax loopholes that large corporates abuse to pay an effective lower rate.
However, as an individual we can't change this. My (extremely cynical) advice is to hitch your wagon to theirs. Get some market exposure to these large companies and make their lobbying efforts work for you. It won't make society any more just, but at least you won't get left behind.
However, as an individual we can't change this. My (extremely cynical) advice is to hitch your wagon to theirs. Get some market exposure to these large companies and make their lobbying efforts work for you. It won't make society any more just, but at least you won't get left behind.
If they don’t pay dividends (which they don’t) then what does “Get some market exposure” mean?
Build a portfolio whose value is in some way connected to their share price. Buy shares, hold them, sell later would be one example.
I don't really have an issue with this. 1% tax is more than sufficient to run this country.
The first step to a balanced budget is to stop impulse spending on dumb stuff.
My only gripe is I'm not allowed to pay a 1% tax, as I should be.
The first step to a balanced budget is to stop impulse spending on dumb stuff.
My only gripe is I'm not allowed to pay a 1% tax, as I should be.
> The first step to a balanced budget is to stop impulse spending on dumb stuff.
The problem is that 'dumb stuff' is different for everyone when it comes to country level expenditures.
The problem is that 'dumb stuff' is different for everyone when it comes to country level expenditures.
We can generally agree, paying $5 for a desk is dumb. Sorry, typo, that's $5k, not $5. https://www.forbes.com/sites/adamandrzejewski/2015/10/01/epa...
The EPA had an annual budget in 2015 of $8B. So let's say they overpaid 2x for the furniture, and we fix that. Now we've saved ~.6% of their overall budget. Nowhere near enough to run the country on 1% taxes.
Articles like that are the definition of outrage inducing bike shedding.
Articles like that are the definition of outrage inducing bike shedding.
This is a decent point in favor of generally decentralized government. More local decisions, fewer federal decisions.
We have progressive taxation for individuals - why not for corporations?
I don't have an army of accountants to avoid the corporate tax rate for my small business. So as a percentage I pay vastly more taxes than the multinationals.
Why can't we have varying rates depending on the size of the business?* Bigger businesses have a bigger tax rate. This would also incentivize organizations to stay small.
*Calculating the size of a business is tricky. Is it revenue based? Number of employees? Does it change per sector? Anyways, I'm sure it's possible to find a decent set of metrics.
I don't have an army of accountants to avoid the corporate tax rate for my small business. So as a percentage I pay vastly more taxes than the multinationals.
Why can't we have varying rates depending on the size of the business?* Bigger businesses have a bigger tax rate. This would also incentivize organizations to stay small.
*Calculating the size of a business is tricky. Is it revenue based? Number of employees? Does it change per sector? Anyways, I'm sure it's possible to find a decent set of metrics.
> We have progressive taxation for individuals - why not for corporations?
Because corporations are, by nature, arbitrarily divisible, so progressive taxation for corporations just encourages division of corporations into units that pay the minimum tax rate.
There are business forms that allow businesses (often, but not exclusively, small businesses) to avoid corporate taxes entirely (S corps and passthrough LLCs), whule also providing the benefits of incorporation compared to sole prop and partnership forms.
Because corporations are, by nature, arbitrarily divisible, so progressive taxation for corporations just encourages division of corporations into units that pay the minimum tax rate.
There are business forms that allow businesses (often, but not exclusively, small businesses) to avoid corporate taxes entirely (S corps and passthrough LLCs), whule also providing the benefits of incorporation compared to sole prop and partnership forms.
This isn't true practically though. Most multinationals consist of dozens of sub-entities but the books all still roll up to the parent. If Google wanted to "get smaller" they would literally have to break apart, which is the same thing that the anti-trust folks want them to do. This seems to solve it neatly in my mind.
Carry loss forward....again? No! Exciting it something different.
Looks like depreciation (those bastards!) and R&D tax credits. How devious!
Maybe reporters should get an accounting primer before writing articles about taxes?
Looks like depreciation (those bastards!) and R&D tax credits. How devious!
Maybe reporters should get an accounting primer before writing articles about taxes?
It's not even just about taxes. Economists largely agree generally low corporation tax is good for everyone.
> Maybe reporters should get an accounting primer before writing articles about taxes?
That will just make them feel bad when they choose the clickbait anyway.
HN is a semi-rarefied atmosphere and even these comments are mostly ignorant rabble. No way the journalists are giving up the sensational headlines for a general audience. Engagement gold dust.
> Maybe reporters should get an accounting primer before writing articles about taxes?
That will just make them feel bad when they choose the clickbait anyway.
HN is a semi-rarefied atmosphere and even these comments are mostly ignorant rabble. No way the journalists are giving up the sensational headlines for a general audience. Engagement gold dust.
agreed, if you think this article points to a real scandal you are an ignorant rube - netflix’s low tax bill is justified by reasonable tax spending
Why can't employee distribute their income through past years when they had worse times like corporations can, to lower their tax?
Why can't employee use pre-tax income to pay for IP?
Why can't employee get R&D tax credits?
and so on...
Serious question: Anyone know of or building a "Tax Avoidance Service"? Maybe the only way to get these loopholes shut down is if its made available to everyone.
If the US government were politically pressured to shrink their military budget, that would make more money available for Medicare/Education/SSA/Infrastructure, etc. That would be way more beneficial than taxing Netflix more.
Does anybody in the "know" understand if this is just prior year losses being set against current year profits.
Or is this something else?
It makes all the difference.
Thanks
Or is this something else?
It makes all the difference.
Thanks
"I been rich an' I been poor and rich is better"
Ella FitzgeraldTitle is wrong and dumb. Netflix made record INCOME, not profits. You pay tax on profits. Not income.
In theory they will be paying corporate taxes on profits abroad.
I assume they are dodging those taxes as well, but to take net global income and measure that against federal income tax in the US is a flawed calculation unless you are asking for double taxation.
Amazing scale though. It shows the power of cutting out middlemen when they are going direct to consumer without gatekeepers such as cable companies.
I assume they are dodging those taxes as well, but to take net global income and measure that against federal income tax in the US is a flawed calculation unless you are asking for double taxation.
Amazing scale though. It shows the power of cutting out middlemen when they are going direct to consumer without gatekeepers such as cable companies.
However, it should also be noted that in order to achieve such a profit, a lot must be invested.
Clickbait, how is this 1% tax rate defined ? Clearly not from taxable income. From revenue ?
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most of the replies here are yawning at offseting profit with expenses. my reading seems to indicate that ISOs can be used to effectively convert corp tax/ordinary income to capital gains. is this correct?
Yes, ISOs are for employees and very good ones.
US subsidiaries in India do not offer ISO stock and ask us to pay 30% per requisite tax on unfair market valuations
US subsidiaries in India do not offer ISO stock and ask us to pay 30% per requisite tax on unfair market valuations
Might be time for a gross revenue tax for companies pulling in more than $B
Corps would find a way around it. They always do.
Maybe Netflix could spin off one of its studios into a $999M business, of which Netflix conveniently owns a 51% stake in.
Maybe Netflix could spin off one of its studios into a $999M business, of which Netflix conveniently owns a 51% stake in.
> Netflix annual revenue for 2020 was $24.996B, a 24.01% increase from 2019.
Would they go to the trouble of making themselves 25 different companies?
There might be a way for lawmakers to figure this out...
-- https://www.macrotrends.net/stocks/charts/NFLX/netflix/reven...
Would they go to the trouble of making themselves 25 different companies?
There might be a way for lawmakers to figure this out...
-- https://www.macrotrends.net/stocks/charts/NFLX/netflix/reven...
Even splitting off 1 company, and shielding that $999M in revenue from the higher tax burden, would make sense for Netflix.
Versus paying $0 on the whole.
Fine, I'll take it.
Fine, I'll take it.
yes, and instead, it should be a smooth function on size to avoid discontinuities (like the $1B threshold) that encourage exploitation.
Can people band together & save money doing the exact same thing?
They could, by investing in a business. Like Netflix they would reap the rewards of the tax code, which means they would be taking on the same risks.
A less risky version of this is stock ownership, or buying an index. Because it’s less risky, potential rewards are lower.
A less risky version of this is stock ownership, or buying an index. Because it’s less risky, potential rewards are lower.
Ask any of a thousand startups gone dark -- tons of people try. Many fail. You lose your time and your personal investment. Ask me how I know (hint: 3yr full time co-founder)
If you make it somehow, you have the benefit of deducting your R&D against profits, which seems fair to me...Except then people get upset (see comments on this page) that you "aren't paying your fair share of taxes."
This seems ludicrous given how many years startups spend burning their own money to hope to reach the point Netflix has reached. Good for Netflix.
If you make it somehow, you have the benefit of deducting your R&D against profits, which seems fair to me...Except then people get upset (see comments on this page) that you "aren't paying your fair share of taxes."
This seems ludicrous given how many years startups spend burning their own money to hope to reach the point Netflix has reached. Good for Netflix.
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Less money to the govt. the better. I think they have good auditors.
It is well past time for progressive taxation on corporations and the super rich and to really go after tax evasion. Unfortunately, politicians in the UK, US and elsewhere don't have the polticial will as they are in the pockets of the powerful people who benefits from the current rigged system. In the UK, for example, the newspaper are almost entirely owned by right wing billionaires.
-> President Biden so far has not proposed to do away with these tax breaks, but he has proposed a second-best solution—requiring corporations to pay a minimum tax equal to 15 percent of profits they report to shareholders and to the public if this is less than what they pay under regular corporate tax rules. This would be a big improvement because it would finally require all corporations to contribute at least something to support the society that makes their profits possible.
Uhh.... Typo?
Uhh.... Typo?
how so?
The word "less" doesn't seem right in this context... Did they mean more?
That's right.
such accounting, such talent, they only hire the be$t
why can't we be 1%'ers like them?
why can't we be 1%'ers like them?
How much did their employees pay? Including all the actors who worked on the shows they funded.
Unfortunate as it may be, this isn't shocking to me any more. Where are efforts being made to counteract the clustercuss of a situation where the larger you are, the more you can pay your accounting team to diminish your tax burden?
> ... the more you can pay your accounting team ...
I would wager the typical Hacker News reader would be able to explain accelerated depreciation after sixty seconds of reading the instructions for Schedule C. It's not arcane.
I would wager the typical Hacker News reader would be able to explain accelerated depreciation after sixty seconds of reading the instructions for Schedule C. It's not arcane.
I might accept that wager based on the other comments here.
Corporate taxes are such a waste of time. Corporations aren’t ever going to pay them so we just end up with all the downsides.
Missing out on local investments, IP offshoring, and the capital gains tax rates.
So what we have is a class of people paying significantly lower tax rates than they should be, corporations not paying anything at all, and investment money shifting out of the US.
But at least we can claim to have a progressive tax system, or whatever it is that idealists want to call it.
Missing out on local investments, IP offshoring, and the capital gains tax rates.
So what we have is a class of people paying significantly lower tax rates than they should be, corporations not paying anything at all, and investment money shifting out of the US.
But at least we can claim to have a progressive tax system, or whatever it is that idealists want to call it.
Yeah next they're gonna say Netflix should be government run. Keep pressing the naritive till it hurts netflix's bottom line and they bend over. I hate the corporations vs people, rich vs poor, etc. This is nonsense.
What's also quite gross about this is that we have large multinationals paying zero in taxes to the US government, but there are small businesses owned by overseas US citizens that are being subjected to both resident country & US tax due to the US being "unique" in its practice of taxing overseas citizens.
If you're small, you get hit by the tax. If you're big enough for creative structuring, you're fine.
It's just as disgusting when you get down to individual tax. Larger companies are for the most part taxed territorially (where they make the money) while individuals are fully (and often in ways that are incompatible with local market practice) liable for US taxes, even if they live outside the US.
If you're small, you get hit by the tax. If you're big enough for creative structuring, you're fine.
It's just as disgusting when you get down to individual tax. Larger companies are for the most part taxed territorially (where they make the money) while individuals are fully (and often in ways that are incompatible with local market practice) liable for US taxes, even if they live outside the US.
It's only "quite gross" if you have a... gross misunderstanding of how taxes work. They're not paying zero taxes on profit, they haven't profited yet except on arbitrary time scales. Here's a... gross oversimplification:
Year 1: Lose $50 million. Total profit: -$50 million. $0 taxes paid.
Year 2: Lose $10 million. Total profit: -$60 million. $0 taxes paid.
Year 3: Make $35 million. Total profit: -$25 million. $0 taxes paid. People who are either uninformed or petulant ideologues scream about you not paying taxes on $35 million in profit.
Year 1: Lose $50 million. Total profit: -$50 million. $0 taxes paid.
Year 2: Lose $10 million. Total profit: -$60 million. $0 taxes paid.
Year 3: Make $35 million. Total profit: -$25 million. $0 taxes paid. People who are either uninformed or petulant ideologues scream about you not paying taxes on $35 million in profit.
The big thing with the multinationals is that they're able to pull stunts like corporate inversions & royalty payments to their foreign entity to reduce their profit under the (more heavily taxed) US entity.
Then you have measures intended to rein them in like GILTI & Transition Tax, which end up mostly affecting smaller businesses.
Then you have measures intended to rein them in like GILTI & Transition Tax, which end up mostly affecting smaller businesses.
A lot of growing companies have US taxes that are quite low because they lose money for a long time while they're investing in growth. When they finally become profitable, they're allowed to roll forward those losses (within limits) to offset their profits. That's where a lot of these "Zero taxes paid" headlines come from.
On the other hand there is a legitimate gripe about using IP offshoring to shift profits to low-tax countries and out of the US, using accelerated depreciation to decrease current year profits, allowing tax deductibility of interest and lots and lots of tax deferrals and deductions for property transactions.