Since this became such a public debate issue in Europe, I've actually more or less landed on the idea that maybe corporate taxes (taxing profits) are a lost battle. The only way to really combat it is for different countries to collude and perhaps sanction tax havens. Even then, I doubt they will be able to raise much tax.
Modern tax systems are diverse by design: sales tax/VAT. Excise/sin taxes, income taxes, CGT, employer taxes, etc. The mix is designed to reduce volatility. It's also designed to max out tax revenue while avoid damaging the economy by discouraging things like labour, savings, or other important activities too much. The effective maximum revenue for a country to collect in taxes appears to be somewhere in the 35%-45% of GDP range. After that diminishing returns on taxes kick in. Most euro countries are taxing (or rather spending) near that max. So, they can't afford to let corporate taxes.
Problem is that corporate tax is unavoidably problematic. Large multinationals can arrange their activities (not just their paperwork) depending on taxes. I doubt an single country want to create a tax the ensures large companies avoid setting up local subsidiaries within their borders. The end result is a different set of rules for the large and/or sophisticated that is more lenient than the rules on small companies.
Personally, I would rather see corporate tax abolished than see it applied in such a way that it discriminates against small companies.
> The only way to really combat it is for different
> countries to collude and perhaps sanction tax havens.
> Even then, I doubt they will be able to raise much tax.
I wonder if the US (and probably only the US has the clout, but perhaps US + EU) that any company doing business there has to show they had paid corporate tax on all profit worldwide of up to 20%. Doesn't matter who they paid it to, but if they paid any less than that, they owe the remainder to the IRS, as a cost of doing business in the US. Could that work?
> The only way to really combat it is for different countries to collude and perhaps sanction tax havens.
Sounds like textbook prisoner's dilemma -- if they betray each-other then they both lose, but there's still a chance that they could betray their opponent without being betrayed themselves.
It seems to me that international law is riddled with subtleties where the general rule is "cheat effectively" rather than "don't cheat."
Well, maybe it is time to admit that "the market" and its players are not a homogenous mass and as Colin Crouch (of Post-Democracy fame) puts it (paraphrasing):
there is the market and acting outside of it and mostly by different rules there are the multinational big enterprises/corporations.
Why should NOT different tax rules apply them?
Is this an idea easily translated into laws? Probably not. Doable for sure.
Btw, please do not "combine" those Mega-Corps with small companies... they are not the same and will not be in the future; it only helps to drive certain unrealistic fears benefiting those lobbying and looking FOR the loop holes around the world.
Wealth is meant for people. All of a company's wealth is ultimately destined for somebody's pocket. Why can't we just tax it when it gets there, and abolish corporate taxes?
Naturally I'd assume in that case that dividends would be taxed at the same rate as earned income, and that both would have to rise somewhat at the higher brackets to cover the lost income. But given that is the case, I honestly don't see any downside. Can anyone help?
Naturally I'd assume in that case that dividends would be taxed at the same rate as earned income
What you want is an "integrated" tax system like Canada has, where individuals receive "dividend tax credits" which are approximately equal to the taxes paid by the corporation.
All of a company's wealth is ultimately destined for somebody's pocket. Why can't we just tax it when it gets there, and abolish corporate taxes?
Compounding investment returns. If I loan you $1000 at 5% interest, I have to report $50/year of interest income on my tax return. Since I pay approximately 40% income tax (federal + provincial), I have an after-tax return of 3% compounding annually. If you abolish corporate income taxes, then I could have my company loan you the $1000 and receive the interest; it would then compound at 5% per year, and I would only pay income tax when the money is paid out to me as a dividend. In effect, you would be turning corporations into tax shelters.
Now, this isn't absolutely insurmountable; in fact, Canada already has different tax rates for "active business income" vs. investment income, and theoretically you could have a 0% rate on "active business income" and a 40% corporate tax rate on investment income (which would then create non-taxable dividends when finally paid out to individuals). But you'd still have the complication that "retain profits" produces a different taxation result than "pay out profits as dividends, then raise more funding a few years later".
In theory that is true. But in practise a broader tax base, on income consumption and companies has some advantages. If we moved all taxes to income then the incentives for avoidance and evasion would become much higher. Companies can also not pay out for long periods eg Apple so there is a time aspect, and taxing shareholders when profits were made might not be popular.
Historically taxes were mostly about ease of collection. Putting everything on income would raise the big question of whether wealth not income taxes are fairer.
Right now the big win is massive simplification not changes in tax base.
That depends on how you account for it reaching someone's pocket. With the current rules someone on a salary will pay tax the moment they earn the money. Someone that owns a company will instead pay himself a small salary and keep the cash inside the company earning interest before tax. But if you were really willing to reform the way corporate/personal taxes are done you could potentially fix that too.
I would assume you would also like to tax foreign investors. Corporate taxes allow for this thus lowering your and every other US citizens taxes. Which is why there a 'good idea' and not just a meaningless exercise.
Because much of what the government does it solely for corporations. Take the agency US AID. They are not a charity. I had lunch with a high level official and asked him what he did and he said mostly it was to help drum up business abroad for US corporations. They should pay for this service. I could go on about the DoD...
> Suggesting that any leakage of tax revenues flowing from the complex corporate structures of digital groups is merely coincidental, the Digital Economy Group says: "Enterprises that employ digital communications models do not organise their business operations differently as a legal or tax matter."
Hell of a coincidence, mate. They're incorporated in Ireland purely by accident, they would never threaten to leave at the slightest mention of "corporate tax increase", and what they really wanted to do all along was to move to the Scandinavian countries. They should all band together and get a stand-up comedy act going.
Society has decided that companies should pay a corporate tax rates of 20% (UK), 35% (US), etc on profits.
Finally governments have noticed that these companies are shuffling money around (between countries normally) and are not paying anywhere close to those rates.
It's very sad that these companies do have a slim chance of fighting this kind of reform. Ideally they should just pull their heads in and concentrate on building wealth under a new slightly more sensible tax regime.
A slim chance? More than likely, unfortunately, they have an exceptional chance of fighting this kind of reform. I don't get a particular sentiment of anti-corporate perspective from either major party in either the US or UK.
As Google is currently paying almost no taxes, I'm curious that how and how much is Google spending its money to support stuff now supported by the federal government?
For instance, how much is Google paying to people living on federal welfare money, and as the current job markets are what they are, would they have to decide between starving and stealing to survive, or could they still survive with Google handouts?
Military spending is a huge portion of the federal budget. While it is ludicrous how much money is being burned in it, what kind of shape would be military be with the money Google & co are currently spending to support it?
Medicare and Medicaid also are big items in the federal budget. How much is Google spending to offer health care to people who cannot for whatever reason, e.g. disability, cannot pay for it?
Google is here in the UK, but why? Well there is the educated workforce to hire, there is a stable business environment, there is infrastructure that works most of the time etc. Now they could go and set up somewhere there really is no tax to be paid, Somalia maybe, but how long would those "global business geniuses" last there? Not long. What would happen to a Google Bus in downtown Mogadishu?
Google and companies like it can only exist in the benign environment created by strong-ish national governments. Pretending otherwise is just foolish.
Awesome. I am very interested to read your round-estimate list of what items to cut from the Federal and state budgets (only the state where you live or have an active interest, just for brevity's sake). If you would, please provide either a dollar or percentage amount.
Bonus points if you can get to 10 items per entity that comprise at least 20% of either entity's budget.
(To reply to my own snark: "Just cut taxes" sounds great until you realize that SSI, Medicare, and the military are far and away our largest expenditures in at the federal level of the United States. In Texas, health care and education together account for 54% of the state budget. What to cut, indeed.)
Maybe I've seen too much big money fraud, but sometimes the combined weight of a very wealthy and powerful federal government is all we have separating the mostly civil society we have now to one where we are constantly being bilked by what amounts to mobsters.
I'll give you an example. The urine screening industry. Many players in that industry set up labs and then proceeded to give doctors, hospitals and clinics kickbacks for approving 'enhanced' urine tests for thousands of dollars rather than the dozens of dollars they used to cost.
The other players (insurance companies, honest competitors, the government) are slow to realize what's happening. Within a few years these unscrupulous companies have amassed a massive war chest.
Whistle blowers appear. They are sued into submission. Competitors complain. They are sued into submission. Insurance companies start to sue. They are sued in return. State level politicians are brought in as investors or otherwise paid so they can ride the gravy train. This gives insurance companies pause. In the mean time the owners and officers of these companies are still bilking all of us to the tune of hundreds of millions, maybe even billions of dollars.
Only the combined weight of the federal government with essentially all the time and money in the world, which has just now amassed enough evidence to go after some of the worst offenders, pose a threat to these people. Anything else is a mere nuisance.
Sometimes it is very, very good to have a counterweight to the power that can be bought.
Really? You don't want a democratic system dictating the spending on public and shared goods? Or you just don't believe in public and shared resources? Sounds like you want some kind of fascism maybe?
> In the UK many leading retail groups have called for reform, highlighting what they see as unfair tax advantages afforded to multinationals such as Amazon by outdated tax treaties.
Currently Amazon pay very little corporation tax in many of the countries they operate in which gives them an unfair tax advange against local competition. This allows them to set lower prices and trade more efficently..
In Amazon's case it would seem like closing some tax loop holes to get them to pay their share would help level the playing field and potentially increase competition between Amazon and regional stores. This can only be a good thing.
The one worry though would be how changing the tax system would affect smaller tech companies. Companies which serve multiple countries with low staff could be caught out by increased tax or just technical / accounting costs if you suddenly need to track and file taxes for every country you have customers in.
Just waiting for the founding of "Techlandia" where a big corporation (or several) form their own country and abolish all tax laws. Maybe they buy up some land, maybe they sponsor a country in trouble and take it over. As their own country they would make all the rules. All their employees live in Techlandia and pay no income tax. No more annual filings. No more tax audits. No more whiny politicians coming with their hands out. All infrastructure costs: roads, power, water, sewage and possibly even housing are borne by the corporations for their employees (who live there). They have their own national bank and keep ALL of their profits. Workers retire with huge cash hoards and live wherever the hell they please, like kings.
netcan|12 years ago
Modern tax systems are diverse by design: sales tax/VAT. Excise/sin taxes, income taxes, CGT, employer taxes, etc. The mix is designed to reduce volatility. It's also designed to max out tax revenue while avoid damaging the economy by discouraging things like labour, savings, or other important activities too much. The effective maximum revenue for a country to collect in taxes appears to be somewhere in the 35%-45% of GDP range. After that diminishing returns on taxes kick in. Most euro countries are taxing (or rather spending) near that max. So, they can't afford to let corporate taxes.
Problem is that corporate tax is unavoidably problematic. Large multinationals can arrange their activities (not just their paperwork) depending on taxes. I doubt an single country want to create a tax the ensures large companies avoid setting up local subsidiaries within their borders. The end result is a different set of rules for the large and/or sophisticated that is more lenient than the rules on small companies.
Personally, I would rather see corporate tax abolished than see it applied in such a way that it discriminates against small companies.
peteretep|12 years ago
ihsw|12 years ago
Sounds like textbook prisoner's dilemma -- if they betray each-other then they both lose, but there's still a chance that they could betray their opponent without being betrayed themselves.
It seems to me that international law is riddled with subtleties where the general rule is "cheat effectively" rather than "don't cheat."
vinceguidry|12 years ago
It's really hard to properly tax corporations because they have the resources and the motivation to really fight back. But we shouldn't stop trying.
pointernil|12 years ago
there is the market and acting outside of it and mostly by different rules there are the multinational big enterprises/corporations.
Why should NOT different tax rules apply them?
Is this an idea easily translated into laws? Probably not. Doable for sure.
Btw, please do not "combine" those Mega-Corps with small companies... they are not the same and will not be in the future; it only helps to drive certain unrealistic fears benefiting those lobbying and looking FOR the loop holes around the world.
benpbenp|12 years ago
Naturally I'd assume in that case that dividends would be taxed at the same rate as earned income, and that both would have to rise somewhat at the higher brackets to cover the lost income. But given that is the case, I honestly don't see any downside. Can anyone help?
cperciva|12 years ago
What you want is an "integrated" tax system like Canada has, where individuals receive "dividend tax credits" which are approximately equal to the taxes paid by the corporation.
All of a company's wealth is ultimately destined for somebody's pocket. Why can't we just tax it when it gets there, and abolish corporate taxes?
Compounding investment returns. If I loan you $1000 at 5% interest, I have to report $50/year of interest income on my tax return. Since I pay approximately 40% income tax (federal + provincial), I have an after-tax return of 3% compounding annually. If you abolish corporate income taxes, then I could have my company loan you the $1000 and receive the interest; it would then compound at 5% per year, and I would only pay income tax when the money is paid out to me as a dividend. In effect, you would be turning corporations into tax shelters.
Now, this isn't absolutely insurmountable; in fact, Canada already has different tax rates for "active business income" vs. investment income, and theoretically you could have a 0% rate on "active business income" and a 40% corporate tax rate on investment income (which would then create non-taxable dividends when finally paid out to individuals). But you'd still have the complication that "retain profits" produces a different taxation result than "pay out profits as dividends, then raise more funding a few years later".
justincormack|12 years ago
Historically taxes were mostly about ease of collection. Putting everything on income would raise the big question of whether wealth not income taxes are fairer.
Right now the big win is massive simplification not changes in tax base.
pedrocr|12 years ago
Retric|12 years ago
don_draper|12 years ago
mercurial|12 years ago
Hell of a coincidence, mate. They're incorporated in Ireland purely by accident, they would never threaten to leave at the slightest mention of "corporate tax increase", and what they really wanted to do all along was to move to the Scandinavian countries. They should all band together and get a stand-up comedy act going.
adaml_623|12 years ago
Finally governments have noticed that these companies are shuffling money around (between countries normally) and are not paying anywhere close to those rates.
It's very sad that these companies do have a slim chance of fighting this kind of reform. Ideally they should just pull their heads in and concentrate on building wealth under a new slightly more sensible tax regime.
FireBeyond|12 years ago
Claudus|12 years ago
I believe that society benefits far more from a company like Google having and spending the money than any federal government.
wmt|12 years ago
As Google is currently paying almost no taxes, I'm curious that how and how much is Google spending its money to support stuff now supported by the federal government?
For instance, how much is Google paying to people living on federal welfare money, and as the current job markets are what they are, would they have to decide between starving and stealing to survive, or could they still survive with Google handouts?
Military spending is a huge portion of the federal budget. While it is ludicrous how much money is being burned in it, what kind of shape would be military be with the money Google & co are currently spending to support it?
Medicare and Medicaid also are big items in the federal budget. How much is Google spending to offer health care to people who cannot for whatever reason, e.g. disability, cannot pay for it?
gaius|12 years ago
Google and companies like it can only exist in the benign environment created by strong-ish national governments. Pretending otherwise is just foolish.
techsupporter|12 years ago
Bonus points if you can get to 10 items per entity that comprise at least 20% of either entity's budget.
(To reply to my own snark: "Just cut taxes" sounds great until you realize that SSI, Medicare, and the military are far and away our largest expenditures in at the federal level of the United States. In Texas, health care and education together account for 54% of the state budget. What to cut, indeed.)
justincormack|12 years ago
clavalle|12 years ago
Maybe I've seen too much big money fraud, but sometimes the combined weight of a very wealthy and powerful federal government is all we have separating the mostly civil society we have now to one where we are constantly being bilked by what amounts to mobsters.
I'll give you an example. The urine screening industry. Many players in that industry set up labs and then proceeded to give doctors, hospitals and clinics kickbacks for approving 'enhanced' urine tests for thousands of dollars rather than the dozens of dollars they used to cost.
The other players (insurance companies, honest competitors, the government) are slow to realize what's happening. Within a few years these unscrupulous companies have amassed a massive war chest.
Whistle blowers appear. They are sued into submission. Competitors complain. They are sued into submission. Insurance companies start to sue. They are sued in return. State level politicians are brought in as investors or otherwise paid so they can ride the gravy train. This gives insurance companies pause. In the mean time the owners and officers of these companies are still bilking all of us to the tune of hundreds of millions, maybe even billions of dollars.
Only the combined weight of the federal government with essentially all the time and money in the world, which has just now amassed enough evidence to go after some of the worst offenders, pose a threat to these people. Anything else is a mere nuisance.
Sometimes it is very, very good to have a counterweight to the power that can be bought.
mempko|12 years ago
SilkRoadie|12 years ago
Currently Amazon pay very little corporation tax in many of the countries they operate in which gives them an unfair tax advange against local competition. This allows them to set lower prices and trade more efficently..
In Amazon's case it would seem like closing some tax loop holes to get them to pay their share would help level the playing field and potentially increase competition between Amazon and regional stores. This can only be a good thing.
The one worry though would be how changing the tax system would affect smaller tech companies. Companies which serve multiple countries with low staff could be caught out by increased tax or just technical / accounting costs if you suddenly need to track and file taxes for every country you have customers in.
doctorwho|12 years ago
unknown|12 years ago
[deleted]
dmk23|12 years ago
nodata|12 years ago
From the way I understand it, this is a way to get large companies to pay the same amount of tax as smaller companies.
Eye_of_Mordor|12 years ago