Rich people don't usually get handouts from the government, but they get something more valuable - a social order, enforced by the government, that allows them to be rich. Suppose you were rich, but you lived in a place where rich people tended to get kidnapped and held for ransom - being rich wouldn't be quite as good of a deal. The social order disproportionately benefits the rich, so they should pay more to keep it going.
> Rich people pay WAY more than what they get back from the gov.
Only if you ignore the role of the government in defining and enforcing (violently, where necessary) property rights, which is what allows “rich people” —particularly rich through various forms of intangible, indirect, and directly-physical-but-beyond-immediate-personal-supervision property — to, as such, even exist.
Rich people can extract value - i.e. park $1B into S&P500, and reap $40M in returns every year. How much work did they do to do the above? Zero (if they inherited 1B). How much are they taxed on it? 20 percent of $40M = $8M.
Where as someone who worked 40 hours a week for the whole year and made $200K gets taxed... exact same 20% effective (federal), and another ~15% (employer+employee) in FICA.
Part of the value of paying taxes is to ensure that the people who's labor you're extracting value from don't rebel and rise up against you.
You’re making up numbers. Nobody just gets a billy. Someone had to work very, very hard for that. That’s what libbies forget. Money isn’t given, it’s earned.
We should also separate the concept of fairness from the reality of wealth in today's society. If a robot is doing the work which makes workers irrelevant, is that the fault of the workers? Should the productivity of the robot be taxed? (I believe it should - otherwise we are in a capitalist dystopia)
Well you can look at it in the round and realise that your income is similarly higher than it otherwise would be because government spent money into the economy that it is now extracting as tax.
Moving the tax around doesn't avoid you paying it. It just gets rolled into the price of what you buy instead. That's because in aggregate corporate costs including taxation are a component of final consumption expenditure.
While there are fewer jobs than people that want them the incidence of charges on corporations will always end up being paid by workers one way or another. That's the whole point of the 'unemployment buffer' put in place during the neoliberal era - to make sure that price changes can't be easily passed through to wage rises and thereby resolve the distributional conflict in favour of capital.
All of the MS engineers in the U.S. have an effective income tax rate of 40%, not a marginal tax rate of 40%? Assuming Washington State takes about 10% marginal tax... that's about half their income coming in above the 32% federal tax bracket which starts at $163k.
Is a starting salary for an engineer at Microsoft really around $320,000/yr.? If they're really pulling in that, one would hope they'd have some long-term capital gains, which would further pull down their effective income tax rate.
Many of those are in Washington state, which doesn’t have an income tax. It is almost impossible to get to 40% with federal income taxes and payroll alone. They are probably maxing out their 401k as well as various other pre tax contributions that can be made.
I didn't know Washington state had no income tax! If you count 401k/marriage allowances, personal allowances etc, then there are very very few people anywhere paying 40% income tax. In Ireland, you're not paying 40% until you make 120k which is a very small amount of people.
It's a tough question. The tendency is to react superficially: Moralizing reactions, emotional reaction, first principles takes. The way tax actually works is via accounting "standards," tax law and corporation law... across multiple jurisdictions. A thousand-detail complex , where morals, emotions and first principles are literally meaningless. Actual meaning can only be derived with scenario plans and spreadsheets. Words like "profit," "company," "revenue" and such don't have inherent meanings, in that world. They're just objects with associated rules.
The pro-corporate side of this debate (debate is the wrong word) deals entirely in the latter terms. Terms that the majority of journalists and politicians can't work with. They tend to win.
When the other side does consider the reality of mess, they tend to conclude radical/unrealistic conclusions like "throw everything out and start from scratch."
At this point, complexity is hardened by international agreements and trade rules.
IMO the actual place to start is corporation law, not tax law. If entities can own other entities, or part thereof in an endless cascade...words like "tax rate" have no meaning.
Another, more radical approach is rethinking the idea of public wealth. The currently ongoing collapse of monetarism is, perhaps, an opportunity. Tax public companies x% of their shares per year. Hold, to avoid price deflation. Offload shares as part of macroeconomic/monetary policy (ie, when we run deficits), to avoid inflationary scenarios such as the current one.
I would take the same approach for wealth taxes. Capital gains, property, etc. Tax x% of current market value annually, not income or realized gains. It won't be perfect, but everything gets marked to market eventually.
>Another, more radical approach is rethinking the idea of public wealth. The currently ongoing collapse of monetarism is, perhaps, an opportunity. Tax public companies x% of their shares per year.
1. this disproportionately affects companies with higher capital requirements than lower ones. Think spacex compared to a SaaS.
2. this doesn't solve the underlying issue of moving to a jurisdiction with lower taxes. let's say US taxes 1% of shares every year, but the company offshores to bermuda. then what?
>> disproportionately affects companies with higher capital requirements
How/Why?
>> underlying issue of moving to a jurisdiction with lower taxes
Well... nothing simple solves this in full. However, "loophole" in this article works by attributing income from IP licensing (an internal transaction between Apple owned entities) to Ireland, which does not consider this a taxable transaction.
A "share tax" would apply to the same entity that shareholders own a stake in, it doesn't try to disentangle subsidiary structures. Companies might try to list on Bermuda's stock exchange. I wouldn't discount that possibility, but it won't happen overnight.
Because a company's value (and therefore its stock price) is determined partly by how much assets it has on hand. A company that's capital intensive by definition bring in less money for the same amount of capital invested. Think how much money you need to invest to get spacex off the ground (r&d, rockets, manufacturing facilities, etc.) and how much profit it brings in, compared to how much investment a SaaS needs (a laptop) and how much profit it can bring in (hundreds of thousands? millions?). Under a tax scheme that taxes based on company's shares, a 1% tax would get you 1% of spacex's IP, rockets, and manufacturing facilities, but a 1% tax on a SaaS would only get you 1% of their laptops.
>A "share tax" would apply to the same entity that shareholders own a stake in, it doesn't try to disentangle subsidiary structures.
So the US would end up getting 1% ownership of Microsoft USA, which makes zero profit and sends all its profit to Microsoft Bermuda. Once they're about to lose control because they bled too many shares, they'll cut off doing business with Microsoft USA and start doing business with Microsoft America (a newly formed company) instead.
>Companies might try to list on Bermuda's stock exchange. I wouldn't discount that possibility, but it won't happen overnight.
It might not happen overnight but I guarantee it would happen within the year.
Sorry but this is not a good comparison. Microsoft created many jobs which are all paying this kind of income tax. This article is about corporate tax which is tax on the company's profit.
This is really just the first thing I looked at, but it seems to provide the desired information.
The highest bracket, for income above roughly 550k, is 37%. So considering only federal income tax it is impossible to pay 40% of your income in taxes, but also the first 550k or so of your income would be taxed at lower rates.
Now toss on state income tax. And don’t forget about AMT (alternative minimum tax). Sure, you need a higher income to hit these thresholds, but it is not as functionally high of an income as you may think it is.
You can't do much under the current instituitions. The elites of United States spent huge effort these hundreds of years to make sure that 1) Their income mostly relies on the United States as a financial/military beast, and 2) Whatever ordinary people suffer from, be it high tax or flood or lightning bolts, the elites will not be affected and can safely live in areas well protected.
Vote for politicians that want to tax the rich. I mean this can be solved by forcing Bermuda to charge taxes for example. If they REALLY want to escalate things, Bermuda can be strongarmed into compliance - a country can put a boycott on Bermuda, like the US does with e.g. Iran and NK at the moment. Any company doing business with Bermuda then - directly or indirectly - will be in a lot of trouble.
But they don't dare to take a firm stance, because the politicians that make the decisions benefit from the system. Just look at how many politicians had accounts revealed via the Panama Papers.
I have an idea: Ireland could cut electricity, telecom, drain, rubbish collection, road access, police, firemen and health services just and only around those buildings where the company operates. Maybe they learn the value of paying taxes (or more probably not).
Why should “we” (aka mostly other people) do something about your problem (aka HAD ENOUGH)?
If the cost of getting to net Y cash inflow is X gross income where X = Y + (.66Y) then solve for X and move on, or perform the cost benefit analysis for moving to another tax jurisdiction. The solution is yours to execute.
You can stop believing the idiocy printed by rags masquerading as newspapers.
Microsoft did not even make £220B (apx $310B) revenue globally in the 2020 fiscal year, much less in one subsidiary. Their total global revenues were $143B and total global net income (aka profit) was $44.
If The Guardian can't fact check the basics, how can you trust anything else they write?
Isn't the US levying corporate tax on worlwide income anyway (since the last tax reform).
So it's "only" a matter of deciding whether those taxes should be paid in US vs. other countries (and if the intellectual property was developped mostly in the US, it seems fair for the US to get most of it).
If you're opening a location in another country, and that location takes X in revenue, the tax should be paid in that country.
Why on earth do you think its fair for US based organizations to spread across the globe, reap the huge profits from that but funnel all the cash back into the US?
> Why on earth do you think its fair for US based organizations to spread across the globe, reap the huge profits from that but funnel all the cash back into the US
Random guess, they're American :-)
Facebook, Google & co. are absolutely ravaging local economies, pardon me, disrupting legacy economies all over the world and a small chunk of that ends up as compensation in the US.
The rest of that, FAANG are just sitting on it like a dragon hoarding gold, as far as I can see.
I'm not from US. And it works the same for most countries, it just happens that those companies are based on the US and very visible, but if there is a EU corp that's heavily successful and all the development is done in EU why wouldn't the profit be booked in EU?
(Other countries mostly have sales, that's what sales/vat are for)
If instead of being a digital company it was a physical good company, would it be so controversial?
E.g. goods are designed/produced in Italy, shipped and sold abroad (as a start in totally independent shops). Who should book the profit? Usually that will be the manufacturer and the local foreign stores have a much smaller margin.
If now those shops are arm-length subsidiary, why should it be different?
Why should it be different? Because you're extract money from a foreign country, utilizing their economy and giving nothing back in return for the infrastructure that's allowing you to make the money - that's why.
That might be fair, but should be applied uniformly (that's a very different internet than the internet of the old days though).
Would end up with every digital company having to register in country before accepting any user from that country (with maybe a facilitated process where they can self declare their per-country revenue).
People already complain about the arbitrary geo-fencing, but that might indeed be inevitable.
For physical goods the local ratio is much, much higher. Transport, storage, sales, whatever. Digitals goods are, comparatively, just teleported wherever, with minimal local interaction.
>If you're opening a location in another country, and that location takes X in revenue, the tax should be paid in that country.
It all hinges on how "location takes x in revenue" is defined.
The simplified version of how all these transfer pricing tax avoidance schemes work is this: The good is produced in Country X (e.g., US) then sold to a subsidiary in the tax haven Country Y (e.g., Ireland or some Caribbean Island) for just a tiny amount of profit over cost, and so they owe taxes to Country X on that de minimis profit. The subsidiary in Country Y then sells the good to Country Z (e.g., the rest of the world) for the retail price, and so they earn almost all their profit in Country Y and so pay taxes there, but it's a tax haven so the actual tax rate is minimal. Logic would dictate that the profit should be recognized in the jurisdiction where the good was produced or the one where it was sold to the end customer or some combination of both, but logic does not prevail when it comes to tax law.
I would say that it would more fair if tax was paid in the end users home country. This way these worldwide mega cooperation's would help every country where they sell their products instead of all the money goes to the US.
In 10 years from now it could easily be China that owns many of these mega cooperation's. Would you find it fair if the tax money from china "MS", china "apple", china x all would go to China and the USA would get zero.
Microsoft Ireland isn't a US company and therefore not subject to US laws. Presumably they're free to charge Microsoft USA whatever they want for their services and licensing their IP.
Meanwhile my (single-person) company is paying around 20% corporation tax, and then I'm getting taxed a further 20-40% on top of that when I pay myself.
You're right - but it depends how and when you pay yourself... a balance of salary and dividends, where dividends are not deductible. For me I may have a good year followed by a weak year, so I use last year's profit to keep me going!
> If you're in the UK and still using dividends as a significant method to self-compensate, you may benefit from speaking to a (better) accountant.
I'm curious what you're eluding to here? Using dividends as a significant method to self-compensate (for single-person companies) seems to be a pretty common practice recommended by every UK accountant I've spoken to / used.
It's the advice I've received too, but I'm also new to most of it. One downside (I think) is that I can't take advantage of the R&D tax credits with this approach!
There's roughly £12,000 tax free allowance on salaries and only £2500 on dividends. The common recommendation is to maximize your tax free allowance (pay yourself 12k PAYE) and then pay out anything else as dividends (though dividends legally require you operate at a profit).
That's the standard common advice that I'm referring to and that the post I replied to seemed to suggest is not what a (better) accountant would recommend.
It mostly depends if you intend to make significant pension contributions.
Let's say your company has £100K to play with and you want it all.
- You can pay yourself a £100K salary, of which take home pay will be about ~£67K
- You can pay yourself a £8,840 salary tax free in order to qualify for the state pension but minimize national insurance, and pay 19% corporation tax on the remaining £91,160, which leaves £73,839 to pay in dividends. Take home pay will be ~£69K. A win.
- Roughly (as this is more complicated). You can pay yourself a £48,840 salary, sacrificing £40K in to your pension completely tax free, pay corporation tax on the remaining ~£51K, and then pay it out as dividends. Take home will be about ~£47K with another £40K in your pension!
- More elaborate schemes are possible, where you use your personal pension to invest in commercial property which you then lease back to your company as a tax deductible expense.
Not only that but you get significant tax relief on your £40k pension contributions (about £8k I think) so takehome plus pension is about £95k from the £100k initially.
I am surprised such loopholes still exist in UK. In Australia if you setup a company and 80% of the company's income is only from your own personal services from a single client then your company has to pay tax on personal income tax rates. These sort of loopholes were closed many moons back.
I don't think that's really such a huge loophole. Pension aside, it's a 2% difference in total tax burden that's probably going to be swallowed up by other company related admin expenses anyway.
I'm self employed and get the bulk of my income through dividends. As with the example above, I often end up paying roughly the same amount of tax as someone with the equivalent salary would.
The big advantage for me is that I can have a very good year and a very bad year and pay an appropriate (smoothed out) level of income tax across both - which seems fair to me.
Sure, so Microsoft still (not so) indirectly contributes to the tax coffers. But it's still pretty bad that the rich MS shareholders can benefit from schemes like these, while employees can't.
The proposed capital gains changes would ensure that most Americans will be targeted. If the cost basis doesn't recent on death many Americans will immediately get hit with taxes. With the top rate being upped to 43%, its gg for anyone who planned on leaving their loved ones money
I mean that's a bad characterization. Most Americans don't have savings to be inherited, so "many Americans" should be quantified first. The gains are only taxed when they are realized, so you don't owe taxes on inheritance - only when you sell the assets. You would not owe at the top rate unless your income (including realized gains) eclipses the threshold.
That's not a death tax. It's an income tax. You don't get out of it by dying.
Most Americans aren’t leaving their loved ones solid money after they are gone. Being on HN, it is possible you live in a bubble with far higher avg income and savings than the rest of the country.
Invest your surplus then you won't have any profit to be taxed upon.
Which is what Microsoft is doing.
Alternatively lobby your government to replace corporation tax with a company payable tax on the labour a company uses - which is actually what tax is for: to release manpower for the government use.
> company payable tax on the labour a company uses
Wouldn't that create a perverse incentive to hire less and overload the remaining employees? I say this because that's exactly what it does on my home country.
"Wouldn't that create a perverse incentive to hire less and overload the remaining employees? "
That rather depends whether there are more jobs than people that want them.
If there isn't then you need a public job Guarantee option to swing the balance of power.
We want the private sector to hire less and automate more. That's how we push forward productivity. What we want to remove from them is the "what about the jobs" argument. Then it all works.
A quick google search shows Irish citizens can voluntarily join and leave unions. Of course there might be more to it and I have no idea how things work there.
Are you in the US? If you have a single person company you could have a simple single member LLC set up so profits would flow through to you without getting taxed at the company level.
Of course you'd also have to pay self-employment tax on top of the regular income tax though (can get around some of that by using an S Corp).
Also worth mentioning in the case of Ireland the KDB, whereby you can get an effective 6.25% rate on your corporation tax for certain R&D heavy activities (software etc.). This would be advantageous I think for most smaller businesses HNers are typically involved in if they wish to operate in the EU.
No one pays that much in a progressive tax system. Every time this discussion comes up people spout off these numbers but if you calculate out how much you actually pay it's probably in the 20-30% of total salary range. That's still high but it's just dishonest and makes people look like idiots when they throw around 40% etc. If you are truly paying 40% of your income in tax you are earning millions and are benefiting massively from the system already.
I live in Germany and pay between 20-25% of my income in income tax depending on how much I bill. I easily support a family of 4 on this. Rent, car, holidays, the lot.
According to Wikipedia, if you pay 25% income tax in Germany you make €50 k, which doesn't sound like a very comfortable family income, unless you live in the country side perhaps.
I believe, when you are employed, you must also pay pension insurance, unemployment insurance, health insurance and other. No way you will be at 20-25 percent in Germany.
When you count employer contributions, then you are quite close to 50%.
Healthcare is paid from post-tax income. As a single person, I pay approx. €150 monthly. There is also a deductible of €385-885, and choosing a lower amount means you pay more per month too.
There is no tax free allowance. There is general/labor tax credit, but it’s incredibly minimal and reduces with income:
* €2.837 for those with a taxable income under €21.043
* €2.837 - 5,977% x (taxable income - €21.043) for people with an income between €21.043 to €68.507
TIL. I thought absurdly high tax rates were a nordic specialty. NL seems very wealthy whenever I visit. Are median incomes substantially higher than surrounding countries?
The Netherlands is a tax haven for corporations. Individuals bear the brunt of ensuring a high QoL. Median income in 2021 is €36.500, so quite low tbh.
The only kind of income you can avoid taxes on is capital gains - i.e. investing in stocks or real estate. Obviously this is not feasible for the general population, and as such, most people spend their entire monthly income on rent/mortgage, kids, and living expenses. There is no concept of saving, because the assumption is that you can accumulate enough pension to live off of.
I have known many Dutch people over the years who have gotten a lot of benefits from the state from unemployment to housing. Some of it clearly fraudulently too. Seems to be unsustainable.
Sorry I agree with you. I didn't mean fraud was a big cost, only that social spending (including non-fraudulent) seems to be very high and not tightly controlled (which as a side effect allows for easy fraud). From the outside society seems very stratified. Plenty of Telsa's in Amsterdam and people with expensive tastes. NL is obviously a very wealthy place even compared to neighbouring countries but also has a large less wealthy population. This is another angle to the problem (in addition to the corp tax regime) because it unfairly puts the tax burden on people like yourself.
Social spending is quite high, but I’d like to believe that atleast it’s enriching the average person and not only corporate execs.
The reason there’s so many Teslas is because up until 2021, you could get significant tax benefits, if you purchased an electric car via your employer for “work”. If you look past Teslas, you’ll see that most people own average family cars.
Amsterdam does have people with “expensive tastes”, but that’s not representative of the rest of the country. It’s similar to what you’d see in New York or London vs. the rest of their respective countries.
Most of the wealthy people I know own businesses (and as such benefit from the lower taxes), or own lots of rentable real estate.
Well, again, this only really helps people who are able to swing such an expensive car as a “work expense”. In absolute numbers, Teslas are a minority of 0.4% in the NL car market.
€150/month for healthcare? Ya, that could work lost tax. Switzerland also pays for health insurance premiums post tax, but they are nowhere that cheap.
I haven’t lived in Switzerland for awhile but ya, their taxes are somewhat low, though I think their VAT must be high (hard to tell if it’s taxes or just a high COL).
As an American, it gets harder to live in Switzerland because of the lower tax rate and high COL once you break through the foreign earned income exemption.
There is a free allowance for "foreign skilled workers". They pay 0 income tax over the first 30% of their income. It's total and utter bs. So if you earn 90K, you get 30K net, and get taxed as if you earned 60k
37.35% Income from €0.00 to €68,507.00
49.5% Income from €68,507.01 and above
Therefore if you are (for instance) paying 40+% effective tax on your income in the Netherlands you're clearly earning north of €70k a year. To put that in context – “You Are The 1%: If You Make $35K/Year Income” https://www.diygenius.com/the-global-inequality-problem/
So that other person is being dismissive (though dismissive is the wrong word) of the poster because generally at these sorts of rates you're earning greater than 99% of the people on the planet.
If you're earning greater than 99% of the people on the planet and you simultaneously think there's an injustice being done to you by the tax man then I would humbly submit that you could do with a reality check.
And we're not just talking about in comparison to the so-called global south here, there are many many people in the EU and around greater Europe who would be thrilled to be earning north of €70k a year.
Income is usually relative to the person’s location. It’s not very useful to compare my situation to that of a person in the global south. Income correlates closely to cost of living.
I fully appreciate that I make more money than “a lot of the world”. But I don’t think it’s wrong to ask that corporations and high-net-worth individuals, also pay their fair share and not just leave the burden to people like me.
That is more the issue, well for me anyway; taxes are fine and the height is not really relevant but I do not want to be holding the bag here. If someone who earns a billion pays 5% why would I pay 40%? That is my only real complaint about taxes and I hear this from wealthy people: why would they if their friends do not? It is tax, not charity: except yes it is a lot of charity but it is anonymous so you cannot get charity kudos. So those who can avoid and you have a problem. Not sure how big the problem is in money, but I think many people would have a better feeling about forking over 40% if they knew the billionair around the corner is paying 60.
You can pay tax at a high rate and still be well off, there is no contradiction. In fact the highest tax rates tend to be in the most comfortable countries, in Northern Europe.
Nobody is saying "I would rather move to Sudan and lower my tax rate".
In the UK, if you're a contractor caught by IR35 and earn £600 per day, your effective tax rate is 40% if the client allows you to engage using your Ltd. company. If you use an umbrella you'll be even worse off. Net income from the arrangement would be £69,925 based on 190 days billed.
Yes, it's very hostile to independent contractors, especially with the new rules this year.
I'm not a conspiracy guy, but it's amusing to note that Rishi Sunak, under whom the changes came in this year, is related (son-in-law) to a cofounder of IT consulting behemoth Infosys.
Here in France, as a contractor, if I bill a client 100 000€ annually and decide to get as much as possible in personal income, 30 000€ will go as social taxes (health, retirement ...) and for the remaining 70 000€ you will have to pay around 25% as income tax (if you don't have any children).
You will have an income of ~52 000€ for 100 000€ billed during the year. You're not earning millions and yet around 50% of revenue was paid for tax purposes.
25% is what I would expect. You're getting some of the other expenses back eventually (hopefully) in form of pensions, unemployment (if you ever need it) etc. Health itself is a service you are buying. I wouldn't call it a tax despite it being mandatory. I think taxes are too high and the system needs to be redesigned but I just think we need to be exact on our figures when we discuss this stuff.
In Germany health insurance for example is also based on income but it's capped. My point is that it is more nuanced than 40%. No one counts the money they get back from these programs when they need to use them in their calculation etc
His numbers aren't false for France.
I don't have my last payslip on hand right now but it show cost for employer and it's roughly the double of what you get after taxes. Something like 3k€/month before tax turn into around 2100€ for you but your boss have social charges on top of it so for him it's more like a 4k€ cost.
I get what you're saying, it's not strictly income tax, but the end result is the same : it's a mandatory tax, based on what you earn. As for getting these expenses back, I hope I will have work and be healthy for as long as possible, and I'm happy to pay these taxes for poorer people to get access to healthcare or unemployment benefits. But I sure feel ~50% of my income is going into taxes without being a millionaire.
You can expect whatever you want, but no middle class person pays as little as 25% in Europe, only the wealthy and the desperately poor get away that cheap.
Edit: I just want you be clear here. I think the tax rate is way too high even at 25% effective tax rate. The system is overburdening poor people no doubt about it but I also think we should not fudge the numbers by claiming we pay the top tax band rates as effective rate because it invalidates whatever else we say after that. It’s dishonest. IMO effective tax rate should be <5% and actually 0% for most of us.
As I wrote somewhere, most middle class people people in Europe pay way more than 25%, the average in Denmark being 45%. With payroll tax it would be more like 55%, and it really makes no sense NOT to count payroll taxes.
And 5% is not realistic, even if you eliminate all the pork, corruption and inefficiencies. You can't provide education and healthcare and maintain infrastructure for 5%.
I hate paying taxes but 20% would definitely not feel unreasonable for all those things, I'd pay that happily.
Middle class are the richer cohort of working class but they are still poor. We have a capitalist system. Unless you don’t have to trade time for money (ie are wealthy) you are poor. You might have a nice lifestyle but you have zero flexibility and options.
In the US as a contractor making $100,000. You would pay $15,000 in social taxes. Around 25% in income tax depending on which state you lived in and still need to pay for health insurance. So taking home 50% of your pay after taxes and insurance is about what you would expect.
To be fair, though, the prime minister's salary is generally a drop from whatever job they would be doing instead (making no comment on whether that's right or wrong). Same with judges, I believe.
Or you live in Europe. The _average_ Danish taxpayer pays 45% in income tax. This is not counting payroll taxes that the company pays on top of that, or of course 25% on everything you buy. So the overall effective tax rate is more like 75% than 50%.
There used to be a slogan in Sweden, "half left", meaning people wanted to keep at least half of their gross pay.
As an American citizen who paid $30k for healthcare last year and looking at college for two kids in less than a decade, I'd take the Danish deal laid out in that article pretty happily.
I live in Denmark, and frankly speaking I think most Europeans view the US as a kind of developing country. It can be nice if you're well off, but so can Rio or Capetown. Thinking about it Capetown is much nicer than most US cities.
People like to complain about taxes here, a lot, but where would we get the standard of living without it? Seems there is a disconnect. In the US, where, by the way, you pay quite a lot of tax still, you can end up living in a box or get worse health treatment even then. We do not get things for free: we pay taxes for it. It can be lower because we could cut corruption and inefficiency but it would still be a lot and people will still cry in forums.
Check Austria. Without any expenses a dev with a US salary will pay more than 40% in taxes and social benefits.
Let's say you have 250k EUR, 12% of it you can take without any taxes (given no expenses, which is ~25k EUR), but then on 225k you pay 112.5k to the government. That's it. Then you take into account VAT and you realize they are really sucking you dry but all of the giants in collusion with Austrian banks avoid taxes easily.
Of course, you can game the system with fictitious useful expenses (travelling but saying you went to a dev conference etc.) but it's hard to really accumulate much if you live a somewhat normal life.
What's the effective tax burden on a self-employed single person making $300k in, say, Massachusetts (5% income tax; not exactly the highest in the US)?
Based on 2020 US tax brackets, standard deduction, including the both sides of FICA (capped at the social security cap for the social security part) and the medicare extra tax they are paying, I am ending up at ~37-38% effective (not marginal; marginal is 43.8%) tax or so. This individual would in my mind be excused for claiming that they pay "40% in income taxes" and is not making "millions" (though obviously is not suffering financially).
Yep, the current corporate tax laws basically punish single-nation companies, while giving multinationals a free pass. International tax laws desperately need an overhaul.
This is you assuming "democracy" actually works to empower average people to make these types of changes, instead of being co-opted or controlled by these same corporate behemoths.
The problem is not that Ireland gives a good deal to companies in Ireland, the problem is that Microsoft can falsely pretend that their Irish branch is the one making all the profit and then not having to pay any tax elsewhere.
They don't want to. These companies employ thousands and thousands of people in Ireland and pay them pretty well. In the bigger picture it's probably in their collective interest to tax them more but there's a pretty strong individual incentive to maintain the attractive tax environment.
Why would they do that ? The light tax they require from those entity still benefits them immensily, because those entity choose to pay them there instead of elsewhere.
If Ireland introduced more taxes those big corps would move away, so they would actually receive less...
>Why is there not a focus on countries such as Bermuda here? They are the "tax havens" who make this possible in the first place.
There is. Two wrongs don't make a right. The topic at hand is Ireland.
> Other countries are perfectly entitled to do similarly, as Netherlands does.
If every country acted the same way, there would not be a single functioning nation on earth. Their benefits only exist because other countries are losing out, which makes them parasites.
I am from Ireland and from talking to friends and family most people are pretty happy with it. We give them a pass on taxes and they employ thousands of high end engineers here. We then collect large income tax revenues from these workers and subsidise the rest of the country.
You joke, but some types of taxes are objectively worse than others. An ideal tax would have to generate sufficient revenue, be non-distortionary, inexpensive, and fair.
We can argue about what's "fair" all day, but "inexpensive" is more objective: some taxes hamper more economic activity than others. A $1 tax on a stock trade will reduce exactly $1 of economic activity. It's so expensive, it's basically pointless. A land value tax, on the other land, is almost free. (And in some cases, negative!)
Most taxes fall somewhere between these two extremes, but corporate income taxes are one of the most expensive, which is why economists aren't big fans of them.
Yes, skim off trillions of potential tax revenues of other countries to earn a billion or two as a single country. Effectively a Prisoner's dilemma on an international scale.
Countries like Ireland and the Netherlands are nothing more than tax avoidance puppets of a few big companies. And the sad thing is that their governments think it's good what they do while it's a downwards spiral instead.
Actually, no. The Apple case [0] is still pending some more layers of appeals, but both sides accept that Ireland doesn't have complete carte blanche to set its own tax laws. The EU gets to participate in setting them too.
Of course, Irish citizens could vote to withdraw from the EU and set their own tax that way, but that's not likely - they generally accept that the benefits of participating in the EU are worth giving up a little sovereignty.
I'd love for Ireland to withdraw from the EU - that would make it much, much likelier that the rest of us could get a consensus on anti-profit-shifting tax reform with the biggest tax haven out of the union.
We can and there is a huge swell of support for Sinn Fein a nationalist left wing party (the political arm of the IRA). The two centre right parties FF & FG (FFG) that have held power since Ireland gained independence are very pro the current taxation policy and have up until now had an iron grip on power due to a culture of voting for whoever your parents voted for. This is slowly changing. Loads of Irish people don't want this. The only problem I see is that we have structured our whole economy around FDI and there are no realistic proposals to revamp our economy to a similar level of wealth through different means. Enough people in Ireland will continue to vote for FFG because they get preferable tax treatment on investments as landlords, backroom deal etc. Ireland is a corrupt mess tbh.
If you think that you don't know very much about recent Irish history. They all have significant blood on their hands, mostly due to their relationship with the Catholic Church.
Better yet, dump corporate tax altogether and simply enforce a global flat tax on all forms of personal income, both capital gains and salary.
The amount of human time and energy wasted on taxation is mind bogglingly stupid.
Politicians trying to influence the behavior of their minions by designing these convoluted "tax-based incentive" schemes is the whole problem in the first place.
Just tax all money that comes into anyones hands at say 30% and let the market decide what activity is most efficient for the world.
Then maybe the 500 million intelligent people working around the globe as tax authorities, tax attorneys, tax lobbyists, tax preparers, tax accountants, and tax consultants...could spend their time doing more useful things for humanity.
> Better yet, dump corporate tax altogether and simply enforce a global flat tax on all forms of personal income, both capital gains and salary.
Fraudsters skirted that by keeping their corporation's assets on the books and expensing everything, never actually receiving/spending anything themselves.
There would be no way to do that with a giant public company.
Instead of distributing profits to shareholders, is Microsoft going to buy 1,000,000 BMWs for their investors and hold them on their books as company cars to dodge taxes? Not practical.
There is no single change that could be made to tax policy that'd fix this. Instead, we have to find ways to empower the government and make them willing to take what's ours - ours in the sense that the people deserve that their representatives take hold of what belongs to the people. Individual changes to policy will force the artistic accountants to devise new workarounds.
Agreed, trying to get the whole world to agree on a single tax rate (0 or otherwise) is unrealistic, and completely ignores the sovereignty of countries to design their tax system as they please. What needs to happen is a modernized way to calculate which percentage of global profits from each company are taxable in which country, and then leave it up to each country how to tax that (or not). The current system lets companies cook the books in a way where they can effectively relocate their profits to any country they want.
Why would a developing country want to tax companies at the same level if they're trying to attract investments? Anyway, why should any country listen to any other country on what the tax rate should be?
Why should a company be forced to pay tax on foreign income if the country in which they supposedly made that income doesn't want to them to pay taxes?
The worst part is that this comment starts with "simply enforce"
> You could enforce these things by creating a free-trade area for anybody who joins, and excluding those who don't.
Then you need those free trade agreements. Remember the last time when it was only between EU and US? Protests in many European countries and in the end Trump decided to break it off.
technically true, since every year you take a cash distribution of the profit, BUT you then roll that into the following year and all distributions are tax free... cuz you already paid taxes on it.
This is correct. If you know the income will arrive in the future, you should aggressively shop banks looking for a line of credit to even out your lumpy income. The interest paid to the bank for the LOC is tax deductible by the business.
You miss the part where small companies have to compete against each other so organizing together would be impossible whereas entities like Microsoft, Facebook, Apple, Google, etc. are basically unregulated monopolies in their respective fields so they get to steer the ship as they please.
It wouldn't be impossible at all, you can of course cooperate with competitors to lower your taxes while competing for customers. Not that you necessarily need to band together with your competitors for this, there are plenty of companies out there.
What is the minimum viable income to take advantage of these tax loopholes? Would I need to form an LLC or C-Corp (does it matter)? As long as big corps are cheating, let's be transparent about the data and how everyone can act the same way. I'm all for taxing Microsoft et. al. the correct amount but in the meantime let's democratize this action. Maybe it will prompt legal change for everyone.
I'd love to see a Playbook for Tax Loopholes for Everyone.
I don't think it would be particularly costly to set up an Irish company, figure out a structure and set up a company group with internal invoicing etc. If you can spend a few 100 k on administration a year I'm guessing it would be worth it.
The company is tax "resident" in Bermuda, a British Overseas Territory.
In fact I'm not even sure what the Ireland connection is here except that there is a registered office in Dublin. It seems like all the action is taking place in Bermuda, so this is really a story about UK overseas tax havens.
Just for clarification, British Overseas Territories are not part of the UK. They set their own laws and manage their own internal affairs while their foreign relations and defence are managed by the UK.
The Irish part is there to allow it to funnel EU profits, and ireland allows for countries to be registered there, but not tax-resident.
Interestingly enough though, almost all of the zero tax places are British Crown dependencies, so presumably the UK government could exert pressure on them, if it really wanted to.
They've been trying for a while. Ultimately, taxation is a national prerogative, and requires unanimity in Council, so it's unlikely to change any time soon.
Again, for clarity, the Crown Dependencies are the Isle of Man and the Channel Islands. Bermuda is a BTO.
Bermuda has been self-governing since 1620. Britain has very little in the way of exerting any pressure on them short of imposing direct rule (which it seems to have done only twice: on Anguilla in 1968 after it was invaded and only partially on the Turks and Caicos in 2009-2012 due to systematic corruption).
Disagrees with the public finances above: the issue is that the document says "$ 000".
It's a typo, the numbers are just dollar amounts.
And the text of the report proves it, it explicitly says profit of the year was 13bn.
EDIT: the report is very confusing. It looks like there could be an argument to say it is genuinely 300bn -- the issue is there's *operating profit* of 13bn... but a secondary "profit" from the liquidation of subsidy companies.
So the issue is the article presents this as an operating profit, but it isnt.
Turnover was $13.606B and operating profit was $13.604B
From the financial report "Profit after tax increased .. to $314.73Bn reflecting gains made upon liquidation of two subsidiaries".
I'm guessing this is a company that exists to receive licensing fees from around the world and the profit just about equals revenue apart from cost of the accountants.
I think that 220bn is the profit of that particular Irish subsidiary. They got their revenue from all other Microsoft's subsidiaries around the world and only need very little expense ("directors", etc). Hence, profit.
Still that makes no sense as others have pointed out ... MSFT as a whole made $143 billion in revenue and $40 billion in profit for 2020, so not sure where the €220 billion number is coming from.
Microsoft did not even make that much revenue in the 2020 fiscal year. Total global revenues were $143B and total global net income (aka profit) was $44. It was the a very good year for Microsoft. But £220B (apx $310B) in profits is laughable.
The reporters might have been looking at the "total assets" line of MSFT's financials, which was $301B at the end of FY2020. But you don't pay tax on total assets. Just speculation on my part.
The Guardian is an English newspaper with a political agenda on the left side of the spectrum. So articles like this serve to support a narrative its readers feel comfortable with. Similar to Fox News.
Many corporate tax evasion systems operate by setting up subsidiaries in countries where profit is taxed and licensing their own IP from a "company" in a country where you can cut nice tax deals. Because there's no good way to rate the value of IP, you can basically charge any amount to your other "companies" so that they don't make a dime of profit.
It figures that the "company" licensing all of this IP has very little in the way of operating costs. Maybe they need to pay the rent of the local mailbox that they've registered themselves to, or maybe they even need to rent an office in an office complex somewhere, but the entire operating exists purely to redirect the flow of money.
This approach is evil, nothing less. Companies benefit from government infrastructure all around the world and pay nothing back. The bookies that set up these schemes will tell you that they're perfectly ethical because they're totally legal, but their moral compass has stopped functioning years ago. It's not just Big Tech either, most companies operating worldwide use tactics like these.
Why can't governments learn that taxing corporations is pointless? The same revenue is can be raised more simply through sales tax and personal income tax on salaries and distributions.
The best tax is one that is imposed on an individual but paid at source by the corporation paying them.
Individuals shouldn't see tax. That way the voters don't complain when you need to put it up.
Sales tax is similarly a pain - particularly when you have differing rates. At which point we get into the famous is it a cake or a biscuit type cases to decide where the dividing line is.
I think paying your state and federal taxes in the United States should be seamless. Your employer should take the taxes out of your paycheck. At the end of the month/year, you should get a statement showing all the taxes you paid.
I recently had to update my W4 form at work for tax withholding, and what a pain in the ass to read and decipher. Add to that, and I had to do the same thing for my state taxes.
I want to point out that Congress has shot down the idea of making it easier to pay your taxes many times. I'm not sure if it is Intuit or some other entity, but paying your taxes should be easy. If you don't like the level of taxation, then work to reduce them, but paying them should be easy.
The UK PAYE (Pay as You Earn) system has a 1% tax gap[1] compared to 12.9% on income tax and 7% on corporation tax.
It's extraordinarily more efficient to tax at source.
[1]The percentage tax gap is the tax gap pound value as a proportion of theoretical liability, where theoretical liability is defined as the tax gap plus the amount of tax actually received.
As I understand it in the US, the average taxpayer’s experience is that of annual taxes but the reality is that taxes are paid quarterly and settled on an annual basis. The self employed see this more clearly. Those in employer-employee relationships don’t see it since the employer sends the quarterly check to the various income taxing jurisdictions. Any interest made from the temporary storage of cash is probably more favorable to the employer than the government since the government spends cash faster than it arrives. The government does not escrow tax remittances in an interest generating account and then withdraw it all at year’s end.
Historically individual taxes were annual while some business taxes were quarterly. In Canada, corporate income tax is annual but sales tax remittances are quarterly. The interest is favourable to government since it reduces the amount of debt it needs to carry for a time. Admittedly it’s small now but in the 80’s it was a very big deal. I admittedly have never ran payroll taxes for a business in the US so I don’t know how that in particular works. I do however know Milton Friedman came up with the idea of withholding while working for the government early in his career and he always claimed that it was motivated by interest.
> To invert that: if people understood how much the services being provided to them cost they would not consume them.
I don't think that's true. I think what is true, and what we've seen time and time again, is that people don't like the cost of services that others take advantage of that they don't need to.
That puts the cart before the horse. People voted for them, so they are provided - and the people required to run them removed from the private sector.
To invert that, what exactly are you planning on doing with the people currently in the public service, which the people voted for, that is so much more important than providing the services the people voted for?
It is for the private sector to justify its use of resources, not the public sector. The public sector has a democratic mandate.
>Individuals shouldn't see tax. That way the voters don't complain when you need to put it up.
If taxation is such an inherent good then why does it need to be hidden from people?
If the rate is justifiable the government shouldn't need to hide it. When you consider a democratic society where the government at least indirectly serves the will of the people the idea of the government needing to pull a fast one on the people or obfuscate its actions lest the people tell them to stop becomes even more absurd.
Call me old fashioned, but I believe it is the role of the person being paid to justify the expense. If you get hand wavy and tell me its too complicated I'm just going to presume you are stealing from me.
The Government is not "being paid" tax dollars[^0], it is (in principle, at least) spending and redistributing wealth in ways which benefit all citizens. UKGov releases these reports, for example https://www.gov.uk/government/collections/national-statistic... - good luck condensing these down to the point where they can fit in any taxpayer's head, and this is just the surface level outgoings.
> If you get hand wavy and tell me its too complicated [...]
Unfortunately, it really is too complicated. A doctorate in economics might get you a decent way towards understanding the good that taxation provides, but given that economists still have differences of opinion, maybe not a complete understanding.
What exactly is your background where you assume your answer is correct when you know even the experts have substantial disagreements on taxation. Maybe there are a lot of legitimate disagreements on how much and which taxes because taxes aren’t a universal good but rather a necessary evil.
What claims do you think I have made? All I have said above is that taxation (a) is complicated and (b) has hidden externalities, both of which are obviously correct and appropriate responses to the things being asked.
"If taxation is such an inherent good then why does it need to be hidden from people?"
It isn't an inherent good. It's just required to reduce demand and release people so the public sector can purchase them with its money.
Without it you would have inflation - or none of the public services we voted for.
The reason you pay tax is that your income is higher than it otherwise would have been without the government spending.
What people who don't like tax forget is that should you eliminate it, the increased income will be eliminated too. But not in a smooth way. Jobs will be decimated, and one of those might be yours.
I strongly disagree with that idea. Voters must know exactly how much they are paying for something for them to care about efficiency of government spendings. What you are proposing is how things currently work in Russia and trust me you don't want that
> Why can't governments learn that taxing corporations is pointless?
Pure ideological point of view with no grounding in reality. It's totally possible to tax corporations. In fact, some state like Japan and South Korean get more money from enterprises than individuals, the reverse of Europe and US (until recently consumption tax was 5% in Japan, now is 8%, still far less than EU's typical 20%).
The solution you propose doesn't even work well, since it's one more incentive for (mega-)corps to not raise salaries, as keeping salary low means also low taxes.
A political challenge to taxing larger entities is that those entities have increased incentive to avoid tax. This has distortionary effects elsewhere in that it is logical for such an entity to pay fractional X toward a politician’s personal interest instead of the full X to the government.
Most economists support a 0% corporate tax rate and higher taxes on dividends and capital gains. This closes most loopholes and doesn’t tax money that corporations reinvest in growing the economy.
I can assure you that on the personal income tax front and much more so at the indirect tax of cost of living the Irish govt is doing just fine thank you.
Say you redirect $100 million away from Microsoft's research into artificial intelligence and redirect it to a government project promoting artificial intelligence research + junkets for government employees.
It is certainly plausible that a tax will provide no additional benefit. Microsoft is one of the great value creators of the late 20th/early 21st century. it is not immediately obvious why redirecting money away from the company is a good idea.
A reasonable point. But then the money is being taxed, because money is taxed when it is returned to shareholders.
It certainly isn't obvious that raising taxes is a net win. Experience to date is that a 100% tax rate is very bad, so logically there is a fair limit somewhere between 0% and 100% - ie, a specific fair rate that is not the word "more".
Certainly Ireland would like a slice of those billions of dollars - but if they try to take a big slice, Microsoft won't route the billions through Ireland. So it is a somewhat moot point in that specific case.
If you just want to redirect money from shareholders reduce corporate tax rates to 0% and tax dividends and capital gains more. Since they aren’t doing that they are admitting they want to tax money that corporations would re-invest.
> you redirect $100 million away from Microsoft's research into artificial intelligence
This confuses the issue - corporation tax has the opposite effect to this, because it only applies to profits. When profits are heavily taxed, there's a strong incentive to invest more money in R&D and longer-term internal investment (thereby avoiding corporation tax on that spending entirely) rather than reporting it as profit that's immediately distributed it to shareholders today.
There's interesting arguments about how this affects shareholders and whether it discourages external investment, but it's certainly not a drain on R&D.
$100 -> corp. $90 -> expenses, $10 -> profit -> shareholders dist. $4 -> personal income tax.
In principal it's the same. Path 1 is easier to dodge, because what constitutes "expenses" is hard to define, but distributions are obvious. And the numbers don't have to add to 100. So reality looks more like:
Well this creates the incentive that corporations try to minimise their employees, or try to shift employment to low tax/low cost countries. Now that very well be desirable for corporations and people who derive income primarily from capital, but it is not desirable for society. The whole idea behind corporate tax is that they should be taxes on the profits they make, where they make them.
>>Well this creates the incentive that corporations try to minimise their employees, or try to shift employment to low tax/low cost countries. Now that very well be desirable for corporations and people who derive income primarily from capital, but it is not desirable for society
You mean not desirable for society in high tax/high cost countries I presume? What about society in low tax/low cost countries? It seems to be working out pretty well for Ireland[1]. That's why they resist immense pressure form the EU and maintain a low corporate tax rate.
[1] which is a high cost/low corporate tax country
Well except that Ireland receives significant subsidies from the EU. So essentially this is a case of having the high tax/cost countries pay for your infrastructure so you can be a low cost country.
Taxing mega corporations is essential. I would add that you need to tax them to oblivion after shareholder’s expectations are reasonably satisfied. If you don’t, you essentially create rogue institutions with deep pockets that will attempt to take political control of the nation for their selfish interests. Adam Smith had interesting things to say about that.
Why is a corporation with political power worse than a government? You will probably say that I have more control over government because of democracy. But in practice I have a stronger control mechanism over corporations, who I can choose to pay for services. When there is a problem with my Amazon package, I get quick responsive customer service. If you have a problem with government, good luck!
You have control over corporations insofar as there is actually a competitive marketplace (which is enforced by anti-trust, which is the purview of the government).
If corporations capture the market/government and become monopolies/oligopolies and you have no choices (i.e. Comcast in some regions), you will have no more recourse.
I am sure the topic is complex, but from the article:
> The company, Microsoft Round Island One, posted profits last year equal to nearly three-quarters of Ireland’s entire gross domestic product (GDP) – despite having zero employees.
That, to me, sounds like maybe the plan to collect personal income tax on salaries might not be so straight forward.
I think the argument is that it would be collected on the sales and expenses of the companies that "feed into" this employeeless entity. Those other companies probably aren't located in Ireland or Bermuda, but around the world, resulting (in theory) in a more even distribution of tax receipts.
- companies are less likely to hide expenses like salaries
- It's more fair for high cost business (car company vs google)
Personally, I'd tax all corporation 3% of their revenue. You could lover it by to 2% by what is your operating profit ratio to revenue. You can lower it to 1% by a list of 20-30 deductibles e.g. you install solar panels. BUT the minimum you have to pay is 1%.
If your company cannot pay 1% of the revenue you don't have a viable business. Average corporation spends more on accounting and consulting.
FYI, this setup would be extremely beneficial to gigantic companies and likely would lead to immense consolidation, since effectively you would tax 1% on every supplier transaction down the chain, whereas the vertically integrated gigacompany would only pay 1% once.
This doesn't change the fundamental fact that a tax on every transaction disincentives B2B transactions and therefore directly incentivizes large, vertically integrated companies.
You can try to work against it by arbitrary progressive taxation thresholds, but this doesn't change the underlying mathematics.
Also, there's a reason why progressive taxation isn't widely implemented for corporations, because it's very easy to circumvent by splitting up and increasing the number of legal entities. A sensible way around that is taxing the _ultimate beneficiary_ rather than the company itself (i.e. the owners as natural persons), which is what GP suggests with "sales tax and personal income tax on salaries and distributions".
> This doesn't change the fundamental fact that a tax on every transaction disincentives B2B transactions
You can make the same argument about VAT. There is a cost on every transaction (split payment, money is frozen until you get a return). The incentive would be negligible comparing to other incentives for vertically integrated companies.
> progressive taxation isn't widely implemented for corporations, because it's very easy to circumvent by splitting up and increasing the number of legal entities
> sensible way around that is taxing the _ultimate beneficiary_ rather than the company itself (i.e. the owners as natural persons), which is what GP suggests with "sales tax and personal income tax on salaries and distributions".
It doesn't work in practice, because of tax heavens. Also, I can have a travel blog and a youtube channel when I review cars and clothes. Would I pay close to 0 in taxes.
----
All taxes are bad, but given current global world, revenue tax seems to be better, hence the digital tax in EU.
Revenue is simply what you earn regardless of your costs. If some kind of business generates lots of revenues but has costs that are similar, then...they are screwed. You are basically proposing taxing money that moves through any company, regardless of the amount of money that has to pass out of it. Many companies just couldn't afford to exist anymore, we'd go back to hunting and gathering because even farming would no longer be economically viable.
Oil companies have huge capital costs to find and extract resources, if you look at what their profits are compared to their costs of doing business, then obviously taxing revenue isn't going to work.
You'd tax global profit based on the local revenue fraction. So if the corporation has global profits of 1M and the revenue is 90% in country A and 10% in country B, then country A taxes 0.9M of profit and country B taxes 0.1M of profit and neither has to care where the corporation is located 'for tax purposes'.
Sales tax disproportionally affects the poorer. That's undesirable, to say the least.
Restructuring taxes will take a lot more work, and then end up with hundreds, if not thousands of extra taxes, each of which will be "avoidable" if you have enough lawyers, simply because the system won't be able to keep up.
You buy $10K of DOGE at $0.0001 in 12-1-2020 and it goes to $0.10 on 12-31. You now have $10MM in wealth, and will, owe $500K to the government. DOGE goes back down to $0.0001 on 1-1. Now you owe $500K of taxes and have $10K of assets. "But you should just sell 5% on 12-31 and you will have enough to pay taxes" you say. Yeah, you and everyone else who needs to pay wealth tax. Know what it looks like when everybody sells at the same time? 2008 or 1929. Wealth tax is dumb.
That isn't what a wealth tax is, or how they are implemented.
Mainly land value tax, inheritance tax and property tax would be a good start. And we already have capital gains tax to cover the sale of appreciating assets as you describe (note it is only at sale).
The first is a more limited type of property tax, which we already have. We also have inheritance tax. The vast majority of wealth is held in capital assets like stocks and bonds (or DOGE), so if you don't tax that, then you aren't really taxing wealth, and taxing these assets is a nightmare.
And for non-UK HN readers, the Guardian is a rather left-of-political-centre newspaper.
Or generally, each UK newspaper has a particular take on UK politics, and generally employs journalists or freelancers that have the same or more extreme views.
I find ironic to portray as extremists journalists who report on a company that pays zero (0) taxes on revenues expressed in billions. I would rather apply the adjective to the reported company for some reason, but maybe we have different measuring scales.
Well, what's ironic, is that I read the Guardian, amongst other newspapers.
I personally find it helpful, when a newspaper from a country that is not my own, is linked-to on HN, what political leanings it has, as that helps understand the story and provide some background, and in some cases the particular views of a journalist.
I like balance, or at least reading stories with views I may not necessarily agree with, but at least I make the effort to read those. And perhaps I'll learn something, or change my views on a topic.
> It's infeasible that Microsoft had profits of 200 billion euros.
The guardian's headline is definitely mildly inflammatory, but it's a headline, and it's true. This particularly subsidiary had an income of €200bn, and very little expenditure. That's the textbook definition of profit, although it's definitely creative accounting!
Saying someone has a conflict of interest reporting on financial matters because they are unionized?
So by your argument, we definitely can not trust nearly any other news organisation, because they have shareholders and are operating for profit? How about your conflict of interest? Do you own stock? If yes, by your own argument you have a financial conflict of interest and can't be trusted.
>>So by your argument, we definitely can not trust nearly any other news organisation, because they have shareholders and are operating for profit?
Being in a union, and your employer not being able to replace you with people outside of the union as a result of left-wing laws that are predicated on an extremely left-wing ideological conception of the world, creates a far more extreme conflict of interest in my opinion.
We don't need to take a centrist position between shareholders operating in a free market to earn a profit, by providing consumers with goods/services they want at competitive prices, and unions extracting economic rent through restrictive anti-free market laws that limit other people's right to free association. One position is inherently fairer and less likely to lead to corrupting conflicting interests.
Microsoft's Irish subsidiary paid zero tax because it owed zero tax—and there's no reason it should have paid, or that this should change in future, apart from the greed and envy of others who want to take money from others to which they are not entitled. Those who are unhappy at the taxes they are paying should perhaps take it up with the tax attorneys and/or legislators who have failed them.
I upvoted you [after the red brigade had had a pass :) ] because you raise an important point: imagine what the tax rates would be if politicians - armed with a police force and judiciary - knew that no other nation could complete by offering lower tax rates?
The corrupt bolsheviks where I live would ratchet it up to 95% in a few years. As would everyone else's government.
In case you are unaware, tax is needed to pay for schools, universities, research, health care, social care, police, civil infrastructure, environmental agencies, regulators, defence, bank bailouts, pandemic bailouts, etc.
The Big tech firms benefit from all of the above, but are not contributing anything back. The system is broken and needs to be fixed, so let's not pretend there is no problem.
so those who are unhappy with paying taxes should probably stop using roads, schools, hospitals, drainage, defence, police, firemen, universities, grants, etc.
There are a few places where such things do not exist: they don't do very well.
The idea is that the government prints money to cover expenses. If you could somehow force everyone to hold all their wealth in cash, this would act as a wealth tax.
This doesn't work, however, because with very high planned inflation no one wants to use your currency, and without taxation there's no reason they have to.
They use your currency because they get paid in it. Government spending doesn't disappear into a black hole never to be seen again. [FALSE]>>> Also it's illegal to use other currencies as tender in (probably?) all countries in the world (Zimbabwe uses/used(?) the US dollar but I'm not aware of any other instances).
Venezuela did a lot of things to restrict the use of the US dollar including forcibly converting all USD accounts at their banks to their own currency at an unfavourable ratio.
It is impractical in most places of course, but only because there isn't much demand for it, so it's hard to get bank accounts, contracts or purchases denominated in foreign currencies. Companies and individuals are free to do so, but they don't because using the predominant local currency is useful and convenient for everybody (usually).
The places where using foreign tender is illegal or tightly controlled are generally places where they have huge problems with inflation of their primary currency, like Venezuela.
Venezuela is an illustrative example of the original point here: in practice, if you make your official currency very inconvenient/impractical/expensive, people _absolutely_ will switch to an alternative. Even though paying for things in dollars in Venezuela is illegal and awkward, everybody goes through convoluted mechanisms to do so anyway because the official alternative is worse.
Thanks for the correction. I always assumed legal tender meant the other are illegal.
OT side note: if anyone from HN team is reading this it would be great if the upvote from the parent poster to a comment would be signified visually in some way (like green usernames for 2 week old accounts).
I’m not sure this true in most countries which don’t have strict capital controls. In most (all?) European (and I assume other developed countries) you’re free to use any currency you want as long as both parties agree on. iirc in the UK the pound is only legal tender when settling debts and merchants are not even legally required to accept payment in pounds and can demand any other currency they want.
Won't work because all truly wealthy people can secure their wealth against inflation, while poor people cannot.
As a simple example, consider owning a house vs. renting. If you own the house, the actual number doesn't matter. If you're renting, the ratio between rent and salary is highly critical for your lifestyle.
Add a UBI and it would work. There needs to be an economic floor which ensures there is no destitution. The aim isn't to get rid of wealth. The system now isn't working because wealthy people are securing their income and wealth without paying tax at the expense of social and civil programs.
In my country, UBI is supposed to go hand in hand with dismantling all social welfare, subsidies, whathaveyou. Once all the laws have been changed, and the civil service has been completely reorganized, it's a titanic fight to get them reverted, and after that, all the institutions still have to be put back in place. It would take 20 years.
There are no hard rules on structure of other programs in relation to ubi. It would be foolish to remove support for special needs etc. Unemployment benefits, public pensions etc can go away but the rest must be looked at on a case by case basis.
Assuming the UBI works out as intended and doesn't lead to unmanageable inflation the definition of destitution will just change to reflect the new floor.
How many 70s government housing project apartments or leaky rural shacks do you think you'd need to combine to get one working set of appliances and utilities that every section 8 apartment and double wide trailer has these days? (I'd put that number at 3-5). That was the floor then. That floor is mostly the subfloor now.
As things get better our standards get higher. Progress is good but you will never "solve" poverty, destitution, or any other bad thing that is defined relative to the rest of the population.
Things need to be maintained. Public HDB housing from the 1970s in Singapore is as good if not better than the new builds going up here in Germany. Destitution is not a moving goal post. You need adequate food, water, housing, healthcare, education and security. This is what UBI has to cover. If private housing is soaking it all up through rent seeking then it can be solved via rent controlled public or public/private (like Singapore’s hdb) housing schemes. You want more then you have to work for it.
You are on the right track, IMO, but taxation can't be abolished. Taxation is what gives currency value/demand. Everyone needs to pay tax in USD, so they need USD.
A loose monetary policy (a la NMT or Keynes) also needs taxation in order to destroy currency. Currency works in a loop. Governments/issuers make USD and pay for stuff (UBI, etc). The currency must complete its life cycle by returning home. It's circulation that makes currency currency.
Without taxation, we'd have currency collapse, not inflation. Printing money without sufficient taxation, we have what we're seeing currently: asset value inflation.
Also, I think we're beginning to understand that "general inflation" isn't really a thing. The price of investable assets isn't connected to the price of consumable goods. Wealth disparities are a big part of this. In theory, if Jeff Bezos and such tried to spend their earnings... we'd have inflation. But when personal income and CG is measured in billions, it's basically impossible to actually consume as much as you earn.
> Won't work because all truly wealthy people can secure their wealth against inflation, while poor people cannot.
I don't agree with this. The "truly wealthy" don't have any magic recipes that are better long-term than just MSCI World ETF or similar
> As a simple example, consider owning a house vs. renting. If you own the house, the actual number doesn't matter. If you're renting, the ratio between rent and salary is highly critical for your lifestyle.
If there is inflation you don't feel it as a renter either, because your salary and the rent both increase in lockstep (and in many countries, rent increases once in contract are tied to inflation)
Poor people usually don’t have any wealth so if wages would be directly tied to inflation I don’t see how would this would benefit the wealthy more. Of course historically wages tend to lag behind inflation, often quite significantly.
Meanwhile, its founder preaches redistribution and calls the governments to raise taxes. "The wealthy should make a bigger effort to clean public finances"
Everybody needs to pay more tax, that's the genius of the spenders, they put it to good use always. Anybody can donate to their government. Who here does?
What is the solution to this? I've wracked my brain and can't come up with anything.
Companies will just continue to flee to whatever country is now offering 0%. Christmas Island has a new 0% corporate tax policy? Let's go buy a mailbox there and move our "headquarters".
The old-school thinking is that low corporate tax policies encourage business, creating jobs in the process and boosting that country's economy. In the real world it's a shell company with zero employees that pays that country zero in taxes.
This push for a global minimum tax is interesting, and obviously scares the hell out of a lot of conservatives and others who want nothing to do with "global" anything. Also, how would that even work? Countries would simply not agree to play along, no?
The only thing I can think is that this entire thing has to be flipped into some sort of "VAT"/usage situation.
So if a US company is using Microsoft Azure and pays them $1 million annually to do this, Microsoft has to pay US taxes on that $1 million. Track where the customer is based and pay tax based on that countries tax policy.
I'm clearly no tax person, so my ideas mean nothing. But I've put a lot of thought into this "race to the bottom" and it's difficult to come up with a solution.
So there is no solution then. The entire concept of "corporate taxes" can be thrown out the window because they will just set up "shop" wherever is offering 0%.
And whichever country that happens to be at the moment gains nothing other than a shell company with zero employees.
I can recommend "The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay" by economists Emmanuel Saez and Gabriel Zucman for some concrete ideas on how to fix this problem.
Some ideas seemed a bit unlikely, but overall great refreshing read in my opinion.
Tax based on value extracted from a country. For example, in the UK I would tax corporations based upon UK Sales - UK Costs. For this I would require Amazon to set up a UK subsidiary.
Once they have set up a UK subsidiary then they will need to pay a corporation tax based on their total UK sales - UK costs. Sales are sales to the UK; any sales made to other countries, then no tax needed as those countries might (and probably should) have their own tax schemes. Costs would be employee costs, payments made to other UK companies such as an advertising agency or truck leasing and any other taxes they have to pay like rates or VAT.
It’s not really that simple to measure the ‘value’ extracted from a specific country. If we’re considering digital goods Amazon UK could just transfer the profits to Amazon Luxemburg by signing an IP licensing agreement etc. for the same amount they would be taxes on in the UK. So the UK entity would operate at a loss/zero profit. AFAIK many companies are already doing this.
> Countries would simply not agree to play along, no?
You require them to play along, you sanction them if they don't, and you penalize anybody locally who does any business with the companies who are 'based' there.
If the global tax changes being discussed come to fruition, I'd expect that list to extend and the penalities involve to tighten up a whole lot further.
Well of course it can be done, we have been to the Moon and all. It's just the squirming politicians and oblivious general populace that won't do anything (except vote for the same people year after year) that allow them to get a free pass.
Basically you could just penalize and persecute companies that funnel their profits to small tax-haven countries with little or no employees but excessive profits and hence, are considered avoiding taxes. The general gist of it is that since there is no penalty they lose nothing currently except small reputational damage. It's definitely a solvable problem but one needs a consensus to enforce it across the borders.
I believe something like the following would create an uncheatable system, and therefore will obviously never be implemented:
Does a corporation want to sell their products and services in country X? Very well, they must agree to the following regulation. The country X reserves an option to, at any point in time, buy up any subsidiaries or parts of the corporation, for value based on generally accepted accounting principles (GAAP). For example, if the accounting profit of Microsoft Germany is $0 over the past decade, the country has an option to purchase Microsoft Germany for its fair GAAP price - $0. After doing this, the country also has an option to reverse the trades the subsidiary has done. So, if Microsoft Germany sold its IP to Microsoft Ireland for the total value of $100, the country X can buy it back for $100. Repeat with Microsoft US, Microsoft UK, etc. The shareholders will be left with their extremely valuable (according to GAAP) Microsoft Ireland and Microsoft Singapore.
Any sufficiently large country with sufficiently motivated government can pull this off. No revolutionary overhaul of the existing tax system is necessary. The regulation is clear and fair. But again, it's never gonna happen.
A country could apply the global minimum tax on the worldwide profits of a company operating within it but recognize taxes already paid to other countries. So a country with a 0% corporate tax is just giving money to other countries.
Previously Microsoft shifted 39 billion in North and South American profits to Puerto Rico. (It used Singapore for Asian profits and Ireland for EU profits.) The IRS's case against the company is still active. This was the largest IRS audit in history by dollar amount.
FY19/20 - $314.7bn profit (3/4 of Ireland's GDP) and paid no tax on it.
> The subsidiary, which collects licence fees for use of copyrighted Microsoft software around the world, recorded an annual profit of $314.7bn in the year to the end of June 2020, according to accounts filed at the Irish Companies Registration Office. Its profits jumped from just under $10bn the previous year and compare with Ireland’s 2020 GDP of €357bn ($437bn).
> Tax transparency campaigners described the “tax aggression displayed by Microsoft, and facilitated by Ireland” as “beyond belief”.
One company’s single year profit is three quarters of GDP of a nation of 5 million people!!! With that much economic power, it is no wonder these multinationals write the rules as they please
And seen in another thread: Microsoft is lobbying the US govt to spend 250 million to make more software engineers by introducing computer courses in schools so that there are more SE on the market in the future so that they can hire for cheaper.
Meanwhile, individuals are paying 20–50% income tax.
This argument comes up a lot but nobody is paying 50% income tax in the US. Even if you make a million dollars a year in W2 income, in California, which has the highest marginal tax rate, you'll pay roughly 40% effective, almost entirely to the federal government. Realistically you're going to make a lot less than that W2, which drives the effective rate down considerably, and as remote work becomes more of an expectation, living in a state with high income taxes will become more and more of a choice. Plenty of states have bustling urban centers and low single digit income taxes.
Also I think it's pretty disingenuous to assume that MS wants to see computer courses taught in school to drive down the cost of labor.
The thread is specifically about income taxes. Everyone always wants to act like $0.75 of every dollar they make goes to The Man but it's just not true. Most of the money you make, you keep, to spend on your needs and wants.
People making a quarter million a year whinging about income taxes is offensive by its own right, but it becomes even more so when they arbitrarily double the amount actually paid to try to prove from technolibertarian talking point nonsense.
Companies pay, behind the scenes, another chunk of payroll tax that is roughly equal to what the employee pays. It doesn’t make the total 50%, but the taxes paid on your salary are higher than just 25%, even if it doesn’t show up on your paystub.
The amount paid is directly proportional to your payroll cost, just like your income taxes. Both amounts are paid by the company directly to the IRS. The only real difference is that one amount is just put on your pay stub, one is not.
It seems disingenuous to not consider it a part of the taxes paid based on your income (though it certainly sounds better to say that we only pay, say, 25%, instead of 40%).
Since this cost is associated with payroll (a.k.a. your income, as a worker), it's fair game to put the employer contribution to FICA under taxes on worked income.
I am not saying you are wrong; just providing another perspective. When every penny you *spend* or *save* is taxed, you end up paying more than 50% of what you made to The Man. Either tax the income or tax the spending, not both, is my argument.
The world extends beyond the US and there are places in the EU where a 50–55% marginal tax rate is a thing.
I’m not against paying taxes at all, my comment was about MS (in that case) making over 300bn and paying 0.00$ of taxes while individuals make 10–100k and pay significantly more taxes than MS Ireland did on their 300bn. I don’t think that’s fair. Furthermore, individuals are unable to make business deductions that MS and other companies can (and spend pretax dollars to buy things while the rest of us spends after tax dollars)
My post was to point out that corporations are massively advantaged in comparison with actual, alive human beings.
>Also I think it's pretty disingenuous to assume that MS wants to see computer courses taught in school to drive down the cost of labor.
So, what's another good explanation as to why software heavy businesses want more software engineers? It seems to me that it's to increase supply to lower costs. If the claim is that they can't capture enough, they can raise comp even more to capture people who don't work in their businesses, train them on the job by reestablishing employer/employee loyalty, etc. Plenty of options there that aren't being pursued, the most obvious explanation as to why is because those options are costly.
Such businesses have been trying to lower expensive technical labor costs for decades now, trying all sorts of strategies (non-compete hire agreements, outsourcing/offshore teams, pushing more towards capturing recent grads with lower expectations, FLSA overtime exemptions for computer professions, reducing employment mobility by increasing hiring barriers, institutionally and indirect built in ageism, ...). I tend not to give 'the boy who cried wolf' too many chances, and that ship has long sailed.
Remember that Microsoft also benefit from more other businesses becoming software businesses, and it seems like more people in the workforce knowing at least the basics of computers would help with that.
> Also I think it's pretty disingenuous to assume that MS wants to see computer courses taught in school to drive down the cost of labor.
SWEs are some of the largest cost for any tech company, why do you feel it is disingenuous? It's a company, makes profits, if they drive down labour costs their profits increase, as any company naturally will tend to (even more larger public ones). Driving down cost of labour is basically all the motivation towards automation since time immemorial, SWEs can't be automated yet, the best course of action is to pump more SWEs to drive the labour cost down.
Not sure what else you think that would compel Microsoft to do that, interested to hear.
- the world is bigger than the US, there are places in Europe where a 50 or 55% tax rate is a thing (hi Netherlands)
- if it’s not to drive the cost down, why else increase supply? It’s a sellers market at the moment and the big five hate it because it means they must pay engineers more because they have to, gasp, compete (for talent in that case)
Yeah, it’s an artificial number. It does not reflect the true profitability of MS. As another commenter explained (https://news.ycombinator.com/item?id=27380998) the figure contains money from selling two subsidiaries. That would also explain the steep rise of the profit.
TBH, it looks like this was just money moved around from other low/no-tax subsidiaries.
Profit after tax increased ... due to the liquidation of two subsidiaries.
Like, it's still bad, but this money presumably represents many years of accumulated profits, as otherwise the number makes no sense (MS made a profit of $14bn in 2020).
Most economists around the world support eliminating the corporate tax and raising capital gains to compensate. In addition to vastly reducing the amount of accounting needed it would make structures like this pointless. Perhaps governments should get on this as a priority. It seems like early movers would attract a lot of investment.
It's extremely easy to speculate about this stuff academically. Economists tend to delight in theory-adjacent discussions. These have very little bearing on the real world.
TRW, in this case, is a cascading infinity of corporate law, tax law, accounting practices, jurisdictions, lobbyists, parliaments and special interests. None of these exist in economist's models, unless they're modeling public choice theory or somesuch.
Capital gains is just as gameable as corporate income, in practice... and more politically explosive.
IMO, if there is an actual interest in taxing wealth, just tax wealth. Assume 5%-8% return on wealth, and tax total wealth on this basis.
Taxing wealth is a terrible idea because it requires government to get balance sheets from the masses. If you miscalibrate earnings minus inflation it’s also punitive. Lastly for many families most of their wealth is their home which isn’t exactly liquid even if it grows in value. Wealth taxes would force many to sell their houses.
Capital gains taxes are based on difference between buy and sell price of specific assets and require only those two data points. That’s very different from accurately pricing an asset yearly.
Technically, or originally perhaps, capital gains are paid based on gains. There are a lot of clauses and loopholes that allow for tax on gains to be deferred until they are realised.
Capital gains is far less gameable because there isn’t a mechanism to move your capital gains to a different tax region as an individual. Corporations may be able to game capital gains slightly when they hold shares in other corporations but that is very minor compared to corporate tax games that go on now.
It is, but it's also more politically explosive. The upshot is that CGT loopholes are extremely prevalent.
Both succeed/fail in the same way, marking to market. Apple Inc, the publicly traded entity, is able to deny its income for tax purposes (they say they paid this money to an irish subsidiary), while claiming it on behalf of their shareholders. The CGT version of this is unrealised gains.
Exactly. Corporations as individuals respond to incentives. The cause of this situation is exactly the presence of high corporate taxes in many countries which multinationals can game.
This is unjust and unfair! Advice to local governments in EU countries and elsewhere: just write laws to tax such companies locally with "internet tax for companies with over 100 million USD in revenue" and do it NOW! These corporations will do this for so long as it is possible... they don't have any intent to stop it... it is legal, but it is unjust and unfair...
Split your company in 2. This one gathers money for product A. This one gathers money for product B. Look at that each is 99million. That is just a very simple way around it, until another law is written. Your method sounds like a good start but you need to remember for every idea anyone has they have 2 accountants they can afford to get it back.
If you want to understand why we ended up here you need to get at the root of the issue. Exemptions, tax breaks, and writeoffs. Once those were created there will be an accountant that will max/min that thing. You may think 'oh flat tax'. The problem is unless everyone does flat tax no one can. This is due to putting yourself at an economic disadvantage in relation to other countries. An interesting prisoners' dilemma if you will.
I'd rather have my money in the hands of Microsoft and Google vis-a-vis Federal and State Government (in the case of Europe it's Regional)
They not only return money to government via their mega cash warchest (which is made up of T-bills) but they also have more productive ways to employ those dollars compared to governments.
Also even if they were to pocket them, at least they are far away, whereas the corruption of governments causes your hated neighbor or the asshole mayor to pocket government cash .
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[ 3.1 ms ] story [ 519 ms ] threadI have HAD ENOUGH. This is infuriating.
What can we do?
Paying tax is good for society, what's not great is companies avoiding it. The latter doesn't negate the former.
I cringe every time I hear this from people.
Rich people pay WAY more than what they get back from the gov.
Only if you ignore the role of the government in defining and enforcing (violently, where necessary) property rights, which is what allows “rich people” —particularly rich through various forms of intangible, indirect, and directly-physical-but-beyond-immediate-personal-supervision property — to, as such, even exist.
Where as someone who worked 40 hours a week for the whole year and made $200K gets taxed... exact same 20% effective (federal), and another ~15% (employer+employee) in FICA.
Part of the value of paying taxes is to ensure that the people who's labor you're extracting value from don't rebel and rise up against you.
Should we tax the automobile for displacing the horse stableman.
Well you can look at it in the round and realise that your income is similarly higher than it otherwise would be because government spent money into the economy that it is now extracting as tax.
Moving the tax around doesn't avoid you paying it. It just gets rolled into the price of what you buy instead. That's because in aggregate corporate costs including taxation are a component of final consumption expenditure.
While there are fewer jobs than people that want them the incidence of charges on corporations will always end up being paid by workers one way or another. That's the whole point of the 'unemployment buffer' put in place during the neoliberal era - to make sure that price changes can't be easily passed through to wage rises and thereby resolve the distributional conflict in favour of capital.
So do all the engineers, PMs, etc working at Microsoft.
Is a starting salary for an engineer at Microsoft really around $320,000/yr.? If they're really pulling in that, one would hope they'd have some long-term capital gains, which would further pull down their effective income tax rate.
I wasn't aware of the Washington state tax rate though.
It's a tough question. The tendency is to react superficially: Moralizing reactions, emotional reaction, first principles takes. The way tax actually works is via accounting "standards," tax law and corporation law... across multiple jurisdictions. A thousand-detail complex , where morals, emotions and first principles are literally meaningless. Actual meaning can only be derived with scenario plans and spreadsheets. Words like "profit," "company," "revenue" and such don't have inherent meanings, in that world. They're just objects with associated rules.
The pro-corporate side of this debate (debate is the wrong word) deals entirely in the latter terms. Terms that the majority of journalists and politicians can't work with. They tend to win.
When the other side does consider the reality of mess, they tend to conclude radical/unrealistic conclusions like "throw everything out and start from scratch."
At this point, complexity is hardened by international agreements and trade rules.
IMO the actual place to start is corporation law, not tax law. If entities can own other entities, or part thereof in an endless cascade...words like "tax rate" have no meaning.
Another, more radical approach is rethinking the idea of public wealth. The currently ongoing collapse of monetarism is, perhaps, an opportunity. Tax public companies x% of their shares per year. Hold, to avoid price deflation. Offload shares as part of macroeconomic/monetary policy (ie, when we run deficits), to avoid inflationary scenarios such as the current one.
I would take the same approach for wealth taxes. Capital gains, property, etc. Tax x% of current market value annually, not income or realized gains. It won't be perfect, but everything gets marked to market eventually.
1. this disproportionately affects companies with higher capital requirements than lower ones. Think spacex compared to a SaaS.
2. this doesn't solve the underlying issue of moving to a jurisdiction with lower taxes. let's say US taxes 1% of shares every year, but the company offshores to bermuda. then what?
How/Why?
>> underlying issue of moving to a jurisdiction with lower taxes
Well... nothing simple solves this in full. However, "loophole" in this article works by attributing income from IP licensing (an internal transaction between Apple owned entities) to Ireland, which does not consider this a taxable transaction.
A "share tax" would apply to the same entity that shareholders own a stake in, it doesn't try to disentangle subsidiary structures. Companies might try to list on Bermuda's stock exchange. I wouldn't discount that possibility, but it won't happen overnight.
Because a company's value (and therefore its stock price) is determined partly by how much assets it has on hand. A company that's capital intensive by definition bring in less money for the same amount of capital invested. Think how much money you need to invest to get spacex off the ground (r&d, rockets, manufacturing facilities, etc.) and how much profit it brings in, compared to how much investment a SaaS needs (a laptop) and how much profit it can bring in (hundreds of thousands? millions?). Under a tax scheme that taxes based on company's shares, a 1% tax would get you 1% of spacex's IP, rockets, and manufacturing facilities, but a 1% tax on a SaaS would only get you 1% of their laptops.
>A "share tax" would apply to the same entity that shareholders own a stake in, it doesn't try to disentangle subsidiary structures.
So the US would end up getting 1% ownership of Microsoft USA, which makes zero profit and sends all its profit to Microsoft Bermuda. Once they're about to lose control because they bled too many shares, they'll cut off doing business with Microsoft USA and start doing business with Microsoft America (a newly formed company) instead.
>Companies might try to list on Bermuda's stock exchange. I wouldn't discount that possibility, but it won't happen overnight.
It might not happen overnight but I guarantee it would happen within the year.
https://www.bankrate.com/finance/taxes/tax-brackets.aspx
This is really just the first thing I looked at, but it seems to provide the desired information.
The highest bracket, for income above roughly 550k, is 37%. So considering only federal income tax it is impossible to pay 40% of your income in taxes, but also the first 550k or so of your income would be taxed at lower rates.
But they don't dare to take a firm stance, because the politicians that make the decisions benefit from the system. Just look at how many politicians had accounts revealed via the Panama Papers.
If the cost of getting to net Y cash inflow is X gross income where X = Y + (.66Y) then solve for X and move on, or perform the cost benefit analysis for moving to another tax jurisdiction. The solution is yours to execute.
Microsoft did not even make £220B (apx $310B) revenue globally in the 2020 fiscal year, much less in one subsidiary. Their total global revenues were $143B and total global net income (aka profit) was $44.
If The Guardian can't fact check the basics, how can you trust anything else they write?
If it's the first one I can't disagree more, I'm paying kinda the same percentage and I'm happy to do so personally.
If it's the second one, I can't agree more that this is infuriating indeed.
So it's "only" a matter of deciding whether those taxes should be paid in US vs. other countries (and if the intellectual property was developped mostly in the US, it seems fair for the US to get most of it).
If you're opening a location in another country, and that location takes X in revenue, the tax should be paid in that country.
Why on earth do you think its fair for US based organizations to spread across the globe, reap the huge profits from that but funnel all the cash back into the US?
Random guess, they're American :-)
Facebook, Google & co. are absolutely ravaging local economies, pardon me, disrupting legacy economies all over the world and a small chunk of that ends up as compensation in the US.
The rest of that, FAANG are just sitting on it like a dragon hoarding gold, as far as I can see.
Absolutely no support or protection for local companies, Linux, etc.
Where is our Baidu, Samsung, Yandex, or Sony, etc.?
The whole continent is practically a vassal state of the US, under German administration.
(Other countries mostly have sales, that's what sales/vat are for)
If instead of being a digital company it was a physical good company, would it be so controversial? E.g. goods are designed/produced in Italy, shipped and sold abroad (as a start in totally independent shops). Who should book the profit? Usually that will be the manufacturer and the local foreign stores have a much smaller margin.
If now those shops are arm-length subsidiary, why should it be different?
Would end up with every digital company having to register in country before accepting any user from that country (with maybe a facilitated process where they can self declare their per-country revenue).
People already complain about the arbitrary geo-fencing, but that might indeed be inevitable.
It all hinges on how "location takes x in revenue" is defined.
The simplified version of how all these transfer pricing tax avoidance schemes work is this: The good is produced in Country X (e.g., US) then sold to a subsidiary in the tax haven Country Y (e.g., Ireland or some Caribbean Island) for just a tiny amount of profit over cost, and so they owe taxes to Country X on that de minimis profit. The subsidiary in Country Y then sells the good to Country Z (e.g., the rest of the world) for the retail price, and so they earn almost all their profit in Country Y and so pay taxes there, but it's a tax haven so the actual tax rate is minimal. Logic would dictate that the profit should be recognized in the jurisdiction where the good was produced or the one where it was sold to the end customer or some combination of both, but logic does not prevail when it comes to tax law.
In 10 years from now it could easily be China that owns many of these mega cooperation's. Would you find it fair if the tax money from china "MS", china "apple", china x all would go to China and the USA would get zero.
That was the main change of the TCJA, it stopped companies from doing the deferred taxation trick.
(Your circumstances may vary, this is not financial advice, YOLO, etc)
I'm curious what you're eluding to here? Using dividends as a significant method to self-compensate (for single-person companies) seems to be a pretty common practice recommended by every UK accountant I've spoken to / used.
EDIT: Updated for clarification
That's the standard common advice that I'm referring to and that the post I replied to seemed to suggest is not what a (better) accountant would recommend.
Unless I'm interpreting that post incorrectly.
Let's say your company has £100K to play with and you want it all.
- You can pay yourself a £100K salary, of which take home pay will be about ~£67K
- You can pay yourself a £8,840 salary tax free in order to qualify for the state pension but minimize national insurance, and pay 19% corporation tax on the remaining £91,160, which leaves £73,839 to pay in dividends. Take home pay will be ~£69K. A win.
- Roughly (as this is more complicated). You can pay yourself a £48,840 salary, sacrificing £40K in to your pension completely tax free, pay corporation tax on the remaining ~£51K, and then pay it out as dividends. Take home will be about ~£47K with another £40K in your pension!
- More elaborate schemes are possible, where you use your personal pension to invest in commercial property which you then lease back to your company as a tax deductible expense.
Tax 'relief' (it's a refund despite what anyone says) only applies if you pay from your post-tax income.
Pensions are currently very generous but there's been an expectation for years that the government will crack down on them.
I'm self employed and get the bulk of my income through dividends. As with the example above, I often end up paying roughly the same amount of tax as someone with the equivalent salary would.
The big advantage for me is that I can have a very good year and a very bad year and pay an appropriate (smoothed out) level of income tax across both - which seems fair to me.
Microsoft employees are also paying 20-40% income tax remember.
That's not a death tax. It's an income tax. You don't get out of it by dying.
Which is what Microsoft is doing.
Alternatively lobby your government to replace corporation tax with a company payable tax on the labour a company uses - which is actually what tax is for: to release manpower for the government use.
Then Microsoft can't avoid it by profit shifting.
Wouldn't that create a perverse incentive to hire less and overload the remaining employees? I say this because that's exactly what it does on my home country.
That rather depends whether there are more jobs than people that want them.
If there isn't then you need a public job Guarantee option to swing the balance of power.
We want the private sector to hire less and automate more. That's how we push forward productivity. What we want to remove from them is the "what about the jobs" argument. Then it all works.
Of course you'd also have to pay self-employment tax on top of the regular income tax though (can get around some of that by using an S Corp).
Income is (which is why the rates are higher).
When you count employer contributions, then you are quite close to 50%.
* € 0 - 68.508 37,10%
* € 68.508+ 49,50%
There is no tax free allowance. There is general/labor tax credit, but it’s incredibly minimal and reduces with income:
* €2.837 for those with a taxable income under €21.043
* €2.837 - 5,977% x (taxable income - €21.043) for people with an income between €21.043 to €68.507
* €0 for people with an income over €68.507
The only kind of income you can avoid taxes on is capital gains - i.e. investing in stocks or real estate. Obviously this is not feasible for the general population, and as such, most people spend their entire monthly income on rent/mortgage, kids, and living expenses. There is no concept of saving, because the assumption is that you can accumulate enough pension to live off of.
Government projects are quite corrupt, and often go way over budget. Of course, this is a global problem as well.
The main problem is corporate tax evasion. Pretty much every multinational funnels money via NL, while paying almost nothing.
For example - IKEA, Walt Disney, FAANG, Uber, and innumerable more are all Dutch BVs for most global activities.
The reason there’s so many Teslas is because up until 2021, you could get significant tax benefits, if you purchased an electric car via your employer for “work”. If you look past Teslas, you’ll see that most people own average family cars.
Amsterdam does have people with “expensive tastes”, but that’s not representative of the rest of the country. It’s similar to what you’d see in New York or London vs. the rest of their respective countries.
Most of the wealthy people I know own businesses (and as such benefit from the lower taxes), or own lots of rentable real estate.
This is a significant piece of information in this discussion.
source - https://www.statista.com/statistics/780316/market-share-of-t...
In NL, €150 doesn’t cover emergency care, dental, eyes, or various specialists. Medicines and treatments are also part of the deductible.
Aside, I’ve had friends who moved and found that Swiss income taxes are also much lower than NL in most cantons. Is that true in your case too?
As an American, it gets harder to live in Switzerland because of the lower tax rate and high COL once you break through the foreign earned income exemption.
There is a free allowance for "foreign skilled workers". They pay 0 income tax over the first 30% of their income. It's total and utter bs. So if you earn 90K, you get 30K net, and get taxed as if you earned 60k
https://www.icalculator.info/netherlands/income-tax-rates/20...
Therefore if you are (for instance) paying 40+% effective tax on your income in the Netherlands you're clearly earning north of €70k a year. To put that in context – “You Are The 1%: If You Make $35K/Year Income” https://www.diygenius.com/the-global-inequality-problem/So that other person is being dismissive (though dismissive is the wrong word) of the poster because generally at these sorts of rates you're earning greater than 99% of the people on the planet.
If you're earning greater than 99% of the people on the planet and you simultaneously think there's an injustice being done to you by the tax man then I would humbly submit that you could do with a reality check.
And we're not just talking about in comparison to the so-called global south here, there are many many people in the EU and around greater Europe who would be thrilled to be earning north of €70k a year.
I fully appreciate that I make more money than “a lot of the world”. But I don’t think it’s wrong to ask that corporations and high-net-worth individuals, also pay their fair share and not just leave the burden to people like me.
Nobody is saying "I would rather move to Sudan and lower my tax rate".
I'm not a conspiracy guy, but it's amusing to note that Rishi Sunak, under whom the changes came in this year, is related (son-in-law) to a cofounder of IT consulting behemoth Infosys.
https://taxfoundation.org/taxing-high-income-2019/
Then there's a 21% sales tax for everything but food and medicine in the Netherlands aswell
https://en.m.wikipedia.org/wiki/List_of_countries_by_tax_rev...
It’s not perfect as not all taxes are borne by the individual, but it’s gives you a ball park.
Netherlands 39%
Switzerland 29%
- VAT - Excise - Kwartje van kok (was supposed to be temporary, already > 20 years there)
You will have an income of ~52 000€ for 100 000€ billed during the year. You're not earning millions and yet around 50% of revenue was paid for tax purposes.
Edit: I just want you be clear here. I think the tax rate is way too high even at 25% effective tax rate. The system is overburdening poor people no doubt about it but I also think we should not fudge the numbers by claiming we pay the top tax band rates as effective rate because it invalidates whatever else we say after that. It’s dishonest. IMO effective tax rate should be <5% and actually 0% for most of us.
And 5% is not realistic, even if you eliminate all the pork, corruption and inefficiencies. You can't provide education and healthcare and maintain infrastructure for 5%.
I hate paying taxes but 20% would definitely not feel unreasonable for all those things, I'd pay that happily.
Median U.K. income is £29,400: https://en.wikipedia.org/wiki/Income_in_the_United_Kingdom
And when I buy stuff I then have to pay 25% VAT (12% on groceries). So the effective tax is 59% except for groceries.
[1]: https://www.skatteetaten.no/en/rates/employers-national-insu...
https://www.regjeringen.no/no/tema/okonomi-og-budsjett/norsk...
Though you can get support if you're temporarily without a job[1], sick[2] or declared permanently unable to work[3].
These programs are of course partially funded by the oil tax money, by virtue of being part of the government spending.
[1]: https://www.nav.no/no/person/arbeid/dagpenger-ved-arbeidslos...
[2]: https://www.nav.no/no/person/arbeid/sykmeldt-arbeidsavklarin...
[3]: https://www.nav.no/no/Person/Pensjon/Uforetrygd
There used to be a slogan in Sweden, "half left", meaning people wanted to keep at least half of their gross pay.
https://www.usnews.com/news/best-countries/articles/2016-01-...
Of course, you can game the system with fictitious useful expenses (travelling but saying you went to a dev conference etc.) but it's hard to really accumulate much if you live a somewhat normal life.
https://en.wikipedia.org/wiki/Taxation_in_Austria
Based on 2020 US tax brackets, standard deduction, including the both sides of FICA (capped at the social security cap for the social security part) and the medicare extra tax they are paying, I am ending up at ~37-38% effective (not marginal; marginal is 43.8%) tax or so. This individual would in my mind be excused for claiming that they pay "40% in income taxes" and is not making "millions" (though obviously is not suffering financially).
70k -> 24k tax / 34%
90k -> 35k tax / 38%
120k -> 51k tax / 42%
And they keep making it worse for small companies too!
Why is there not a focus on countries such as Bermuda here? They are the "tax havens" who make this possible in the first place.
There is. Two wrongs don't make a right. The topic at hand is Ireland.
> Other countries are perfectly entitled to do similarly, as Netherlands does.
If every country acted the same way, there would not be a single functioning nation on earth. Their benefits only exist because other countries are losing out, which makes them parasites.
Holy hyperbole, Batman.
No, it would just mean that there would be a homogeneous corporate tax system, which is what people seem to always argue for.
'Parasites' is also a ridiculous description.
We can argue about what's "fair" all day, but "inexpensive" is more objective: some taxes hamper more economic activity than others. A $1 tax on a stock trade will reduce exactly $1 of economic activity. It's so expensive, it's basically pointless. A land value tax, on the other land, is almost free. (And in some cases, negative!)
Most taxes fall somewhere between these two extremes, but corporate income taxes are one of the most expensive, which is why economists aren't big fans of them.
Countries like Ireland and the Netherlands are nothing more than tax avoidance puppets of a few big companies. And the sad thing is that their governments think it's good what they do while it's a downwards spiral instead.
Of course, Irish citizens could vote to withdraw from the EU and set their own tax that way, but that's not likely - they generally accept that the benefits of participating in the EU are worth giving up a little sovereignty.
[0] https://en.wikipedia.org/wiki/Ireland_v_Commission
The amount of human time and energy wasted on taxation is mind bogglingly stupid.
Politicians trying to influence the behavior of their minions by designing these convoluted "tax-based incentive" schemes is the whole problem in the first place.
Just tax all money that comes into anyones hands at say 30% and let the market decide what activity is most efficient for the world.
Then maybe the 500 million intelligent people working around the globe as tax authorities, tax attorneys, tax lobbyists, tax preparers, tax accountants, and tax consultants...could spend their time doing more useful things for humanity.
Fraudsters skirted that by keeping their corporation's assets on the books and expensing everything, never actually receiving/spending anything themselves.
Instead of distributing profits to shareholders, is Microsoft going to buy 1,000,000 BMWs for their investors and hold them on their books as company cars to dodge taxes? Not practical.
No thanks, you have no right to tell us (Switzerland) how much taxes we have to pay. First fix your own US-tax-system.
EDIT: I think he meant that:
https://www.theguardian.com/politics/2021/apr/11/bidens-plan...
Enforced by whom?
Why would a developing country want to tax companies at the same level if they're trying to attract investments? Anyway, why should any country listen to any other country on what the tax rate should be?
Why should a company be forced to pay tax on foreign income if the country in which they supposedly made that income doesn't want to them to pay taxes?
The worst part is that this comment starts with "simply enforce"
The point of removing corporate tax is to not tax companies at all. Remove the decision of how to position your country against others altogether.
You could enforce these things by creating a free-trade area for anybody who joins, and excluding or putting stiff tariffs on those who don't.
Then you need those free trade agreements. Remember the last time when it was only between EU and US? Protests in many European countries and in the end Trump decided to break it off.
edit: ah, it looks like you are paying yourself via dividends.
I'd love to see a Playbook for Tax Loopholes for Everyone.
- minimum annual profit required
- legal steps to take
- recommended law firms
In fact I'm not even sure what the Ireland connection is here except that there is a registered office in Dublin. It seems like all the action is taking place in Bermuda, so this is really a story about UK overseas tax havens.
Interestingly enough though, almost all of the zero tax places are British Crown dependencies, so presumably the UK government could exert pressure on them, if it really wanted to.
Bermuda has been self-governing since 1620. Britain has very little in the way of exerting any pressure on them short of imposing direct rule (which it seems to have done only twice: on Anguilla in 1968 after it was invaded and only partially on the Turks and Caicos in 2009-2012 due to systematic corruption).
EDIT: punctuation
https://ie.globaldatabase.com/company/microsoft-round-island...
It lists 9bn in profit.
The quoted document > https://assets.documentcloud.org/documents/20794038/microsof...
Disagrees with the public finances above: the issue is that the document says "$ 000".
It's a typo, the numbers are just dollar amounts.
And the text of the report proves it, it explicitly says profit of the year was 13bn.
EDIT: the report is very confusing. It looks like there could be an argument to say it is genuinely 300bn -- the issue is there's *operating profit* of 13bn... but a secondary "profit" from the liquidation of subsidy companies.
So the issue is the article presents this as an operating profit, but it isnt.
From the financial report "Profit after tax increased .. to $314.73Bn reflecting gains made upon liquidation of two subsidiaries".
I'm guessing this is a company that exists to receive licensing fees from around the world and the profit just about equals revenue apart from cost of the accountants.
The reporters might have been looking at the "total assets" line of MSFT's financials, which was $301B at the end of FY2020. But you don't pay tax on total assets. Just speculation on my part.
These reporters can't even check basic facts.
They know what they're doing
It figures that the "company" licensing all of this IP has very little in the way of operating costs. Maybe they need to pay the rent of the local mailbox that they've registered themselves to, or maybe they even need to rent an office in an office complex somewhere, but the entire operating exists purely to redirect the flow of money.
This approach is evil, nothing less. Companies benefit from government infrastructure all around the world and pay nothing back. The bookies that set up these schemes will tell you that they're perfectly ethical because they're totally legal, but their moral compass has stopped functioning years ago. It's not just Big Tech either, most companies operating worldwide use tactics like these.
Individuals shouldn't see tax. That way the voters don't complain when you need to put it up.
Sales tax is similarly a pain - particularly when you have differing rates. At which point we get into the famous is it a cake or a biscuit type cases to decide where the dividing line is.
I recently had to update my W4 form at work for tax withholding, and what a pain in the ass to read and decipher. Add to that, and I had to do the same thing for my state taxes.
I want to point out that Congress has shot down the idea of making it easier to pay your taxes many times. I'm not sure if it is Intuit or some other entity, but paying your taxes should be easy. If you don't like the level of taxation, then work to reduce them, but paying them should be easy.
It boggles my mind that this is the case.
The UK PAYE (Pay as You Earn) system has a 1% tax gap[1] compared to 12.9% on income tax and 7% on corporation tax.
It's extraordinarily more efficient to tax at source.
[1]The percentage tax gap is the tax gap pound value as a proportion of theoretical liability, where theoretical liability is defined as the tax gap plus the amount of tax actually received.
The goal of government shouldn't be to obscure the cost of government services. The cost should be justified.
I don't think that's true. I think what is true, and what we've seen time and time again, is that people don't like the cost of services that others take advantage of that they don't need to.
To invert that, what exactly are you planning on doing with the people currently in the public service, which the people voted for, that is so much more important than providing the services the people voted for?
It is for the private sector to justify its use of resources, not the public sector. The public sector has a democratic mandate.
If taxation is such an inherent good then why does it need to be hidden from people?
If the rate is justifiable the government shouldn't need to hide it. When you consider a democratic society where the government at least indirectly serves the will of the people the idea of the government needing to pull a fast one on the people or obfuscate its actions lest the people tell them to stop becomes even more absurd.
Because the externalities are not always visible, and people do not have enough free bandwidth to spend the time understanding them.
> If you get hand wavy and tell me its too complicated [...]
Unfortunately, it really is too complicated. A doctorate in economics might get you a decent way towards understanding the good that taxation provides, but given that economists still have differences of opinion, maybe not a complete understanding.
[^0]: Well it is, but only a tiny proportion.
Unlikely. Economics doesn't even understand how the monetary system works, let alone taxation.
Taxation works more like memory garbage collection than anything else. It's a cleaning up process.
It isn't an inherent good. It's just required to reduce demand and release people so the public sector can purchase them with its money.
Without it you would have inflation - or none of the public services we voted for.
The reason you pay tax is that your income is higher than it otherwise would have been without the government spending.
What people who don't like tax forget is that should you eliminate it, the increased income will be eliminated too. But not in a smooth way. Jobs will be decimated, and one of those might be yours.
Pure ideological point of view with no grounding in reality. It's totally possible to tax corporations. In fact, some state like Japan and South Korean get more money from enterprises than individuals, the reverse of Europe and US (until recently consumption tax was 5% in Japan, now is 8%, still far less than EU's typical 20%).
The solution you propose doesn't even work well, since it's one more incentive for (mega-)corps to not raise salaries, as keeping salary low means also low taxes.
To act like there's no additional benefit on taxing literally billions in revenue is absolutely nonsensical.
It is certainly plausible that a tax will provide no additional benefit. Microsoft is one of the great value creators of the late 20th/early 21st century. it is not immediately obvious why redirecting money away from the company is a good idea.
Were you deliberately or accidentally confusing the two?
It certainly isn't obvious that raising taxes is a net win. Experience to date is that a 100% tax rate is very bad, so logically there is a fair limit somewhere between 0% and 100% - ie, a specific fair rate that is not the word "more".
Certainly Ireland would like a slice of those billions of dollars - but if they try to take a big slice, Microsoft won't route the billions through Ireland. So it is a somewhat moot point in that specific case.
This confuses the issue - corporation tax has the opposite effect to this, because it only applies to profits. When profits are heavily taxed, there's a strong incentive to invest more money in R&D and longer-term internal investment (thereby avoiding corporation tax on that spending entirely) rather than reporting it as profit that's immediately distributed it to shareholders today.
There's interesting arguments about how this affects shareholders and whether it discourages external investment, but it's certainly not a drain on R&D.
$100 -> corp. $90 -> expenses, $10 -> profit -> shareholders dist. $4 -> personal income tax.
In principal it's the same. Path 1 is easier to dodge, because what constitutes "expenses" is hard to define, but distributions are obvious. And the numbers don't have to add to 100. So reality looks more like:
$100 -> corp. $95 -> "expenses", $5 -> "profit". $2 -> corp tax, $8 -> shareholders dist.
vs
$100 -> corp. $95 -> "expenses", $5 -> "profit". $10 shareholders dist. $4 -> personal income tax.
And this is why you want to tax at the distribution level.
You mean not desirable for society in high tax/high cost countries I presume? What about society in low tax/low cost countries? It seems to be working out pretty well for Ireland[1]. That's why they resist immense pressure form the EU and maintain a low corporate tax rate.
[1] which is a high cost/low corporate tax country
Kind of like the current lobbying going on all over the world?
One of the limiting factor is to avoid giving the said lobbies unlimited funding. That is one of the reason for taxing corporations.
It's not in this case because the corporation didn't pay any tax.
If corporations capture the market/government and become monopolies/oligopolies and you have no choices (i.e. Comcast in some regions), you will have no more recourse.
> The company, Microsoft Round Island One, posted profits last year equal to nearly three-quarters of Ireland’s entire gross domestic product (GDP) – despite having zero employees.
That, to me, sounds like maybe the plan to collect personal income tax on salaries might not be so straight forward.
the argument for taxing profits:
- incentivise investments
- companies are less likely to hide expenses like salaries
- It's more fair for high cost business (car company vs google)
Personally, I'd tax all corporation 3% of their revenue. You could lover it by to 2% by what is your operating profit ratio to revenue. You can lower it to 1% by a list of 20-30 deductibles e.g. you install solar panels. BUT the minimum you have to pay is 1%.
If your company cannot pay 1% of the revenue you don't have a viable business. Average corporation spends more on accounting and consulting.
e.g.
Revenue 0-20mln EUR, you keep the existing tax scheme
Revenue 20-100mln - you can choose the tax scheme
Revenue 100mln+ - you have to tax revenue
Thresholds are up for debate.
Also, companies already pay around 0-5% of their revenue in income tax. Gigantic companies pay close to 0.
You can try to work against it by arbitrary progressive taxation thresholds, but this doesn't change the underlying mathematics.
Also, there's a reason why progressive taxation isn't widely implemented for corporations, because it's very easy to circumvent by splitting up and increasing the number of legal entities. A sensible way around that is taxing the _ultimate beneficiary_ rather than the company itself (i.e. the owners as natural persons), which is what GP suggests with "sales tax and personal income tax on salaries and distributions".
You can make the same argument about VAT. There is a cost on every transaction (split payment, money is frozen until you get a return). The incentive would be negligible comparing to other incentives for vertically integrated companies.
> progressive taxation isn't widely implemented for corporations, because it's very easy to circumvent by splitting up and increasing the number of legal entities
It's getting more popular and it's easy to draft a law that splitting companies, does not reduce the taxes (see GDPR) https://taxsummaries.pwc.com/poland/corporate/taxes-on-corpo...
> sensible way around that is taxing the _ultimate beneficiary_ rather than the company itself (i.e. the owners as natural persons), which is what GP suggests with "sales tax and personal income tax on salaries and distributions".
It doesn't work in practice, because of tax heavens. Also, I can have a travel blog and a youtube channel when I review cars and clothes. Would I pay close to 0 in taxes.
---- All taxes are bad, but given current global world, revenue tax seems to be better, hence the digital tax in EU.
So banks and oil companies, which are naturally lots of revenue with a tiny amount of profit, would disappear, or become very small?
Accounting costs banks and oil companies around 0.8%, so the will be fine.
I don't remember the exact number.
Oil companies have huge capital costs to find and extract resources, if you look at what their profits are compared to their costs of doing business, then obviously taxing revenue isn't going to work.
Restructuring taxes will take a lot more work, and then end up with hundreds, if not thousands of extra taxes, each of which will be "avoidable" if you have enough lawyers, simply because the system won't be able to keep up.
How are you meant to afford a house and stuff with taxes like that?
We need wealth tax - go after the shareholders and landowners, who don't directly create value and dodge a lot of tax.
Mainly land value tax, inheritance tax and property tax would be a good start. And we already have capital gains tax to cover the sale of appreciating assets as you describe (note it is only at sale).
2. A comment on the Guardian's journalists' potential financial conflicts of interest:
https://news.ycombinator.com/item?id=27352245
Or generally, each UK newspaper has a particular take on UK politics, and generally employs journalists or freelancers that have the same or more extreme views.
I personally find it helpful, when a newspaper from a country that is not my own, is linked-to on HN, what political leanings it has, as that helps understand the story and provide some background, and in some cases the particular views of a journalist.
I like balance, or at least reading stories with views I may not necessarily agree with, but at least I make the effort to read those. And perhaps I'll learn something, or change my views on a topic.
The guardian's headline is definitely mildly inflammatory, but it's a headline, and it's true. This particularly subsidiary had an income of €200bn, and very little expenditure. That's the textbook definition of profit, although it's definitely creative accounting!
So by your argument, we definitely can not trust nearly any other news organisation, because they have shareholders and are operating for profit? How about your conflict of interest? Do you own stock? If yes, by your own argument you have a financial conflict of interest and can't be trusted.
Being in a union, and your employer not being able to replace you with people outside of the union as a result of left-wing laws that are predicated on an extremely left-wing ideological conception of the world, creates a far more extreme conflict of interest in my opinion.
We don't need to take a centrist position between shareholders operating in a free market to earn a profit, by providing consumers with goods/services they want at competitive prices, and unions extracting economic rent through restrictive anti-free market laws that limit other people's right to free association. One position is inherently fairer and less likely to lead to corrupting conflicting interests.
The corrupt bolsheviks where I live would ratchet it up to 95% in a few years. As would everyone else's government.
The Big tech firms benefit from all of the above, but are not contributing anything back. The system is broken and needs to be fixed, so let's not pretend there is no problem.
This doesn't work, however, because with very high planned inflation no one wants to use your currency, and without taxation there's no reason they have to.
That's generally not true - it's not the case in the US (https://mises.org/wire/use-us-dollars-mandatory-united-state...) or the EU (https://ec.europa.eu/info/business-economy-euro/euro-area/eu...).
It is impractical in most places of course, but only because there isn't much demand for it, so it's hard to get bank accounts, contracts or purchases denominated in foreign currencies. Companies and individuals are free to do so, but they don't because using the predominant local currency is useful and convenient for everybody (usually).
The places where using foreign tender is illegal or tightly controlled are generally places where they have huge problems with inflation of their primary currency, like Venezuela.
Venezuela is an illustrative example of the original point here: in practice, if you make your official currency very inconvenient/impractical/expensive, people _absolutely_ will switch to an alternative. Even though paying for things in dollars in Venezuela is illegal and awkward, everybody goes through convoluted mechanisms to do so anyway because the official alternative is worse.
OT side note: if anyone from HN team is reading this it would be great if the upvote from the parent poster to a comment would be signified visually in some way (like green usernames for 2 week old accounts).
As a simple example, consider owning a house vs. renting. If you own the house, the actual number doesn't matter. If you're renting, the ratio between rent and salary is highly critical for your lifestyle.
How many 70s government housing project apartments or leaky rural shacks do you think you'd need to combine to get one working set of appliances and utilities that every section 8 apartment and double wide trailer has these days? (I'd put that number at 3-5). That was the floor then. That floor is mostly the subfloor now.
As things get better our standards get higher. Progress is good but you will never "solve" poverty, destitution, or any other bad thing that is defined relative to the rest of the population.
A loose monetary policy (a la NMT or Keynes) also needs taxation in order to destroy currency. Currency works in a loop. Governments/issuers make USD and pay for stuff (UBI, etc). The currency must complete its life cycle by returning home. It's circulation that makes currency currency.
Without taxation, we'd have currency collapse, not inflation. Printing money without sufficient taxation, we have what we're seeing currently: asset value inflation.
Also, I think we're beginning to understand that "general inflation" isn't really a thing. The price of investable assets isn't connected to the price of consumable goods. Wealth disparities are a big part of this. In theory, if Jeff Bezos and such tried to spend their earnings... we'd have inflation. But when personal income and CG is measured in billions, it's basically impossible to actually consume as much as you earn.
I don't agree with this. The "truly wealthy" don't have any magic recipes that are better long-term than just MSCI World ETF or similar
> As a simple example, consider owning a house vs. renting. If you own the house, the actual number doesn't matter. If you're renting, the ratio between rent and salary is highly critical for your lifestyle.
If there is inflation you don't feel it as a renter either, because your salary and the rent both increase in lockstep (and in many countries, rent increases once in contract are tied to inflation)
where? definitely not in china or india. not in france, the UK or germany either
Realistically we need a private debt jubilee - inflation is just one way to get there.
You just buy assets, like stocks, gold, property, etc.
/justkidding
Companies will just continue to flee to whatever country is now offering 0%. Christmas Island has a new 0% corporate tax policy? Let's go buy a mailbox there and move our "headquarters".
The old-school thinking is that low corporate tax policies encourage business, creating jobs in the process and boosting that country's economy. In the real world it's a shell company with zero employees that pays that country zero in taxes.
This push for a global minimum tax is interesting, and obviously scares the hell out of a lot of conservatives and others who want nothing to do with "global" anything. Also, how would that even work? Countries would simply not agree to play along, no?
The only thing I can think is that this entire thing has to be flipped into some sort of "VAT"/usage situation.
So if a US company is using Microsoft Azure and pays them $1 million annually to do this, Microsoft has to pay US taxes on that $1 million. Track where the customer is based and pay tax based on that countries tax policy.
I'm clearly no tax person, so my ideas mean nothing. But I've put a lot of thought into this "race to the bottom" and it's difficult to come up with a solution.
Then it's a consumption tax (aka sales tax), which we already have and is generally regressive.
And whichever country that happens to be at the moment gains nothing other than a shell company with zero employees.
Some ideas seemed a bit unlikely, but overall great refreshing read in my opinion.
Once they have set up a UK subsidiary then they will need to pay a corporation tax based on their total UK sales - UK costs. Sales are sales to the UK; any sales made to other countries, then no tax needed as those countries might (and probably should) have their own tax schemes. Costs would be employee costs, payments made to other UK companies such as an advertising agency or truck leasing and any other taxes they have to pay like rates or VAT.
Import more (including IP) and you pay more tax unless you also increase your UK costs.
The sanctions can also be used against the shareholders and executives of the companies taking advantage of these situations.
And use some protectionist measures to help grow national industry - see Baidu, Yandex, etc.
You require them to play along, you sanction them if they don't, and you penalize anybody locally who does any business with the companies who are 'based' there.
The EU maintains a current list of "non-cooperative tax jurisdictions", and applies these kind of rules today: https://en.wikipedia.org/wiki/European_Union_tax_haven_black....
If the global tax changes being discussed come to fruition, I'd expect that list to extend and the penalities involve to tighten up a whole lot further.
Basically you could just penalize and persecute companies that funnel their profits to small tax-haven countries with little or no employees but excessive profits and hence, are considered avoiding taxes. The general gist of it is that since there is no penalty they lose nothing currently except small reputational damage. It's definitely a solvable problem but one needs a consensus to enforce it across the borders.
Does a corporation want to sell their products and services in country X? Very well, they must agree to the following regulation. The country X reserves an option to, at any point in time, buy up any subsidiaries or parts of the corporation, for value based on generally accepted accounting principles (GAAP). For example, if the accounting profit of Microsoft Germany is $0 over the past decade, the country has an option to purchase Microsoft Germany for its fair GAAP price - $0. After doing this, the country also has an option to reverse the trades the subsidiary has done. So, if Microsoft Germany sold its IP to Microsoft Ireland for the total value of $100, the country X can buy it back for $100. Repeat with Microsoft US, Microsoft UK, etc. The shareholders will be left with their extremely valuable (according to GAAP) Microsoft Ireland and Microsoft Singapore.
Any sufficiently large country with sufficiently motivated government can pull this off. No revolutionary overhaul of the existing tax system is necessary. The regulation is clear and fair. But again, it's never gonna happen.
https://www.propublica.org/article/the-irs-decided-to-get-to...
The ProPublica reporting apparently inspired the Judge to get things moving again.
https://thehill.com/policy/technology/479417-microsoft-order...
Truly sickening.
FY18/19 - under $10bn profit
FY19/20 - $314.7bn profit (3/4 of Ireland's GDP) and paid no tax on it.
> The subsidiary, which collects licence fees for use of copyrighted Microsoft software around the world, recorded an annual profit of $314.7bn in the year to the end of June 2020, according to accounts filed at the Irish Companies Registration Office. Its profits jumped from just under $10bn the previous year and compare with Ireland’s 2020 GDP of €357bn ($437bn).
> Tax transparency campaigners described the “tax aggression displayed by Microsoft, and facilitated by Ireland” as “beyond belief”.
Meanwhile, individuals are paying 20–50% income tax.
What a wonderful world.
It cost money to "train" engineers , better use taxpayer money to train those damn "human ressource" rather than those 300Billions of Profit.
Also I think it's pretty disingenuous to assume that MS wants to see computer courses taught in school to drive down the cost of labor.
Call it what you will, add up the local taxes and registration fees and and and people may as well be in Europe instead of the States...
People making a quarter million a year whinging about income taxes is offensive by its own right, but it becomes even more so when they arbitrarily double the amount actually paid to try to prove from technolibertarian talking point nonsense.
It seems disingenuous to not consider it a part of the taxes paid based on your income (though it certainly sounds better to say that we only pay, say, 25%, instead of 40%).
I’m not against paying taxes at all, my comment was about MS (in that case) making over 300bn and paying 0.00$ of taxes while individuals make 10–100k and pay significantly more taxes than MS Ireland did on their 300bn. I don’t think that’s fair. Furthermore, individuals are unable to make business deductions that MS and other companies can (and spend pretax dollars to buy things while the rest of us spends after tax dollars)
My post was to point out that corporations are massively advantaged in comparison with actual, alive human beings.
So, what's another good explanation as to why software heavy businesses want more software engineers? It seems to me that it's to increase supply to lower costs. If the claim is that they can't capture enough, they can raise comp even more to capture people who don't work in their businesses, train them on the job by reestablishing employer/employee loyalty, etc. Plenty of options there that aren't being pursued, the most obvious explanation as to why is because those options are costly.
Such businesses have been trying to lower expensive technical labor costs for decades now, trying all sorts of strategies (non-compete hire agreements, outsourcing/offshore teams, pushing more towards capturing recent grads with lower expectations, FLSA overtime exemptions for computer professions, reducing employment mobility by increasing hiring barriers, institutionally and indirect built in ageism, ...). I tend not to give 'the boy who cried wolf' too many chances, and that ship has long sailed.
In Europe they've bribed most of the school systems so computing is basically just Word and Excel.
SWEs are some of the largest cost for any tech company, why do you feel it is disingenuous? It's a company, makes profits, if they drive down labour costs their profits increase, as any company naturally will tend to (even more larger public ones). Driving down cost of labour is basically all the motivation towards automation since time immemorial, SWEs can't be automated yet, the best course of action is to pump more SWEs to drive the labour cost down.
Not sure what else you think that would compel Microsoft to do that, interested to hear.
- if it’s not to drive the cost down, why else increase supply? It’s a sellers market at the moment and the big five hate it because it means they must pay engineers more because they have to, gasp, compete (for talent in that case)
You can verify in the link below: 330K federal taxes, 106K state, 30K FICA (employee contribution) and 30K FICA (employer contribution)
That adds up to 496K / $1M in taxes on income, or effective rate of 49.6%. If you're married, however, that drops to ~45% effective.
https://smartasset.com/taxes/income-taxes#qwJ9noj3c1
And what this is saying is that Ireland’s GDP will double in 2020?
See: https://www.documentcloud.org/documents/20794038-microsoft-r... for the actual directors report.
TRW, in this case, is a cascading infinity of corporate law, tax law, accounting practices, jurisdictions, lobbyists, parliaments and special interests. None of these exist in economist's models, unless they're modeling public choice theory or somesuch.
Capital gains is just as gameable as corporate income, in practice... and more politically explosive.
IMO, if there is an actual interest in taxing wealth, just tax wealth. Assume 5%-8% return on wealth, and tax total wealth on this basis.
Both succeed/fail in the same way, marking to market. Apple Inc, the publicly traded entity, is able to deny its income for tax purposes (they say they paid this money to an irish subsidiary), while claiming it on behalf of their shareholders. The CGT version of this is unrealised gains.
If you want to understand why we ended up here you need to get at the root of the issue. Exemptions, tax breaks, and writeoffs. Once those were created there will be an accountant that will max/min that thing. You may think 'oh flat tax'. The problem is unless everyone does flat tax no one can. This is due to putting yourself at an economic disadvantage in relation to other countries. An interesting prisoners' dilemma if you will.
They not only return money to government via their mega cash warchest (which is made up of T-bills) but they also have more productive ways to employ those dollars compared to governments.
Also even if they were to pocket them, at least they are far away, whereas the corruption of governments causes your hated neighbor or the asshole mayor to pocket government cash .