Yep, just like that, except the one that actually has the power to do something. Because afaik, UN exists to just broker peace and maintain a somewhat cordial relationship between its member states, but not much more than that.
Especially considering that the permanent members (which include Russia and China, as well as the US and others) are given veto powers, and they aren't afraid to use them whenever convenient for them.
P.S. I don't honestly believe in the whole "global new world order" conspiracy-tier of political discourse. My reply above was just meant to illustrate that something like UN is not what the person, who originally brought up "global new world order", had in mind.
I would prefer to have some level of control over how my corp(s) will be taxed at the local level where I have some semblance of control by voting for X political party. Letting tax rates be controlled by an even bigger, global quasi-government makes it less likely for me to have any agency. This is just further eroding the control of the individual and the sovereignty of nation states.
In light of this announcement I propose a new economic prediction where max_tax = min_tax + epsilon. I call this new relation the Obviously Economic Relation.
Is there any treaty the entire globe has agreed on? Sure, overall corporate tax revenues would go up but not enough to make up for the money a small country stands to make by not signing and becoming a tax haven.
This is just an excuse to not pass strong controls preventing local companies from moving their money overseas. Start taxing companies based on where their employees and executives live, not which mailbox they stuff money into.
> Is there any treaty the entire globe has agreed on?
Charter of the United Nations [1], for one.
At the point one is discussing non-signatories to it one is debating the definition of a country. That seems like a fair line at which to delineate the entire globe, more or less.
Arguably the WTO is both the rationale for a "minimum corporate tax" (if it wasn't for WTO rules, countries could introduce tariffs and other trade barriers specific to certain countries to deter registration in tax havens) and the most likely way such a thing would be realised (in practice it would probably be "you can set your rate below this, but if you do WTO members are free to set higher tariffs on your produce than other countries")
Coordination across nation states will be super important in order to stop runaway inequality that happens when you can easily shift capital around the world.
The only way we will be able to close all of the complex tax loopholes that large corporations take advantage of is to coordinate tax rates across nations.
Tax competition is what keeps governments in check. Taxes are just fees for services in the territory of the state (e.g. security, market access, infrastructure, …). If these services don't warrant paying the fee anymore people and companies should of course leave for better-run places! Nothing else will make governments become more competitive than voting with one's feet. We should really become less sentimental about countries, they are just crude constructs to provide services that need coordination which markets can't as easily provide. Choosing the best service provider is something good as it increases overall efficiency as only sufficiently efficient systems survive in the long run.
Wanting a global minimum tax is like one mafia asking the others to increase their protection charges so their clients don't leave. Such collusion is frowned upon for good reasons in free markets as it leads to worse outcomes due to reduced competition.
I'm hopeful that this idea will not work due to the profitability of breaking the deal and the big number of countries that exist. The US also shouldn't overestimate its importance which seems high but ever-declining.
> Wanting a global minimum tax is like one mafia asking the others to increase their protection charges so their clients don't leave.
No, it's to ensure that countries with extremely low operating costs thanks to few citizens and not a lot of space (Luxembourg, Switzerland, Ireland come to my mind) don't run price dumping on everyone else, allowing the rich elites to concentrate and extract profits while the countries that made that profit possible (by, for example, providing an educated workforce or a secure legal framework to solve conflicts) get nothing in return.
Far from nothing, companies allow the government to collect more payroll, property, income, capital gains, and sales taxes. Moreover, corporate taxes are a double taxation of which a sizable portion of the incidence falls on labor
Switzerland is not a good example to support your idea, they are not very small, have no high density of population and they provide better services than US to their citizens for a lot less money (lower tax rate). They are more efficient and spend wiser.
Doesn't your train of thought only work if collected corporate taxes accurately reflect activity in a country?
I think the frustration is in part due to a corporation conducting business in one country, and playing games so the profits occur and are taxed in a lower tax one.
This is a kind of "market will solve all" naivety.
In a functioning market, this might work, but it overlooks the ability of corporations to game the system via one or two self-interested jurisdictions.
The key problem is that corporations can avail themselves of the public goods (infrastructure, public education, public order) and then use accounting maneuvers to shift profits to jurisdictions that will not tax them.
Some jurisdictions don't provide much in the way of public goods (small island states) or see an opportunity to raise some modest taxes on money they would otherwise never see (eg the Netherlands).
So you end up with the (individual) taxpayers of some countries subsidising these corporations, other countries profiting modestly and the corporations keeping most of the tax money.
Is this what an efficient market would deliver? An unfair and unsustainable situation? According to your theory the countries should compete with each other until their taxes are very low and their subsidies are very high, because that would reflect "efficiency". But what is the incentive for countries to do this? A rational country in the this market would set taxes to balance out the public goods provided. But because of profit shifting this is impossible, no matter how efficient they are. Yellen's plan is a rational response to this.
>>The key problem is that corporations can avail themselves of the public goods (infrastructure, public education, public order) and then use accounting maneuvers to shift profits to jurisdictions that will not tax them.
Countries can easily tax income generated by foreign corporations within their jurisdiction.
What you and Yellen are advocating risks imposing on the entire world an economic and tax system that may be far from optimal, to address a risk that can be mitigated through numerous other methods.
Exactly this. Just tax the value added in your country if you are so inclined (or even better the resources used to do so like land, infrastructure use, …). If you find out that's not so much you have deeper problems.
Why would e.g. an integrated software/hardware business pay significant taxes in the US if their value chain isn't strictly bound to it?
Sure, if developers live and work there you can tax their income to a certain degree before they leave and work remotely. Hardware is built abroad anyway (and probably taxed there), you can only levy import taxes at your own detriment. But if the business is successful most of the added value comes from the integration of these aspects and that can happen wherever because it's an idea not bound to a place to be executed. If something doesn't require physical presence taxing it becomes very hard and morally dubious (on what grounds would you tax it all if e.g. only 10% of your profits need physical infrastructure that is funded through these taxes?).
Globalization means that a society's most successful people aren't stuck with it any longer. They can go where they aren't seen as subjects to milk to keep the less productive happy. I don't owe my country of origin anything, they need to be competitive to keep me as I can take my business everywhere. In that sense directly investing in your population's higher education might be misguided to some degree because it creates more people capable enough to leave with the acquired knowledge, increasing the tax burden, making the country less competitive.
> but it overlooks the ability of corporations to game the system via one or two self-interested jurisdictions.
This is a feature of the market system and not a bug.
> Some jurisdictions don't provide much in the way of public goods (small island states) or see an opportunity to raise some modest taxes on money they would otherwise never see (eg the Netherlands).
Again, this is a feature and not a bug.
> So you end up with the (individual) taxpayers of some countries subsidising these corporations, other countries profiting modestly and the corporations keeping most of the tax money.
I do not understand the use of the word "subsidy" here. Corporations are keeping the money they have earned themselves is not a subsidy. Not to mention all the money that corporations earn eventually belongs to the individuals who receive them in the form of dividends or capital gains.
> A rational country in the this market would set taxes to balance out the public goods provided.
There is zero restraint on what is a "public good". Governments like to take over everything and control everything. Without corporations being able to influence policy and be able to move their money abroad we would end up in pretty bad state like California where you spend billions of dollars on a high speed train that goes from nowhere to nowhere and will never really complete to transport anything useful.
I am not sure why leaving more money in hands of people like Joe Biden or Donald Trump should be seen as anything but pure evil at this point.
Counterpoint: corporations are creations of the government, and a polity (and its government) ought to do whatever generates the desired outcome they want from these creations, including bringing in more tax revenue, if that's what they want. Ain't no corporation without government. They serve us. Or should.
And that's a problem. Competition is (usually) good for the entities that can shop around. But companies' interests isn't what matters. Citizens' interests are.
The universe of citizens interests includes countries that are overleveraged and can never resolve their budgetary constraints, alongside countries that simply don’t need the additional revenue.
The tax collection expectation is based on hubris, and seems to misunderstand that countries have to figure out their own revenue structures, with national formalized taxes on profits being a new scheme, and international taxes being newer. This obviously brushes up against the capabilities of the nation state concept, as enforcing it even by the wealthiest country is an impractical game of whack-a-mole.
Countries should revisit how they are funded, because they are in competition. Its only a couple of the biggest countries that have egos about it.
Another question is what do jurisdictions do with excess corporate tax revenue they don't need? A lot of "tax havens" have no need for more revenue.
But that said the US has pushed a lot of countries into tax treaties and it sounds like they can effectively embargo countries that don't comply with US tax policies. So I think the US has ways of getting what it wants.
There is a joke about this: some guy goes to the market to buy chickens and he sees a seller that was asking 2 times more than the other sellers, so he is asking why. The sellers says: "I need the money". All the countries need money, it's just that some countries spend it wisely and others go crazy.
Tax unification is what keeps companies in check. Companies are just providers for services in the territory of any state. If these services don't warrant paying close-to-zero fees anymore, people and states should of course leave for better-run companies! Nothing else will make companies become more competitive than voting with one's feet. We should really become less sentimental about corporations, they are just crude constructs to provide services. Choosing the best service provider is something good as it increases overall efficiency as only sufficiently efficient systems survive in the long run.
Wanting tax loopholes and government competition is like one mafia asking the others to increase their protection charges so their clients don't leave. Such collusion is frowned upon for good reasons in free markets as it leads to worse outcomes due to reduced competition.
I'm hopeful that this idea will not work due to the profitability of breaking the deal and the big number of companies that exist.
> Tax competition is what keeps governments in check.
That's true for me, because if I decide US taxes are too high and leave the country, I don't get to keep using US roads. That's not true of Amazon.
Edit to add: more generally, this is a coordination problem[0], and mutual agreements against defection are a well-studied solution to such problems. Comparing such an agreement to mafia extortion is way off base.
I believe the US taxes international income as long as you’re a citizen, even if you live abroad. So maybe the comparison doesn’t quite work, but I do agree with your point!
You are correct in your assessment of capitalism, and wrong on your prediction of the outcome. The situation you describe is one where an entity (the government) offers services for a fee. Some of its customers, the citizens, are captive. These customers' switching costs are enormous: they must leave their country and go to another one. Another group of customers, have much lower switching costs, in fact, negligible switching costs compared to their revenue: corporations.
The natural outcome is that the entity makes every effort to meet the needs of the corporations, and zero effort to meet the needs of the citizens. Indeed, it can reduce services to the citizens while increasing their costs, at the same time as doing the opposite for the corporations: reducing their costs while granting them monopolies and regulatory protection, for example.
Here’s how this gets broken: The more countries faithfully adhere to the global corporate minimum, the stronger the incentive becomes for a “cheating” country to lower its rate.
The tax haven could even get around an “enforcer” or governing board. For instance, such a country might change what it considers to be “profit” so that you’re paying $2 on $100 of revenue, whereas in the neighboring country you’d be paying $6. Same nominal tax rate, different effective tax rates.
There are even more ways to play this: “Sure, we tax you at the required 20%, but you can then direct how those funds are used to reduce costs you’d otherwise have to pay directly.”
And this happens a ton— see the WTO and “effective” but not nominal tariffs.
Whether or not we see such a harmonized tax rate emerge and even if we could find a way to have some governing body try to “enforce” it, you’ll still see countries lowering their effective tax rates to lure firms or bolster growth. I bet there’s a maximum sustainable effective corporate tax rate, but I have no idea what it is (and for all I know it could be zero or negative).
Start with not spending trillions on massive bills that use COVID as a scare tactic. Then move to cutting military by at least half and exit all foreign wars.
That would be great. Question is what do you do about the huge GDP contraction that will happen? If they (the gov) reduces spending then you and me will go bankrupt or go steeply into debt (it's an accounting identity). The better approach would be to redirect spending away from military and into say, debt relief, housing, and health care.
Yeah, and stop bombing the middle east, and close down some of the 800 (formal) military bases we have around the world. How about the Pentagon takes a 38% (450 bil) budget cut? Which isn't that drastic, it only takes us back a similar Pentagon Budget from 1997.
I agree with your idea but I have to point out that the inflation since 1997 has, apparently, been 65%.
So if my math is right, at constant prices, the 2021 US military budget would be $443 bn (constant 1997 prices) vs $282 bn (1997 budget), which doesn't seem as drastic.
I'm a bit shocked, to be honest, I checked the inflation just to compare the two budgets and the difference is far lower than I was expecting.
More options are always better than less. This is the reason why people hate the lack of choice in mobile OS, in App stores, etc.
It would be great to understand why lack of choice in tax regimen is different, particularly from people that are of the opinion that FAANGs are monopolies that should be broken up
Lack of choice in tax regimen is entirely fine for corporations. They're creations of the state. We should bring them to heel, if they're finding ways to avoid what we're trying to get them to do. Don't like it, don't incorporate, and don't enjoy the state-given benefits thereof. I don't care a bit about increasing choices for corporations, unless doing so improves our ability to harness them to generate whatever we're trying to get out of them (economic growth, infrastructure development, taxes, whatever). I'd surely entertain arguments against this in those terms, though (i.e. "actually this will cause us to be less able to harness corporations to our benefit, for reasons X, Y, and Z")
Corporations wholly creations of the state. They have no meaning or existence absent it. We shouldn't empower our government to grant the privileges of incorporation unless it's in the polity's interest, surely? There's no repulsion. They're not bad. But we don't owe them anything whatsoever, either, and we shouldn't hesitate to ask what we think we can or should in return.
A corporation is a contractual construct. People can form one voluntarily in the absence of the government. With the exception of limited liability for tort - which should be repealed - every right that corporations are bestowed, like legal personhood in the context of contract law, can be fully justified by free market principles.
I think you're considering a broader set of things a "corporation" than I am. Wikipedia:
> A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law 'born out of statute"; a legal person in legal context) and recognized as such in law for certain purposes.[1]:10 Early incorporated entities were established by charter (i.e. by an ad hoc act granted by a monarch or passed by a parliament or legislature).
Webster's 1913:
> A body politic or corporate, formed and authorized by law to act as a single person, and endowed by law with the capacity of succession; a society having the capacity of transacting business as an individual.
Modern Merriam-Webster's retains essentially the same definition.
That's why I hold that position about their relationship with the rest of society, and in particular with their parent government. I'll grant some other kind of organization, not being definitionally a creation of government, may not have the same relationship.
This can be common law, recognizing the legal authority the shareholders grant the corporate entity to act on their behalf.
There is a common law justification to treat that entity as a legal person because it acts as a single entity, as willed by the shareholders.
I am not suggesting that the corporate legal structure has never come into existence by legislation. I am just saying that the corporate structure can also emerge entirely through the common law enforcement of contracts.
Corporate taxes are the most blindingly stupid idea ever.
People forget that the only way to level the playing field between Amazon and local shops is to cut taxes to 0 rather than layering on increasingly complex tax rules. Amazon thrives in the presence of corporate taxes.
Corporate taxes also create huge incentive to offshore jobs to tax havens.
Not to mention no corporate tax rates would mean no need for all sorts of expenses on legal and accountants for tax optimisation.
In the UK I think we acknowledge they are a bad idea by having a plan to step them down over time to some low level (and potentially even 0 eventually). Covid derailed that plan.
There exist reasonable arguments against term limits for members of legislative bodies, which arguments hinge on term limits greatly increasing the power of lobbyists, by effectively lowering the average skill and expertise of lawmakers.
In most fields of activity after 2-3-5 years you should you should be a reasonable journeyman and after 10 you should have a decent mastery of your field.
To me a term limit of 15-20 years should be more than enough.
Try changing jobs as a software dev after 10 years. Every 'good' company will put you through 3-4 coding challenges, treating you like your fresh out of college.
Yeah, but we're talking about public positions here (public office). High visibility into both the good and the bad that you do.
Hardly comparable with software development work which is generally completely out of sight and therefore hard to quantify or verify. And I say this as someone who's been through the whole interview dance a bunch of times.
The only reason we have a "corporate tax" is because it sounds nice to voters who have no clue what's actually going on. And the average journalist is just as clueless but easily twice as malicious. If you "cut taxes on corporations" you are a bad guy. If you raise them, you are Robin Hood, taking from the rich and giving to the poor. This is literally the level of analysis that democracies operate at. Meanwhile, tax attorneys are getting rich off of helping megacorps evade taxes that the average business has to pay.
For the benefit of other readers: the corporate tax is pointless because in the long run, all corporate profits go to capital gains. So you can just raise the capital gains tax and get rid of the corporate tax. This is why the personal income tax is higher than the capital gains tax, because corporate profit has already been taxed while corporate expenses have not. Just equalize the capital gains tax and income tax and get rid of the corporate tax and you basically have the same revenue and way less bullshit.
Does this apply only to corporations above a certain size? Otherwise, if I can provide my service as a self-employed consultant, then why would I be employed by another company and pay income tax x%, when I could just offer the same services under my own company and pay 0% on the same income?
> In the UK I think we acknowledge they are a bad idea by having a plan to step them down over time to some low level (and potentially even 0 eventually). Covid derailed that plan.
I think, pre-COVID, they're aiming for 12.5% to compete with the Republic of Ireland. Northern Ireland was already granted permission to lower corporate tax rates to 12.5% [1]. The UK is looking at reversing cuts in the wake of COVID [2].
I have a crazy and unpopular idea - America drops the corporate income tax to 0%, full stop, across the board, no loopholes, no exceptions.
(ducks from the rotten vegetables that are being thrown at me)
Here me out...
America offsets the revenue loss by increasing tax burden on (rich) individuals, not corporations [1]. Hopefully, that would bring offshore profits back and increase hiring, r&d spend, capex, etc etc positive feedback loop etc. More likely, corps use the profits to buy back stock and layoff people (which has happened in the past with tax holidays [2]), but hey, at least those profits don't just sit in a bank account in Ireland or the Cayman Islands.
Here is a really crazy idea that won't work - Janet Yellen trying to compel the world to adopt a global tax rate standard, thinking that tax haven countries would comply for America's benefit. Yeah, not happening... the baby boomer generation really don't have any capability of second order thinking.
[1] The irony is that republicans love to say corps are people. With that logic they should be taxed like people. Dumb. They are not people, they are institutions. Don't tax institutions, just tax people more.
> Three: Eliminate the corporate income tax. Completely. If companies reinvest the money into their businesses, that's good. Don't tax companies in an effort to tax rich people.
> If companies reinvest the money into their businesses, that's good.
This is a bit of a side issue, but if a company really does reinvest the money into its business, in most cases that reinvestment will be spent on things that are deductible as a business expense, so that portion of revenue won't be profit and not subject to corporate income tax. That's one reason Amazon pays close to zero corporate income tax: they book very little in profit, since they reinvest most of the their revenue into qualifying business expenses to expand the business.
That's a good point. You think most of corporate america would notice Amazon and try to do similar, instead they buy back stock. Buying back stock is a less risky short term strategy to improve stock performance. Maybe tax stock buy backs?
Didn’t we have lots of people complaining that the Trump admin was giving away tax money by lowering the Corp tax rate down to 23%? I can only imagine the wild heckling of any present of future admin if they were so bold as to lower it to 0%. Krugman would probably have a fit.
You can get away with free meals, travel, education, housing, clothes, pocket money and entertainment now. These become expensives and are not taxed anyways. So no change on that front.
This makes profit tax-free. Profit is usually split with the shareholders or invested back. Shareholders are taxed if a capital gains event occurs. Why tax profits on money that will be invested back into the company?
Let's say hypothetically John Smith makes $500k/year as a software consultant. Instead of being paid directly he starts John Smith Inc. and routes his income through his corporation. He withdraws $100k/year in dividends to pay his living expenses which is paid under capital gains rates, the other $400k/year is invested in the stock market and grows tax-free forever inside the tax-sheltered corporation. The vast majority of John Smith's income will never be taxed as he only needs to withdraw enough in dividends every year to cover his living expenses.
What exactly is the problem here? How is this meaningfully different from investing your own post-tax $500k into the market and growing it forever?
If you dislike this situation, what you need is wealth tax, not profit tax. As the value of John Smith Inc. grows over time, John Smith the person will have to pay increasing amount of wealth taxes...
I don't think you can "withdraw" money from a company you own. Probably John Smith Inc. would pay John Smith the 100k/year as a salary... a salary which is taxed. But, then again, the Planet Money article says to eliminate income tax as well.
Their solution:
> Instead, impose a consumption tax, designed to be progressive to protect lower-income households.
I like these, but I think consumption tax is way too complicated to collect fairly. The simplest tax is literally no tax at all, just prudent spending on bond issuance. It works if the deflationary effect of greater productivity outpaces the monetary inflation. It fails when the money is wasted.
"Wasted" is doing a lot of work in that last sentence. Unfunded spending on primary education and healthcare is going to generate more current period monetary inflation than near term output, never mind transfer payments to the unemployed, but it's a helluva stretch to argue that this makes those areas of spending a waste of money
There is almost certainly a basic level of prudent healthcare spending which is current-period deflationary simply because healthy people are more productive (q.e.d. 2020), although the moral triage may not be palatable. Basic education is also deflationary because any expectation of increased productivity encourages current investment. The only caveat is if public spending on education reduces private saving for education, which would add inflationary pressure in the current period. I would also posit that the specific case of primary or trade education spending on the lower economic tier is immediately deflationary for many other reasons. Maybe unemployment insurance or even basic income is also deflationary, or maybe it’s not, but if it isn’t, then maybe it’s not such a great idea. I don’t think this rubric rules out any category of spending, but it certainly does limit spending to the point of negative returns.
I would hope also that this methodology may de-politicize government spending by achieving a baseline result that is hard to argue against: zero taxes, high productivity, and no inflation. Any cuts would be foolish, and any additional tax or spending is forced charity.
Re: “helluva stretch to argue...”
I see this pattern a lot in politics. Merely stating that something is hard to argue against, is not at all a convincing argument for that thing. It is simply an intimidation tactic, or an attempt to shift the burden of proof to the contrapositive. All contrapositives are hard to argue for, even if the positive is hard to argue for. For instance, prove to me why it is a bad idea to invade France. I have absolutely no reason at all to invade France, and now I’ve given you the chance to fail at your argument and thereby start a ridiculous war. The “hard to argue” pattern is even more convincing because it’s objectively true despite having no rational power to convince on its own. It’s hard to argue that we will never have to invade France. It’s much harder to argue that we will ever have to invade France, but somehow the former statement is interpreted as support for the latter.
I think a tax system this simple would be similarly simple to audit. Or maybe you would calculate your consumption tax at the end of the year, and then it wouldn't matter who you buy from.
I was thinking "black market", not "hard to administer". For that much money, there are plenty of people who are going to be willing to do off-the-books transactions.
And no, it won't be simple to audit. Can you prove that all the food you ate last year came from the grocery store? That you didn't buy any from your neighbor's cousin, who works at a wholesale warehouse?
So if I make billions via my genius SaaS company in the US, with 95% gross profit margin, get a nice apartment in Monaco and pay exactly 0% tax anywhere, ever on said billions, that's good?
The US happily imposes taxes on its citizens even if they are outside of its borders, and that apartment and all your other company perks would be considered taxable income.
You can renounce your citizenship, but you'll be subject to exit tax on the way out.
I was never a US citizen, I never even set foot in the country. I can do the same with every other country (except one small African country) because they tax according to residency. I'm only a resident of Monaco.
If you make billions, you pay individual taxes (including on stock granted to you, and again for any capital gains if you hold them over a year). If the company makes billions, it spends it on things like salary and growth investment (buying goods and services), or dividends or buying out shareholders (all of which is taxed along the way).
If you move to Monaco but stay a US citizen, you still owe US taxes on income. If you move and renounce your citizenship, you have to pay a significant sum of money based on your wealth (including stocks and ownership in companies).
Your scenario has nothing to do with the corporate tax rate.
Why are you assuming US citizenship? My SaaS, and sucking billions out of the US economy, doesn't require it.
I couldn't pull off 0% taxes without using corporate entities that are untaxed, all countries (at least try to) tax all income produced within their jurisdictions.
Because you’re able to pass benefits and productivity presumably to US citizens.
Not just that, but fine, you win your arguments as they are perfect. So now, this founder/owners have pallets of US dollars. Where does one spend those funny looking pieces of paper?
Poof. There goes that argument of “sucking billions out” as those dollars are FORCED to come back to the US.
This point has been made above, but you think foreign corporations with no meaningful connection to the US are paying significant corporate taxes here?
Spotify is a great example.
>We have significant net operating loss carry-forwards in Sweden and the United States. As of December 31, 2020, we had net operating loss carry-forwards of €100 million in Luxembourg, €1,293 million in Sweden, €461 million in the United States relating to federal taxes, and €315 million in the United States relating to state taxes.
>We have initiated and are in negotiations of an APA between Sweden and the United States governments for tax years 2014 through 2020 covering various transfer pricing matters. These transfer pricing matters may be significant to our consolidated financial statements. In addition, we are subject to the continuous examination of our income tax returns by various tax authorities which could result in assessments against us.
Those two lines more or less tell me that Spotify will not pay meaningful US corporate taxes for the next decade.
Might as well lose that non-existent tax revenue if that's the 'carrot' that gets the public on board with a wealth tax.
This has been the dream of people around the world for a good part of the last century. It’s a lot harder to achieve than to write hypotheticals about. In practice, the US economy is very good at taking its cut.
Well, then we could just set a global minimum income tax.
However... there's a great problem with this proposal. We're decreasing individual agency and increasing corporate agency.
Corporations are massive evolutionary self-defending systems. As this kind of system, they don't fundamentally care (i.e. their survival and reward isn't directly connected) about the wellbeing of their employees or the general population; their success doesn't mean success of employees or our progress as a society. Think about how our bodies don't really regard the wellbeing of our cells (only that they do their jobs to sustain what we do care about) -- and of course that's fine because cells don't think (individually).
Since corporations are non-conscious as individual entities (as far as I can tell), they don't have a well-defined wellbeing we should care for, unlike their employees and the population at large.
In this sense, they can indeed be seen as AGI overlords fighting with us. If they could replace humans with non-questioning (and without consciousness or well-defined wellbeing) robots they wouldn't bat an eye, as entities.
I call this The Great Problem of Consciousness: there are a great many of (abstract) forces and incentives in the Universe, and almost none of them care about the only thing that really matters, the Collective Conscious experience. Profit, nationalism, bureaucracy, authoritarianism, entropy, natural selection, energy gradients, and so on. None of that really cares about our experience (well being), yet they are the major driving forces of the Universe. The great battle is to try to align those gargantuan monsters into our own service. We only have control now because of the precarious situation where:
Power ~ Intelligence ~ Consciousness
Any variations in this condition will risk to topple humanity (in the sense of conscious individuals with good experience of life), unless we can systematically prevent it (before it prevents us). It's not quite it, but a similar concept is Scott Alexander's Moloch[1]. I'm studying ways to defeat this opponent (if anyone is interested, I hereby invite you to join in!).
(I'm not a proponent of the 0% corporate tax, fwiw)
If you are running the SaaS from Monaco and only selling things in the US, isn't it right that you'd only pay sales tax?
It's the mismatch when work is done in one place (for some definition of work), but profits taxed elsewhere that's the issue, as I understand it.
0% corporate tax and higher individual income tax works as long as a company and its employees have to use the "full stack" of taxes, and can't mix and match across borders.
In that situation you have nothing but deferred consumption (savings) accrued in your corporate bank account. You're just soaking currency out of the economy. It's fine if none of that money is taxed because it's not moving. As soon as you use it, it's taxed.
I think you would pay taxes in monaco [1], barring any crazy corporate structure shenanigans that would certainly smell of tax avoidance.
So, the government of Monaco would tax the corporate profit from Year 3 onward, assuming your genius SaaS is a startup, at a rate of at least 25%. You wouldn't evade taxes altogether.
For the corporate tax, you'd either convert to Euros to pay taxes (at which point, your USDs flow back into the international monetary system that eventually leads back to Uncle Sam), or you'd pay in USDs, and the government of monaco would do the same dance.
But, you'd get 75%ish tax-free USDs, to pay yourself an untaxed salary with! That's a good amount.
No because I have no corporate entity in Monaco, it's strictly a US company and I am sole shareholder. Monaco doesn't tax US companies unless they do business there.
No, the business has to be resident, which means it has an office there or sells locally. A resident shareholder or employee doesn't count. Monaco goes out of its way not to tax its residents, other than VAT on local purchases.
> if I make billions via my genius SaaS company in the US, with 95% gross profit margin, get a nice apartment in Monaco and pay exactly 0% tax anywhere, ever on said billions, that's good?
I assume you have employees in the U.S.? Suppliers? Payroll and sales tax didn't go to zero.
If you don't, if you're supplying a product that has zero footprint in the U.S., and making a killing off it, I mean, sure. Fine. Keep your money. You aren't costing our system anything. And you're providing us with something of value.
More pointedly, if you have such a business, one which has zero assets or employees in the U.S., only income, it's trivial to zero out your taxable corporate income today. The only difference between that and this is the amount of accounting and legal paperwork required.
The point is people always complain about the tax implications of these made-up scenarios as if they matter. Yes there’s a loophole in the tax code if you make a 95% gross margin SaaS product and move to Monaco. Who cares? M
If "corporate income tax" only refers to tax on profits, then there is still a tax on dividends, which you pay regardless - US taxes dividends "at source" ("withholding tax"), precisely to prevent individuals to relocating to low-tax jurisdictions and escaping capital income taxes.
The usual way economists look at this is that proxy taxes aren't really effective.
So your company makes a ton of income and it's not taxed - but if every viable path of taking money out of the company is taxed, economists will argue it works better.
So in your scenario they are arguing for a system where your apartment in Monaco either came from direct payments to you (taxed) or is a taxable benefit for you, etc.
Does it actually work like that though? You own a US domiciled company, with US revenues. You’re effectively making US sourced income or capital gains in the US even if you don’t live there. Surely tax is due to the US IRS for that? If not, then easy - just make it so and your loophole is closed.
The IRS already takes a very dim view of people trying this. There are still some avenues for avoidance at the margins (e.g. meals for the benefit of the employer), but in many cases the IRS has already closed the loopholes.
Great in theory till you realize that a corporate entity could just shelter profits for individuals in basically perpetuity.
Want a house? Have very profitable company get into real estate and buy a building/housing development/etc... and use some for corporate execs as R&D for future projects. Want a luxury vacation? Have company pay for trips or heck buy a boat/plane so the company can make it an executive retreat.
Income taxes shouldn’t exist in my opinion. The government can already tax consumption. Why do they need to bilk citizens out of both ends?
To pay for war. That is always the answer in the USA.
Consumption taxes are harder to make progressive; that is, they tend to have a disproportionate burden on the poor, whose consumption is a higher fraction of their income. But that could potentially be countered by something like a UBI, which is a progressive measure.
I imagine most folks here are American, but not everyone is out to get the average US citizen, some ideas just are good ideas and at some point they basically become universal. The US government is not some special meanie, in this case :-)
Some countries have no personal income tax for citizens and residents. US did not have one for half of its existence and when one was created it was tiny. Now most governments treat their citizens as 2 classes: those that can be taxed to death and those that can receive for nothing in return. This is a big divide that is growing, not closing.
> US did not have one for half of its existence and when one was created it was tiny.
The US also didn't have highways, a public healthcare system, public education, etc. for a large chunk of its existence. When all you needed was a homestead and a rifle... you didn't need much to finance the government.
If a corporation owns my house and doesn’t charge me rent, then imputed rent is a taxable benefit. Same with a car.
If my corporation owns a biz jet, then there has to be a purpose to the travel it offers. The IRS is going to look askance at trips to Hawaii with your spouse and kids being explained as “for business”. Best case, they identify it as a taxable benefit and then you pax tax, interest, and penalties.
In general, I think there’s an overestimation of what the IRS hasn’t already cottoned to WRT people trying to live within a corporation.
Now family trusts are different, but that’s not the subject of discussion.
The corporation doesn't have to pay for these things for you to recognize a massive tax benefit from a 0% corporate tax rate. If you can route your earnings through corporation in this scenario then you effectively pay zero taxes on the delta between your income earned minus your annual expenses.
I think it's an interesting idea, and not a terribly poor on the face of it.
Unfortunately, for us non-uber-rich people, uber-rich people have a lot of money to hire people to help them "avoid" taxes, under the euphemism of "minimizing tax burdens".
I think we'd probably need to address that first, by simplifying the US tax code (perhaps making it X% full stop, across the board, no loopholes, applied to all income earned beyond Y/year), before experimenting with such a strategy.
Of course, there will still be some sleazy people hiding their wealth (and income) behind personally-directed "non-profits" and "charities". But, these are probably easier to litigate than the corporations those people work at/for.
> perhaps making it X% full stop, across the board, no loopholes, applied to all income earned beyond Y/year
This has been floated for some time, usually followed by a discussion of a sales tax increase. However, the groups floating these ideas tends to be the more fringe types, so they are almost always dismissed out of hand.
I think it'd be popular among citizens who make under Y/year. You can make Y arbitrarily high, like $10m/year, and make X quite reasonable, like 30%.
Stepping back, to look at whether such a tax would be useful.
The chief risk that thinktanky-people raise is that there are many desirable countries to live in, which don't levy taxes as such. So you'd get a lot of assets fleeing $TAXING_COUNTRY, which, the argument goes, would have a deleterious impact on people inside that country.
In practice, most income of these people is not circulated in the American economy, but immediately invested into "stationary" assets, such as securities issued by US Corporations or the Treasury. Regardless of where these people live or hold citizenship, much of that stationary income will continue to be invested in the US, where real growth rates have historically been sustainably-high.
(a simultaneous tax on US-held-wealth, not income, would throw a big wrench into this argument!)
In addition, I doubt many people would actually give up their American citizenship to avoid this tax (simply having a residence abroad would not be enough to escape this tax, if you're a citizen, since our country taxes citizens living abroad).
IMO, most of the people who would give up citizenship to avoid a mandatory income tax, would have already given up (or avoided obtaining) their American citizenship anyways, because of the tax implications that exist today.
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This talk of emigration reminds me of a fun thought experiment.
I remember reading some argument whose thesis was, roughly, "one reason the US is able to accrue so much debt, well past the reasonable point of leverage for the average country, is because the US is the only nation with sufficiently-international tax-collecting, finance-monitoring, and military potential to effectively implement a wealth tax".
From the buyer's perspective, Country X can buy our debt, essentially as a securitization of a future wealth tax against the US. Furthermore, this effectively doubles as insurance against wealthy emigres leaving your country, since most of them take their assets to the US when they go! This means that the likelihood of US Debt being paid back is extremely high, even past the normal metrics of over-leverage (debt as a % of GDP).
To avoid a hypothetical tax on wealth generated in the US since the 1940s, you'd need to move yourself and your assets to a location outside the combined military+financial influence of the USA, that is willing to take your now-contraband, non-USD assets. Any USD assets held by most banks would be de facto seized.
Presently, maybe North Korea and Iran fit this bill. Russia, to a lesser extent, but this is a roll of the dice. Not the best places to peg a long-term future on. It's possible to imagine China (and the countries under its sphere of Belt+Road influence) fitting into this category one day, which would be interesting and probably invoke a war.
One interesting feature of this lens, is that the US shouldn't ever need to implement a wealth tax to justify the borrowing ability, the US simply needs to make it clear that such a tax would be possible to levy, if absolutely necessary.
Another interesting implication is that, if the US should ever lose its power to levy this tax (due to a sharp decline in military, economic, or financial policy strength), the US's ability to borrow way above our annual-GDP could evaporate overnight: causing all kinds of mayhem, probably.
I don't think that would work in the long run either. If it becomes expensive to own a lot of land due to taxes then the simple solution is to not own land and it's easy to implement as there is no requirement to hold land as an asset, it's only a convenient store of wealth at the moment. The minute it becomes inconvenient you would see the wealthy divest their ownership of land in favour of some other asset with less tax burden.
Someone who wants to rent it out for a profit. Someone who wants to redevelop it as a business. The value of real estate would probably take a big hit with a tax hike like the one proposed as owners move to liquidate so there would be a glut of properties at first but it would eventually find a price for each that is acceptable to buyers. Haven't you ever wondered how beautiful, historic residences in prime urban locations got turned into apartments and condos?
>The minute it becomes inconvenient you would see the wealthy divest their ownership of land in favour of some other asset with less tax burden.
Wouldn't that be a "win" situation as well? Because at least it will reduce the incentive to go all NIMBY on new denser development, which seems to be the main blocker when it comes to housing pricing (and, consequentially, ownership/renting).
Unless I misunderstood what you said, it seems like you are saying that this policy won't completely solve the issue. But it would make it at least better, while, at the same time, making "property as a store of wealth" less viable. Which would (in my estimation) make housing cheaper (directly) just due to people not hoarding the land anymore and (indirectly) due to decreased NIMBYism blocking denser housing developments.
So while it might not be a win-win-win, situation, it could definitely be a win-win situation. Or at least a singular win situation without much losses or negatives attached to it (at least as far as I am seeing this, which could definitely be wrong; in which case, please correct me, as I am thinking through this as I am going; I am far from being the expert on the situation).
How do you stop the ultra rich from renouncing citizenship while their companies generate free profit in the US? Or even easier just keep all their cash sheltered in corporations?
Tax consumption, land, pollution.
If those sneaky mega rich start founding companies in US that are clean, don't sell in US and thus don't pay taxes it's just a huge win for everyone. Once you sell to the area with consumption taxes you pay those. Couple that with some Ubi/reverse income tax to offset consumption taxes hitting the poor/middle class more and it's a simple and fair tax system.
It's not a new idea either. You just need to get the idea of "evil corps need to pay" mindset.
They are usually just people that give up to a citizenship they did not chose, not slaves. You are supporting slavery in a modern form, the government is the new master.
Such an odd comment you replied to. I'm not touching the slavery part, but I do lean toward the 'I did not choose my country'. I'm not one for blind allegiance, and personally get creeped out by watching all of the school children that have no true idea what a 'pledge of allegience' really means. I also do not believe a child should be able to enter into that type of agreement.
These billionaires weren't complaining about their citizenship while they were earning their billions. Saying they didn't choose it in hindsight is pretty convenient. I don't buy it.
No, I compared taxing and citizenship with slavery and this is very reasonable because it is very similar. The billionaires are just a distraction from the real problem.
Likely won't happen to any meaningful effect. Think about the options in the first world - Europe, Canada, Australia, New Zealand. Some of those countries have less friendly tax regimes and less stability. The US is still the friendliest to the rich.
The rich threatening to live is just that - a threat.
France said the same until a few famous people left. Playing a dare game is risky and these days there are a lot of nice places where American ex-citizens moved, there is an entire business around helping them finding the best places. It is lot like you have a cow to milk and it's safe because you put a fence so it cannot leave, when you treat people like cattle they can show they can be falcons and fly away.
"America drops the corporate income tax to 0% ..."
Both your proposal (corp rate of 0%) and the objections to your proposal (that individual income will be shifted onto corporate ledgers) are already extant, and addressed, in US tax code.
Any business can incorporate under subchapter-S, or as a form of LLC/LLP and pay zero taxes. Very common. Happens all the time.
The catch is, you cannot carry income on the books arbitrarily. For the most part, you are forced to distribute the proceeds among the shareholders/partners before the end of the year - thus subjecting it to regular and frequent taxation.
On the other hand, if you want to carry proceeds forward in the business and park them there, for whatever reason, you need to be a C-Corporation and are subject to double-taxation: corporate taxes and then, later, individual taxes once the monies are finally distributed.
So you have that choice. If you want the flexibility and fewer shareholder restrictions of a "C" corporation, you need to pay corporate taxes.
Personally, I prefer the simplicity of an S-corp and, as a bonus, the income is not double taxed.
> Both your proposal (corp rate of 0%) and the objections to your proposal (that individual income will be shifted onto corporate ledgers) are already extant, and addressed, in US tax code.
Fair point, but then why are US companies still parking their profits off shore?
I think that is a terrible idea because it does nothing to address the real problem - economic growth being largely captured by ultra rich people. Sure everyone who is invested in stock market will be richer, but people who need most help are not buying stocks.
Taxation is hard, so far Sam Altman's capital tax is least worst option I've heard: https://moores.samaltman.com/ . It does have it's deficiencies... It's wealth redistribution, it might slow down or even completely stunt economic growth, and given current political climate and corruption and is highly unlikely to be implemented. At the same time humanitarian value alone it would bring is so astronomical that I believe we must try it. It would also greatly expand middle class which should boost the economy long term.
Yeah, I was commenting on this for a few years now.
It's just obvious corporate tax on profits is one the worst taxes you can come up with. It imposes big regulatory/accounting burden. It's completely impossible to police/enforce fairly (who the government officials are to decide if buying this licence from a Cyprus based company is worth 20 million or 30 million). It encourages behaviors we don't want (ballooning costs by hiding compensation as various perks). It makes it easier to go around for bigger players while being a disproportionately bigger burden for smaller players.
It's not really race to the bottom. It's just a terrible tax.
It's very hard to reason about this stuff from first principles... everything means something complex in the complex.
If you want to strike nearer the trunk, nevermind root, of the issue... the place to start is corporation law. Once a cascade of tax entities of different types/jurisdictions can own or control each other in cascades... it becomes impossible to tax anything in a simple way. Without that, it's impossible for corporate tax just apply to the individuals with a share. If it was, than we could (as you suggest) think of corporate income tax as a +/- to regular income tax. As it stands, it is a different sum and applies to different people/ tax entities.
In terms of economic efficiency.... I don't think any abstract economic theory beats current reality observations. If you look at some of the biggest current companies... they are obviously undertaxed. A company like google doesn't accumulate 10s of $bns cash unless they cannot find ways of putting it to work. In theory, no matter what their tax burden, they would have "produced^" and invested what they did anyway. The same is not (necessarily) true fro TSLA or JNJ. It probably is for FB or MSFT.
In any case... as "mainstream" macroeconomics rapidly turns in a loose money direction, "bring the money home, we don't have enough money here" is less of a thing. The federal reserve is making however much money they think the economy needs for monetary purposes anyway...
^Scare quotes because "production" measured in ad sales is a little abstract for me.
edit: This turned into a bit of a rant so putting a note here to say this isn’t personally ranting at the OP, just the standard of dialogue around this problem.
Saying “tax the rich” doesn’t make it happen.
It’s almost as if these politicians and celebrities that come along and vomit hashtags into their twitter feed are under the impression it’s never been done because no-one thought of it before.
Tax the rich how, exactly?
Lowering exemptions and allowances to raise duties is a tax on the working poor.
Raising income tax rates is a tax on the working middle class (we hear plans to do this all the time because fiscally conservative politicians believe their voters are too stupid to notice the difference between income and wealth).
If you want to “tax the rich” you need to tax actual wealth - and you need to figure out a way to do that which doesn’t cause capital flight. This has proven very difficult to do successfully.
So, we can either re-visit wealth inequality when we have unilaterally matched global tax rates with no loopholes a few centuries from now after the robots have completely taken over, or act like grown-ups, put some work in and figure out a solution.
Tweeting shallow nonsense like “tax the rich” without offering a plan while ignoring the massive complexity in taxing wealth in a global economy is a cynical ploy on the poor while laughing hysterically in the face of the working middle.
It would certainly be a start, although I can think of at least three mechanisms just off the top of my head that are available to people with that kind of money to make a capital gain not a capital gain.
The loopholes are the problem, and it’s a job for governance to fix.
Every time a politician says “tax the rich” or “Company X only paid Y last year and should apologise and pay more” all I can hear is “we can’t be bothered to do the job you elected us to do”.
Imagine if the police didn’t respond to crimes in progress but instead made sternly worded public statements after the fact saying that criminals should be very disappointed with themselves and should apologise and pay back 10% of what they stole as restitution.
Except the reason governments tax is to create markets and to provide sticks (or carats) to certain behaviors. Taxes are not for revenue. Read the 'Deficit Myth' by Stephanie Kelton or Debt the First 5000 Years by David Graeber.
So we were the global tax haven that undercut the rest of the developed world for the past 50 to 100 years, and now that we're drowning in debt and the government needs revenue, we're asking very nicely that nobody plays spoiler.
> the Biden administration’s effort to help raise revenue in the United States
This coming after a $2T pork stimulus with another $2T on the way. Obviously this has nothing to do with prudent financial management. Punishing evil capitalists? Maybe. Trying to prevent a mass exodus of investment from the US? Probably.
I’m sure they tried to close loopholes regarding offshoring profits, but realized the corporations would just exit faster. This is desperation. It won’t work. Capital can’t be controlled and threatened the way that people can be. Capital will always go where it’s treated best.
If I am a smaller, poorer country (especially poor in natural resources), why would I agree to this? If giving tax breaks can attract foreign companies to my shore, why would I not do it?
Why should other countries make concessions for the American politicians (esp republicans) unwillingness to properly enforce the existing tax rules, make better tax code, increase funding for IRS etc?
I don't think I understand her logic, can someone ELI5?
Why would larger countries allow/trade with you then? If you are being used as a tax avoidance loophole heaven, larger countries can just cut off any trade with you. They don't own you squat, if you will try to undermine them, then can just cut you off.
All they have to say: no business in my country, are allowed to do any business with little loophole country, and no trade will be allowed between our countries. Good luck little dip-shit country, you are on your own.
Which will defeat the purpose of your small tax heaven strategy. Unless your little country is a full blown 'autarky' (which is impossible now days, unless you want to look like Cuba), you will have to play by the rules of the big boys.
Why don't we discuss corporate income taxes as effectively a fee for the legal and commercial advantages associated with being a corporate entity in the US?
For example a C corporation can tap into highly liquid and well developed capital markets, limit and separate the owners and lenders to a business from management and associated liability beyond their initial investment, and thanks to certain legal decisions like Citizens United, corporations still seem to enjoy what seem to me more like personal rights such as freedom of speech, ability to participate in politics anonymously , and likely more I don't know about.
With all the aforementioned advantages, is it any wonder that a huge proportion of firms above a certain size limit are C corporations despite the obvious downside to contend with of double taxation? [1]
It seems like the relevant question is the value of those advantages to the tax rate legislated by congress, net of costs related to the right accounting, legal, and lobbying teams.
Why doesn't the US utilize the fact it has some of the richest, most sought-after customers in the world.
If a company wants to do business in the US, just stipulate that they have to be paying a corporate rate of X% somewhere. If that X is 21% and they are only paying 12.5% then in order to do business in America they would need to pay the US the difference.
Just like California can dictate emissions standards in vehicles across the rest of the states, the US has power to dictate standards across the world. No need to get everyone on board.
Note: I'm not commenting on whether corporate tax is good/bad. I'm just asking if the US wants something done why not.. do it.. and restrict those that don't from doing business here? We do that already for corruption (see the FIFA case[0]) Same could apply to carbon tax. If they don't pay a carbon tax for their GLOBAL business dealings, pay it to the US or your not welcome.
The proof that media discussion regarding taxation is purely, ideologically ideologically driven is the fact that, as in this article, the Laffer curve is almost never mentioned. Any discussion about tax rates without considering where we currently sit on the Laffer curve is an exercise in futility (or propaganda).
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[ 3.2 ms ] story [ 274 ms ] threadHate to break it to you, but there have been multi-lateral treaties before. Including those that deal with taxation.
Especially considering that the permanent members (which include Russia and China, as well as the US and others) are given veto powers, and they aren't afraid to use them whenever convenient for them.
P.S. I don't honestly believe in the whole "global new world order" conspiracy-tier of political discourse. My reply above was just meant to illustrate that something like UN is not what the person, who originally brought up "global new world order", had in mind.
https://news.ycombinator.com/item?id=26698242
This is just an excuse to not pass strong controls preventing local companies from moving their money overseas. Start taxing companies based on where their employees and executives live, not which mailbox they stuff money into.
Charter of the United Nations [1], for one.
At the point one is discussing non-signatories to it one is debating the definition of a country. That seems like a fair line at which to delineate the entire globe, more or less.
[1] https://en.m.wikipedia.org/wiki/Member_states_of_the_United_...
Arguably the WTO is both the rationale for a "minimum corporate tax" (if it wasn't for WTO rules, countries could introduce tariffs and other trade barriers specific to certain countries to deter registration in tax havens) and the most likely way such a thing would be realised (in practice it would probably be "you can set your rate below this, but if you do WTO members are free to set higher tariffs on your produce than other countries")
The only way we will be able to close all of the complex tax loopholes that large corporations take advantage of is to coordinate tax rates across nations.
https://www.investopedia.com/terms/d/double-irish-with-a-dut...
How often have these loopholes come up and people say "don't get mad at the corporations, we need to change the rules"
This is exactly the type of rule change we need to get this done.
(I know this particular loophole is closed now, but there are new ones I haven't taken the time to learn about yet.)
Wanting a global minimum tax is like one mafia asking the others to increase their protection charges so their clients don't leave. Such collusion is frowned upon for good reasons in free markets as it leads to worse outcomes due to reduced competition.
I'm hopeful that this idea will not work due to the profitability of breaking the deal and the big number of countries that exist. The US also shouldn't overestimate its importance which seems high but ever-declining.
No, it's to ensure that countries with extremely low operating costs thanks to few citizens and not a lot of space (Luxembourg, Switzerland, Ireland come to my mind) don't run price dumping on everyone else, allowing the rich elites to concentrate and extract profits while the countries that made that profit possible (by, for example, providing an educated workforce or a secure legal framework to solve conflicts) get nothing in return.
I think the frustration is in part due to a corporation conducting business in one country, and playing games so the profits occur and are taxed in a lower tax one.
In a functioning market, this might work, but it overlooks the ability of corporations to game the system via one or two self-interested jurisdictions.
The key problem is that corporations can avail themselves of the public goods (infrastructure, public education, public order) and then use accounting maneuvers to shift profits to jurisdictions that will not tax them.
Some jurisdictions don't provide much in the way of public goods (small island states) or see an opportunity to raise some modest taxes on money they would otherwise never see (eg the Netherlands).
So you end up with the (individual) taxpayers of some countries subsidising these corporations, other countries profiting modestly and the corporations keeping most of the tax money.
Is this what an efficient market would deliver? An unfair and unsustainable situation? According to your theory the countries should compete with each other until their taxes are very low and their subsidies are very high, because that would reflect "efficiency". But what is the incentive for countries to do this? A rational country in the this market would set taxes to balance out the public goods provided. But because of profit shifting this is impossible, no matter how efficient they are. Yellen's plan is a rational response to this.
Countries can easily tax income generated by foreign corporations within their jurisdiction.
What you and Yellen are advocating risks imposing on the entire world an economic and tax system that may be far from optimal, to address a risk that can be mitigated through numerous other methods.
Why would e.g. an integrated software/hardware business pay significant taxes in the US if their value chain isn't strictly bound to it?
Sure, if developers live and work there you can tax their income to a certain degree before they leave and work remotely. Hardware is built abroad anyway (and probably taxed there), you can only levy import taxes at your own detriment. But if the business is successful most of the added value comes from the integration of these aspects and that can happen wherever because it's an idea not bound to a place to be executed. If something doesn't require physical presence taxing it becomes very hard and morally dubious (on what grounds would you tax it all if e.g. only 10% of your profits need physical infrastructure that is funded through these taxes?).
Globalization means that a society's most successful people aren't stuck with it any longer. They can go where they aren't seen as subjects to milk to keep the less productive happy. I don't owe my country of origin anything, they need to be competitive to keep me as I can take my business everywhere. In that sense directly investing in your population's higher education might be misguided to some degree because it creates more people capable enough to leave with the acquired knowledge, increasing the tax burden, making the country less competitive.
This is a feature of the market system and not a bug.
> Some jurisdictions don't provide much in the way of public goods (small island states) or see an opportunity to raise some modest taxes on money they would otherwise never see (eg the Netherlands).
Again, this is a feature and not a bug.
> So you end up with the (individual) taxpayers of some countries subsidising these corporations, other countries profiting modestly and the corporations keeping most of the tax money.
I do not understand the use of the word "subsidy" here. Corporations are keeping the money they have earned themselves is not a subsidy. Not to mention all the money that corporations earn eventually belongs to the individuals who receive them in the form of dividends or capital gains.
> A rational country in the this market would set taxes to balance out the public goods provided.
There is zero restraint on what is a "public good". Governments like to take over everything and control everything. Without corporations being able to influence policy and be able to move their money abroad we would end up in pretty bad state like California where you spend billions of dollars on a high speed train that goes from nowhere to nowhere and will never really complete to transport anything useful.
I am not sure why leaving more money in hands of people like Joe Biden or Donald Trump should be seen as anything but pure evil at this point.
These jurisdiction brands are in competition with each other and they need to stay more attractive than the next.
The tax collection expectation is based on hubris, and seems to misunderstand that countries have to figure out their own revenue structures, with national formalized taxes on profits being a new scheme, and international taxes being newer. This obviously brushes up against the capabilities of the nation state concept, as enforcing it even by the wealthiest country is an impractical game of whack-a-mole.
Countries should revisit how they are funded, because they are in competition. Its only a couple of the biggest countries that have egos about it.
But that said the US has pushed a lot of countries into tax treaties and it sounds like they can effectively embargo countries that don't comply with US tax policies. So I think the US has ways of getting what it wants.
Wanting tax loopholes and government competition is like one mafia asking the others to increase their protection charges so their clients don't leave. Such collusion is frowned upon for good reasons in free markets as it leads to worse outcomes due to reduced competition.
I'm hopeful that this idea will not work due to the profitability of breaking the deal and the big number of companies that exist.
That's true for me, because if I decide US taxes are too high and leave the country, I don't get to keep using US roads. That's not true of Amazon.
Edit to add: more generally, this is a coordination problem[0], and mutual agreements against defection are a well-studied solution to such problems. Comparing such an agreement to mafia extortion is way off base.
0: https://en.wikipedia.org/wiki/Coordination_game
https://www.irs.gov/individuals/international-taxpayers/taxp...
But it's not unthinkable that the EU could do something within the EU.
And if big developed economies adopt it, then it's no problem sanctioning tiny island nations that don't.
The natural outcome is that the entity makes every effort to meet the needs of the corporations, and zero effort to meet the needs of the citizens. Indeed, it can reduce services to the citizens while increasing their costs, at the same time as doing the opposite for the corporations: reducing their costs while granting them monopolies and regulatory protection, for example.
The tax haven could even get around an “enforcer” or governing board. For instance, such a country might change what it considers to be “profit” so that you’re paying $2 on $100 of revenue, whereas in the neighboring country you’d be paying $6. Same nominal tax rate, different effective tax rates. There are even more ways to play this: “Sure, we tax you at the required 20%, but you can then direct how those funds are used to reduce costs you’d otherwise have to pay directly.”
And this happens a ton— see the WTO and “effective” but not nominal tariffs.
Whether or not we see such a harmonized tax rate emerge and even if we could find a way to have some governing body try to “enforce” it, you’ll still see countries lowering their effective tax rates to lure firms or bolster growth. I bet there’s a maximum sustainable effective corporate tax rate, but I have no idea what it is (and for all I know it could be zero or negative).
Thats a big start
So if my math is right, at constant prices, the 2021 US military budget would be $443 bn (constant 1997 prices) vs $282 bn (1997 budget), which doesn't seem as drastic.
I'm a bit shocked, to be honest, I checked the inflation just to compare the two budgets and the difference is far lower than I was expecting.
It would be great to understand why lack of choice in tax regimen is different, particularly from people that are of the opinion that FAANGs are monopolies that should be broken up
What are the state-given benefits that they get, and other entities have no access to?
what makes them worse than say an LLP or an LP?
Corporations wholly creations of the state. They have no meaning or existence absent it. We shouldn't empower our government to grant the privileges of incorporation unless it's in the polity's interest, surely? There's no repulsion. They're not bad. But we don't owe them anything whatsoever, either, and we shouldn't hesitate to ask what we think we can or should in return.
> A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law 'born out of statute"; a legal person in legal context) and recognized as such in law for certain purposes.[1]:10 Early incorporated entities were established by charter (i.e. by an ad hoc act granted by a monarch or passed by a parliament or legislature).
Webster's 1913:
> A body politic or corporate, formed and authorized by law to act as a single person, and endowed by law with the capacity of succession; a society having the capacity of transacting business as an individual.
Modern Merriam-Webster's retains essentially the same definition.
That's why I hold that position about their relationship with the rest of society, and in particular with their parent government. I'll grant some other kind of organization, not being definitionally a creation of government, may not have the same relationship.
This can be common law, recognizing the legal authority the shareholders grant the corporate entity to act on their behalf.
There is a common law justification to treat that entity as a legal person because it acts as a single entity, as willed by the shareholders.
I am not suggesting that the corporate legal structure has never come into existence by legislation. I am just saying that the corporate structure can also emerge entirely through the common law enforcement of contracts.
People forget that the only way to level the playing field between Amazon and local shops is to cut taxes to 0 rather than layering on increasingly complex tax rules. Amazon thrives in the presence of corporate taxes.
Corporate taxes also create huge incentive to offshore jobs to tax havens.
Not to mention no corporate tax rates would mean no need for all sorts of expenses on legal and accountants for tax optimisation.
In the UK I think we acknowledge they are a bad idea by having a plan to step them down over time to some low level (and potentially even 0 eventually). Covid derailed that plan.
With the stroke of a pen, you would eliminate a huge industry (tax attorneys, tax consultants, etc)
You can bet they will not go down without a fierce fight
This makes total sense. Except it cannot happen.
Same as term limits. Incredible idea. Never going to happen.
In most fields of activity after 2-3-5 years you should you should be a reasonable journeyman and after 10 you should have a decent mastery of your field.
To me a term limit of 15-20 years should be more than enough.
Hardly comparable with software development work which is generally completely out of sight and therefore hard to quantify or verify. And I say this as someone who's been through the whole interview dance a bunch of times.
We shall proceed to ignore you and continue with our obviously bad ideas, to the detriment of everyone.
Maybe in 20-30 years another person, let's call that person Pasteur, will come back with much the same ideas and everyone will listen to them.
For the benefit of other readers: the corporate tax is pointless because in the long run, all corporate profits go to capital gains. So you can just raise the capital gains tax and get rid of the corporate tax. This is why the personal income tax is higher than the capital gains tax, because corporate profit has already been taxed while corporate expenses have not. Just equalize the capital gains tax and income tax and get rid of the corporate tax and you basically have the same revenue and way less bullshit.
No, they do not. Rather than belabor the point, which you repeat over and over, just do a little more cursory research.
https://www.accounting-degree.org/accounting-tricks/ https://www.brookings.edu/blog/up-front/2017/11/30/the-next-... https://www.cbpp.org/research/federal-tax/substantial-income...
If you have the assets, you can do it too. Trump takes advantage of it, for all the good it does him.
Repeat over and over?
If it were up to me I'd bring income, cap gains, and dividend tax rates in line with eachother (or just call them all income), and be done with it.
Edit: i might be wrong but I think bringing those three taxes in line is another one of these Cummings-era UK policy ideas
I think, pre-COVID, they're aiming for 12.5% to compete with the Republic of Ireland. Northern Ireland was already granted permission to lower corporate tax rates to 12.5% [1]. The UK is looking at reversing cuts in the wake of COVID [2].
[1] - https://www.ft.com/content/129e7687-20d7-449f-bde1-3455015de...
[2] - https://www.independent.co.uk/news/uk/politics/corporation-t...
(ducks from the rotten vegetables that are being thrown at me)
Here me out...
America offsets the revenue loss by increasing tax burden on (rich) individuals, not corporations [1]. Hopefully, that would bring offshore profits back and increase hiring, r&d spend, capex, etc etc positive feedback loop etc. More likely, corps use the profits to buy back stock and layoff people (which has happened in the past with tax holidays [2]), but hey, at least those profits don't just sit in a bank account in Ireland or the Cayman Islands.
Here is a really crazy idea that won't work - Janet Yellen trying to compel the world to adopt a global tax rate standard, thinking that tax haven countries would comply for America's benefit. Yeah, not happening... the baby boomer generation really don't have any capability of second order thinking.
[1] The irony is that republicans love to say corps are people. With that logic they should be taxed like people. Dumb. They are not people, they are institutions. Don't tax institutions, just tax people more.
[2] https://en.wikipedia.org/wiki/Repatriation_tax_holiday
https://www.npr.org/sections/money/2012/07/19/157047211/six-...
> Three: Eliminate the corporate income tax. Completely. If companies reinvest the money into their businesses, that's good. Don't tax companies in an effort to tax rich people.
This is a bit of a side issue, but if a company really does reinvest the money into its business, in most cases that reinvestment will be spent on things that are deductible as a business expense, so that portion of revenue won't be profit and not subject to corporate income tax. That's one reason Amazon pays close to zero corporate income tax: they book very little in profit, since they reinvest most of the their revenue into qualifying business expenses to expand the business.
This makes profit tax-free. Profit is usually split with the shareholders or invested back. Shareholders are taxed if a capital gains event occurs. Why tax profits on money that will be invested back into the company?
If you dislike this situation, what you need is wealth tax, not profit tax. As the value of John Smith Inc. grows over time, John Smith the person will have to pay increasing amount of wealth taxes...
What's the difference between investing post-tax income vs pre-tax income? The amount of income tax you paid...
Their solution: > Instead, impose a consumption tax, designed to be progressive to protect lower-income households.
I would hope also that this methodology may de-politicize government spending by achieving a baseline result that is hard to argue against: zero taxes, high productivity, and no inflation. Any cuts would be foolish, and any additional tax or spending is forced charity.
Re: “helluva stretch to argue...”
I see this pattern a lot in politics. Merely stating that something is hard to argue against, is not at all a convincing argument for that thing. It is simply an intimidation tactic, or an attempt to shift the burden of proof to the contrapositive. All contrapositives are hard to argue for, even if the positive is hard to argue for. For instance, prove to me why it is a bad idea to invade France. I have absolutely no reason at all to invade France, and now I’ve given you the chance to fail at your argument and thereby start a ridiculous war. The “hard to argue” pattern is even more convincing because it’s objectively true despite having no rational power to convince on its own. It’s hard to argue that we will never have to invade France. It’s much harder to argue that we will ever have to invade France, but somehow the former statement is interpreted as support for the latter.
Now a consumption tax is easy and indiscriminate. Everything is taxed at Y% at the cash register.
I think I read somewhere like a 23% tax would be sufficient to offset all income/corporate taxes.
And no, it won't be simple to audit. Can you prove that all the food you ate last year came from the grocery store? That you didn't buy any from your neighbor's cousin, who works at a wholesale warehouse?
Did these economists think this idea through?
You can renounce your citizenship, but you'll be subject to exit tax on the way out.
Yes, they've thought this through.
If you move to Monaco but stay a US citizen, you still owe US taxes on income. If you move and renounce your citizenship, you have to pay a significant sum of money based on your wealth (including stocks and ownership in companies).
Your scenario has nothing to do with the corporate tax rate.
I couldn't pull off 0% taxes without using corporate entities that are untaxed, all countries (at least try to) tax all income produced within their jurisdictions.
Not just that, but fine, you win your arguments as they are perfect. So now, this founder/owners have pallets of US dollars. Where does one spend those funny looking pieces of paper?
Poof. There goes that argument of “sucking billions out” as those dollars are FORCED to come back to the US.
Spotify is a great example.
>We have significant net operating loss carry-forwards in Sweden and the United States. As of December 31, 2020, we had net operating loss carry-forwards of €100 million in Luxembourg, €1,293 million in Sweden, €461 million in the United States relating to federal taxes, and €315 million in the United States relating to state taxes.
>We have initiated and are in negotiations of an APA between Sweden and the United States governments for tax years 2014 through 2020 covering various transfer pricing matters. These transfer pricing matters may be significant to our consolidated financial statements. In addition, we are subject to the continuous examination of our income tax returns by various tax authorities which could result in assessments against us.
Those two lines more or less tell me that Spotify will not pay meaningful US corporate taxes for the next decade.
Might as well lose that non-existent tax revenue if that's the 'carrot' that gets the public on board with a wealth tax.
However... there's a great problem with this proposal. We're decreasing individual agency and increasing corporate agency.
Corporations are massive evolutionary self-defending systems. As this kind of system, they don't fundamentally care (i.e. their survival and reward isn't directly connected) about the wellbeing of their employees or the general population; their success doesn't mean success of employees or our progress as a society. Think about how our bodies don't really regard the wellbeing of our cells (only that they do their jobs to sustain what we do care about) -- and of course that's fine because cells don't think (individually).
Since corporations are non-conscious as individual entities (as far as I can tell), they don't have a well-defined wellbeing we should care for, unlike their employees and the population at large.
In this sense, they can indeed be seen as AGI overlords fighting with us. If they could replace humans with non-questioning (and without consciousness or well-defined wellbeing) robots they wouldn't bat an eye, as entities.
I call this The Great Problem of Consciousness: there are a great many of (abstract) forces and incentives in the Universe, and almost none of them care about the only thing that really matters, the Collective Conscious experience. Profit, nationalism, bureaucracy, authoritarianism, entropy, natural selection, energy gradients, and so on. None of that really cares about our experience (well being), yet they are the major driving forces of the Universe. The great battle is to try to align those gargantuan monsters into our own service. We only have control now because of the precarious situation where:
Any variations in this condition will risk to topple humanity (in the sense of conscious individuals with good experience of life), unless we can systematically prevent it (before it prevents us). It's not quite it, but a similar concept is Scott Alexander's Moloch[1]. I'm studying ways to defeat this opponent (if anyone is interested, I hereby invite you to join in!).[1]: https://slatestarcodex.com/2014/07/30/meditations-on-moloch/
Nah.
Every-hypothetical-body in the US paying you billions is getting more in value from your SaaS product than they're paying you for your SaaS product.
Otherwise they wouldn't buy it.
If you are running the SaaS from Monaco and only selling things in the US, isn't it right that you'd only pay sales tax?
It's the mismatch when work is done in one place (for some definition of work), but profits taxed elsewhere that's the issue, as I understand it.
0% corporate tax and higher individual income tax works as long as a company and its employees have to use the "full stack" of taxes, and can't mix and match across borders.
No one pays income or capital gains taxes in Monaco, but my SaaS is genius remember, so I have only a small number of employees at any rate.
I don't think anything of what I'm proposing is right, I'm just thinking though the consequences of a 0% corporate tax.
So, the government of Monaco would tax the corporate profit from Year 3 onward, assuming your genius SaaS is a startup, at a rate of at least 25%. You wouldn't evade taxes altogether.
For the corporate tax, you'd either convert to Euros to pay taxes (at which point, your USDs flow back into the international monetary system that eventually leads back to Uncle Sam), or you'd pay in USDs, and the government of monaco would do the same dance.
But, you'd get 75%ish tax-free USDs, to pay yourself an untaxed salary with! That's a good amount.
[1]: https://en.service-public-entreprises.gouv.mc/Tax/Other-taxe...
I assume you have employees in the U.S.? Suppliers? Payroll and sales tax didn't go to zero.
If you don't, if you're supplying a product that has zero footprint in the U.S., and making a killing off it, I mean, sure. Fine. Keep your money. You aren't costing our system anything. And you're providing us with something of value.
More pointedly, if you have such a business, one which has zero assets or employees in the U.S., only income, it's trivial to zero out your taxable corporate income today. The only difference between that and this is the amount of accounting and legal paperwork required.
https://ibkr.info/article/938
So your company makes a ton of income and it's not taxed - but if every viable path of taking money out of the company is taxed, economists will argue it works better.
So in your scenario they are arguing for a system where your apartment in Monaco either came from direct payments to you (taxed) or is a taxable benefit for you, etc.
It's a good policy, and you should be for it even if you want to soak the rich.
If corporate tax is zero their ability to investigate companies sending money to each other to buy yachts is diminished
Want a house? Have very profitable company get into real estate and buy a building/housing development/etc... and use some for corporate execs as R&D for future projects. Want a luxury vacation? Have company pay for trips or heck buy a boat/plane so the company can make it an executive retreat.
Income taxes shouldn’t exist in my opinion. The government can already tax consumption. Why do they need to bilk citizens out of both ends?
To pay for war. That is always the answer in the USA.
If you tax ONLY consumption, taxes will simply be passed on to the last mile which is consumers.
> To pay for war. That is always the answer in the USA.
Almost every country in the world has income taxes, even neutral countries such as Switzerland ( https://home.kpmg/xx/en/home/insights/2011/12/switzerland-in... ), which haven't been in a war for 200 years.
I imagine most folks here are American, but not everyone is out to get the average US citizen, some ideas just are good ideas and at some point they basically become universal. The US government is not some special meanie, in this case :-)
https://en.wikipedia.org/wiki/Income_tax#Around_the_world
> US did not have one for half of its existence and when one was created it was tiny.
The US also didn't have highways, a public healthcare system, public education, etc. for a large chunk of its existence. When all you needed was a homestead and a rifle... you didn't need much to finance the government.
If my corporation owns a biz jet, then there has to be a purpose to the travel it offers. The IRS is going to look askance at trips to Hawaii with your spouse and kids being explained as “for business”. Best case, they identify it as a taxable benefit and then you pax tax, interest, and penalties.
In general, I think there’s an overestimation of what the IRS hasn’t already cottoned to WRT people trying to live within a corporation.
Now family trusts are different, but that’s not the subject of discussion.
Your spending cash is just a loan from a bank to you backed by the value of your corporation.
All major assets are held by the corporation.
A global tax of some kind is the only way to slow the divide. As the growth of wealth is finally taxed, and inflation can start to eat away at it.
What if they don't? We will accelerate inequality further. Then, spend another decades to get "correct it" unsuccessfully.
Unfortunately, for us non-uber-rich people, uber-rich people have a lot of money to hire people to help them "avoid" taxes, under the euphemism of "minimizing tax burdens".
I think we'd probably need to address that first, by simplifying the US tax code (perhaps making it X% full stop, across the board, no loopholes, applied to all income earned beyond Y/year), before experimenting with such a strategy.
Of course, there will still be some sleazy people hiding their wealth (and income) behind personally-directed "non-profits" and "charities". But, these are probably easier to litigate than the corporations those people work at/for.
This has been floated for some time, usually followed by a discussion of a sales tax increase. However, the groups floating these ideas tends to be the more fringe types, so they are almost always dismissed out of hand.
Stepping back, to look at whether such a tax would be useful.
The chief risk that thinktanky-people raise is that there are many desirable countries to live in, which don't levy taxes as such. So you'd get a lot of assets fleeing $TAXING_COUNTRY, which, the argument goes, would have a deleterious impact on people inside that country.
In practice, most income of these people is not circulated in the American economy, but immediately invested into "stationary" assets, such as securities issued by US Corporations or the Treasury. Regardless of where these people live or hold citizenship, much of that stationary income will continue to be invested in the US, where real growth rates have historically been sustainably-high.
(a simultaneous tax on US-held-wealth, not income, would throw a big wrench into this argument!)
In addition, I doubt many people would actually give up their American citizenship to avoid this tax (simply having a residence abroad would not be enough to escape this tax, if you're a citizen, since our country taxes citizens living abroad).
IMO, most of the people who would give up citizenship to avoid a mandatory income tax, would have already given up (or avoided obtaining) their American citizenship anyways, because of the tax implications that exist today.
---
This talk of emigration reminds me of a fun thought experiment.
I remember reading some argument whose thesis was, roughly, "one reason the US is able to accrue so much debt, well past the reasonable point of leverage for the average country, is because the US is the only nation with sufficiently-international tax-collecting, finance-monitoring, and military potential to effectively implement a wealth tax".
From the buyer's perspective, Country X can buy our debt, essentially as a securitization of a future wealth tax against the US. Furthermore, this effectively doubles as insurance against wealthy emigres leaving your country, since most of them take their assets to the US when they go! This means that the likelihood of US Debt being paid back is extremely high, even past the normal metrics of over-leverage (debt as a % of GDP).
To avoid a hypothetical tax on wealth generated in the US since the 1940s, you'd need to move yourself and your assets to a location outside the combined military+financial influence of the USA, that is willing to take your now-contraband, non-USD assets. Any USD assets held by most banks would be de facto seized.
Presently, maybe North Korea and Iran fit this bill. Russia, to a lesser extent, but this is a roll of the dice. Not the best places to peg a long-term future on. It's possible to imagine China (and the countries under its sphere of Belt+Road influence) fitting into this category one day, which would be interesting and probably invoke a war.
One interesting feature of this lens, is that the US shouldn't ever need to implement a wealth tax to justify the borrowing ability, the US simply needs to make it clear that such a tax would be possible to levy, if absolutely necessary.
Another interesting implication is that, if the US should ever lose its power to levy this tax (due to a sharp decline in military, economic, or financial policy strength), the US's ability to borrow way above our annual-GDP could evaporate overnight: causing all kinds of mayhem, probably.
Wouldn't that be a "win" situation as well? Because at least it will reduce the incentive to go all NIMBY on new denser development, which seems to be the main blocker when it comes to housing pricing (and, consequentially, ownership/renting).
Unless I misunderstood what you said, it seems like you are saying that this policy won't completely solve the issue. But it would make it at least better, while, at the same time, making "property as a store of wealth" less viable. Which would (in my estimation) make housing cheaper (directly) just due to people not hoarding the land anymore and (indirectly) due to decreased NIMBYism blocking denser housing developments.
So while it might not be a win-win-win, situation, it could definitely be a win-win situation. Or at least a singular win situation without much losses or negatives attached to it (at least as far as I am seeing this, which could definitely be wrong; in which case, please correct me, as I am thinking through this as I am going; I am far from being the expert on the situation).
It's not a new idea either. You just need to get the idea of "evil corps need to pay" mindset.
The rich threatening to live is just that - a threat.
Both your proposal (corp rate of 0%) and the objections to your proposal (that individual income will be shifted onto corporate ledgers) are already extant, and addressed, in US tax code.
Any business can incorporate under subchapter-S, or as a form of LLC/LLP and pay zero taxes. Very common. Happens all the time.
The catch is, you cannot carry income on the books arbitrarily. For the most part, you are forced to distribute the proceeds among the shareholders/partners before the end of the year - thus subjecting it to regular and frequent taxation.
On the other hand, if you want to carry proceeds forward in the business and park them there, for whatever reason, you need to be a C-Corporation and are subject to double-taxation: corporate taxes and then, later, individual taxes once the monies are finally distributed.
So you have that choice. If you want the flexibility and fewer shareholder restrictions of a "C" corporation, you need to pay corporate taxes.
Personally, I prefer the simplicity of an S-corp and, as a bonus, the income is not double taxed.
Fair point, but then why are US companies still parking their profits off shore?
Taxation is hard, so far Sam Altman's capital tax is least worst option I've heard: https://moores.samaltman.com/ . It does have it's deficiencies... It's wealth redistribution, it might slow down or even completely stunt economic growth, and given current political climate and corruption and is highly unlikely to be implemented. At the same time humanitarian value alone it would bring is so astronomical that I believe we must try it. It would also greatly expand middle class which should boost the economy long term.
It's not really race to the bottom. It's just a terrible tax.
If you want to strike nearer the trunk, nevermind root, of the issue... the place to start is corporation law. Once a cascade of tax entities of different types/jurisdictions can own or control each other in cascades... it becomes impossible to tax anything in a simple way. Without that, it's impossible for corporate tax just apply to the individuals with a share. If it was, than we could (as you suggest) think of corporate income tax as a +/- to regular income tax. As it stands, it is a different sum and applies to different people/ tax entities.
In terms of economic efficiency.... I don't think any abstract economic theory beats current reality observations. If you look at some of the biggest current companies... they are obviously undertaxed. A company like google doesn't accumulate 10s of $bns cash unless they cannot find ways of putting it to work. In theory, no matter what their tax burden, they would have "produced^" and invested what they did anyway. The same is not (necessarily) true fro TSLA or JNJ. It probably is for FB or MSFT.
In any case... as "mainstream" macroeconomics rapidly turns in a loose money direction, "bring the money home, we don't have enough money here" is less of a thing. The federal reserve is making however much money they think the economy needs for monetary purposes anyway...
^Scare quotes because "production" measured in ad sales is a little abstract for me.
Saying “tax the rich” doesn’t make it happen.
It’s almost as if these politicians and celebrities that come along and vomit hashtags into their twitter feed are under the impression it’s never been done because no-one thought of it before.
Tax the rich how, exactly?
Lowering exemptions and allowances to raise duties is a tax on the working poor.
Raising income tax rates is a tax on the working middle class (we hear plans to do this all the time because fiscally conservative politicians believe their voters are too stupid to notice the difference between income and wealth).
If you want to “tax the rich” you need to tax actual wealth - and you need to figure out a way to do that which doesn’t cause capital flight. This has proven very difficult to do successfully.
So, we can either re-visit wealth inequality when we have unilaterally matched global tax rates with no loopholes a few centuries from now after the robots have completely taken over, or act like grown-ups, put some work in and figure out a solution.
Tweeting shallow nonsense like “tax the rich” without offering a plan while ignoring the massive complexity in taxing wealth in a global economy is a cynical ploy on the poor while laughing hysterically in the face of the working middle.
The loopholes are the problem, and it’s a job for governance to fix.
Every time a politician says “tax the rich” or “Company X only paid Y last year and should apologise and pay more” all I can hear is “we can’t be bothered to do the job you elected us to do”.
Imagine if the police didn’t respond to crimes in progress but instead made sternly worded public statements after the fact saying that criminals should be very disappointed with themselves and should apologise and pay back 10% of what they stole as restitution.
The status quo is absurd.
land.
Gotcha. Good luck with that.
Seems odd that people would be cool woth a global tax, when we let foreigners hide income in the US left and right
This coming after a $2T pork stimulus with another $2T on the way. Obviously this has nothing to do with prudent financial management. Punishing evil capitalists? Maybe. Trying to prevent a mass exodus of investment from the US? Probably.
I’m sure they tried to close loopholes regarding offshoring profits, but realized the corporations would just exit faster. This is desperation. It won’t work. Capital can’t be controlled and threatened the way that people can be. Capital will always go where it’s treated best.
Yeah good luck with that
Why should other countries make concessions for the American politicians (esp republicans) unwillingness to properly enforce the existing tax rules, make better tax code, increase funding for IRS etc?
I don't think I understand her logic, can someone ELI5?
Well, logically, you wouldn't. Until all sort of levers start turning and you start feeling pain.
How do you think this kind of thing happened historically? See: Commodore Matthew Perry & co.
All they have to say: no business in my country, are allowed to do any business with little loophole country, and no trade will be allowed between our countries. Good luck little dip-shit country, you are on your own.
Which will defeat the purpose of your small tax heaven strategy. Unless your little country is a full blown 'autarky' (which is impossible now days, unless you want to look like Cuba), you will have to play by the rules of the big boys.
For example a C corporation can tap into highly liquid and well developed capital markets, limit and separate the owners and lenders to a business from management and associated liability beyond their initial investment, and thanks to certain legal decisions like Citizens United, corporations still seem to enjoy what seem to me more like personal rights such as freedom of speech, ability to participate in politics anonymously , and likely more I don't know about.
With all the aforementioned advantages, is it any wonder that a huge proportion of firms above a certain size limit are C corporations despite the obvious downside to contend with of double taxation? [1]
It seems like the relevant question is the value of those advantages to the tax rate legislated by congress, net of costs related to the right accounting, legal, and lobbying teams.
[1]: https://fas.org/sgp/crs/misc/R44086.pdf (page 7 and 8)
If a company wants to do business in the US, just stipulate that they have to be paying a corporate rate of X% somewhere. If that X is 21% and they are only paying 12.5% then in order to do business in America they would need to pay the US the difference.
Just like California can dictate emissions standards in vehicles across the rest of the states, the US has power to dictate standards across the world. No need to get everyone on board.
Note: I'm not commenting on whether corporate tax is good/bad. I'm just asking if the US wants something done why not.. do it.. and restrict those that don't from doing business here? We do that already for corruption (see the FIFA case[0]) Same could apply to carbon tax. If they don't pay a carbon tax for their GLOBAL business dealings, pay it to the US or your not welcome.
[0] https://en.wikipedia.org/wiki/2015_FIFA_corruption_case