Why would Google not pay as little tax as possible?
eu.techcrunch.com
eu.techcrunch.com
Theoretically, they could. But in the current economic situation they would more likely be spent on cash infusions or EU transfer payments to keep the Irish economy from collapsing. So, in the end, it doesn't make that much of a difference.
Being Irish myself, I have very mixed feelings about the country's corporate tax policy. It looked terribly smart a few years ago, but so did a lot of other fiscal and economic policies that seem pretty foolish in hindsight. The low-tax regime has come at the expense of higher and higher rates of personal income tax coupled with crippling unemployment.
It's funny, driving around Western Ireland, say Dingle, there are immaculate roads with EU flags on the signposts, then the money runs out and it's abruptly back to the crumbling ashphalt there was before (which is normal considering how sparsely populated and lightly traficked the area is... It just doesn't make economic sense to plough a lot of money into the roads there).
http://en.wikipedia.org/wiki/Nash_equilibrium
> In game theory, Nash equilibrium (named after John Forbes Nash, who proposed it) is a solution concept of a game involving two or more players, in which each player is assumed to know the equilibrium strategies of the other players, and no player has anything to gain by changing only his or her own strategy unilaterally.
It's fascinating stuff. Nash equilibriums are regarded as "stable" - no one will change what they do. Things tend to trend towards Nash Equilibriums and settle there until there's new technology.
Government legislation, including higher taxes, frequently breaks equilibrium. The new best solution for large players might be to divert earnings or leave the area they were doing business. Frequently, this results in the legislators getting angry and legislating more solutions.
One that immediately springs to mind is North Carolina and Amazon. North Carolina legislators were annoyed that Amazon customers in NC didn't pay sales tax because Amazon didn't have a presence there. They passed a law that made it so Amazon having affiliates there would count as them having a business presence, so Amazon would have to start charging their NC customers sales tax and remitting it to the NC government.
Amazon responded by canceling NC affiliates. This was the start of that email:
> We regret to inform you that the North Carolina state legislature (the General Assembly) appears ready to enact an unconstitutional tax collection scheme that would leave Amazon.com little choice but to end its relationships with North Carolina-based Associates. You are receiving this e-mail because our records indicate that you are an Amazon Associate and resident of North Carolina.
Now, that obviously wasn't an NC legislator's intention. But it turned out to be the new stable best solution for Amazon. They must've done some math and decided that not charging sales tax in NC is important than letting affiliates with a NC address continue to participate in earning referral fees.
Too often legislators think people will accept their legislation and things will go according to their planned scenario. They don't stop and think, "How does this change people's incentives? What nasty secondary effects could come from this?" When the nasty secondary effects come, they either try to shame the organization in line (which doesn't usually work), or they pass even harsher legislation. You can see where this leads - it's not pleasant. Disrupt Nash equilibriums if you must, but do it with your eyes open that there could be some really nasty secondary effects to the process.
I think by ignoring this and focusing solely on the legislators, you are exposing your biases.
That's the point right there - doing that would create more secondary effects. Let's say England says that if you have employees there, and make large profits, you have to pay high taxes.
The reason I focus on legislators is because they tend to be ignorant of secondary effects. Let's say they want Google to pay more taxes and want "close the loophole" as you say - how do they do that? There's law, they can't just write a letter to Google demanding taxes. So what will the law read? "The Fair Tax Burden in Cyberspace Act of 2010" - how would that theoretically read?
Well, maybe the first draft says that if you have staff in England over a certain amount, you have to claim corporate taxes there.
Well, maybe Google does the math, and decides it's not worth - and and lays off or transfers its English staff.
So a legislator gets furious, and writes the, "Anti-Cyber Laundering Protection Act of 2011", which mandates that if a website collects revenue from a country, it has to pay taxes, or the website is banned.
Do you see how this goes downhill really fast? Legislators don't consider that the actions they take won't always produce the results they want, and almost always have secondary consequences. Maybe this is much ado about nothing, but we could get another one of those scenarios here.
I will admit a bias though - I think Google does a better job providing for humanity and the people of England than the English government. And I say that despite the fact that I think the English government is one of the more sane and better run governments in the world - Google just does an absolutely incredibly job, they've produced far more amazing stuff in a shorter period of time than just about any government organization.
So yes, I have a bit of a bias in favor of great companies keeping their revenues instead of giving them over to bureaucracies, but that's not even the crux of this here. The crux is that by legislating, you create secondary effects, many of which are not positive, and the world would be better if legislators paid attention to that and thought things through more clearly.
Let's say a legislator writes a tax law, Google use a loophole to pay very little tax and enter the market, so the legislators amend the law to close the loophole, and Google leave the market.
Now, the way you tell the story, it's the legislators' fault for the secondary effect of amending the law causing Google to leave.
But equally, you could take the view that Google should have never entered the market relying on a tax loophole which was never supposed to be there in the first place that lawmakers were unaware of. This is especially so if legislators have external pressures since they are losing tax income from other businesses through this loophole, and that it's unfair on those businesses who aren't using it. It was Google who changed any equilibrium by using the loophole.
You can espouse the benefits of low taxation and the evils of legislators and bureaucracies and the laws of unintended consequences therein, but I don't see how game theory works in your favour in that argument.
For what it's worth, personally. I think taxation is a careful balance between maximising revenue and encouraging business and work, but this is increasingly difficult to balance with the existence of free trade agreements and the existence a global market. But whatever you think about tax policy, we should be able to agree that tax loopholes have no place in that equation, and that tax policy shouldn't be implemented via the backdoor with the benefits only available to large corporations with sufficiently clever accountants.
N.B. England doesn't have a government - it's the UK Government.
If lawmakers are ignorant of the laws they make, is that Google's fault? You'd think politicians would have by now realised that laws often have unintended consequences.
its pointing out the fact that the party in question, which is the government closing a loophole in this case, is actively and intentionally breaking the equilibrium, therefore bringing on the consequences (or benefits).
the example was intentionally worded as it was to show how one party won't always take other parties under consideration. a successful, deliberative decision under nash equilibrium is much more boring and not a very entertaining example.
> Now, the way you tell the story, it's the legislators' fault for the secondary effect of amending the law causing Google to leave.
I try not to make moral judgments when pointing out consequences - I wouldn't call it "fault", so much as simply saying it happens. I find words like fault/blame, fair/unfair, good/bad, good/evil, and so on cloud a discussion. I'm more interested in finding out what's going to happen in a given scenario first, and then once we have all the data, then come to a decision. So I wouldn't say it's a legislator's "fault", I would simply say it's an unintended consequence of their actions.
> But equally, you could take the view that Google should have never entered the market relying on a tax loophole which was never supposed to be there in the first place that lawmakers were unaware of.
Whoa, whoa, whoa - reread and think that through. You want private citizens and organizations to guess what the laws are supposed to read like and act accordingly? You want them to guess what lawmakers were aware of in the laws they wrote? Wow.
> It was Google who changed any equilibrium by using the loophole.
What if they had no operations in Europe? They certainly don't need operations on the ground in Europe. So if they had no ops and no business presence, there's no basis for taxation. What next? Block them at the ISP level China-style unless they pay taxes? And so on.
> You can espouse the benefits of low taxation and the evils of legislators and bureaucracies and the laws of unintended consequences therein, but I don't see how game theory works in your favour in that argument.
I'm a huge devotee to the "Never ascribe to malice what can be explained by incompetence" school of thought. I don't think legislators and bureaucracies are evil, trying to drive business out of their countries and hurt people. No, I think they're well-meaning but clumsy.
As for game theory, it handles situations of competition and cooperation - it covers government/business interactions decently. John Forbes Nash actually won the Nobel Prize for economics by using these ideas in market economics. So I'm both not slinging mud at governments using game theory, yet noting that game theory is very applicable for slinging mud at governments if you so choose ;)
> I think taxation is a careful balance between maximising revenue and encouraging business and work, but this is increasingly difficult to balance with the existence of free trade agreements and the existence a global market. But whatever you think about tax policy, we should be able to agree that tax loopholes have no place in that equation, and that tax policy shouldn't be implemented via the backdoor with the benefits only available to large corporations with sufficiently clever accountants.
I completely disagree. I think it's awesome that governments are being forced to compete with each other for citizens and industry. I think a lot of old world government assumptions are going to fall apart when governments are forced to compete, and we're going to be left with a much better world. But now we're totally straying from game theory and getting into governance.
> N.B. England doesn't have a government - it's the UK Government.
Cheers for that - Clumsy American that I am, I slightly tweaked a few Englishmen by calling them "British" instead of "English" when I spent time in London, so I probably go a little too far in calling everything "English" now just to be on the safe side. For anyone that knows, what's the appropriate adjective for the UK government? British government? Or would you just say UK government every time? Cheers for pointing that out, and thanks for the discussion.
This is commonly referred to as the "spirit" of the law and would seem to me to be an integral part of "Common Law" systems where the "spirit" may often be clarified by the building up of case law. http://en.wikipedia.org/wiki/Letter_and_spirit_of_the_law
If you can pay $1 million in income tax in a single year, I figure you're doing fucking amazing out of life and it's where any entrepreneur should want to be in life.
Weirdly the answer is always "make those who contribute the most contribute more" and not "make some of the rest pull their weight".
If my company paid me, they are poorer by $1.
If the government paid me, the aggregate citizenry is poorer by $1.
If the government printed it, the total value of US dollars in circulation has decreased by $1.
Technically, activities like mining precious metals or gems could count as creating wealth, but obviously basing an economy on an arbitrarily-priced material as silver or gold is a bad idea. Anybody who believes gold isn't a fiat currency is mad.
The most successful way that governments seem to have found to tax the wealthy is inflation, which is a "tax" on liquid currency. But there's ways for the wealthy to avoid inflation which aren't available to the working class, such as buying various foreign currencies. A direct tax, rather than "stealth" taxes, is a healthier and more sustainable choice.
Gold is not wealth. It is only because it can be exchanged for a good or service that can be consumed that it has any value.
And where is it written that the "working class" aren't allowed to buy foreign currencies? Given that I'll be flying out of the US tomorrow on holiday I was hoping I'd be able to buy some foreign currencies at the airport...
Yes. But presumably when you earned that dollar you somehow contributed to making something that somebody wants. Now that thing is slightly more common, so it should be slightly easier to obtain than it was. Thus you've given a tiny little bit of value to everybody who participates in the same economy that you do. When millions of people do this we get modern civilization.
Is your solution to move the rich from being rich to being poor? The rich should stay rich. You don't punish the rich to bring the rest of society up.
My opinion is that no matter what you call the oligarchy of corporate wealth and public influence that runs the United States, you can't call it fair. The playing field is tilted toward those with power to tilt the playing field. People are profiting from the unfairness in the playing field.
So the moral thing to do is to tilt it back. You don't have to nationalize Nabisco or send millionaires to debtor's prison to improve the situation. But you can tax them disproportionately compared to the poor, and use the money on social programs.
Put another way, above the line of FU money, the marginal value of the millionaire's last dollar is lower. It takes more of their dollars to make a proportionate impact on their income, compared to the impact of the payroll, property, and income taxes on the middle-class salary.
As for social programs, if you give a man enough money to live for a day, he's not going to work for a day. Welfare encourages people to do absolutely nothing.
The rich and their multi-national corporations, evading taxes and lobbying for sweetheart deals from the government, are doing a lot of damage to the American lower class and middle class. I don't have to look far to rip examples from the headlines. The health and drug systems are messed up. The corporate welfare for Wall Street is messed up. Education is messed up. In all cases the poor are disadvantaged to the benefit of the wealthy. They are literally paying taxes for the excesses of powerful corporations and lobbies.
Maybe I used the wrong term, but I consider education a social program. We spend far too little on it. We were hemming and hawing about funding HeadStart not too long ago. We underpay our teachers and then lower our taxes and call it a balanced budget.
There are social programs that are important beyond welfare, so just ignore that one if it is distracting you from the main point.
http://taxprof.typepad.com/taxprof_blog/2007/06/warren-buffe...
I am in pretty good company with this argument I think. We should have a more progressive tax system. There is a lot of room to make it more progressive without damaging incentives to become rich.
There are so many incentives to become rich that it's laughable to say that you could destroy them all through a carefully calculated welfare program.
Ignoring the bit about "fair", that's true, but you don't understand what it means, especially as it relates to "fair".
> So the moral thing to do is to tilt it back.
If it was possible to tilt it back, it wouldn't be tilted. (Reread the first paragraph quoted.)
If you insist on giving govt power, that power will favor those who are the best equipped at tilting govt power to their benefit.
You can't keep them from tilting things in their direction - you can only affect whether there's anything to tilt in their direction.
If you're satisfied with crumbs, keep shoveling power at govt, but stop complaining that others are getting a full meal. If you want to stop them from getting a full meal, you've got to get govt out of the food biz. Yes, you'll lose your crumbs, so you get to make a choice.
Here is a fun bit of trivia.
Q: What was the top personal income tax during the largest expansion of the US middle class on record?
A: It ranged from 92-93%.
That's right. During the post-war boom of the 1950s, the marginal tax rate on income over $1 million/year (in 1950s currency) varied from 92-93%. Oh, and massive increases since the 70s in the numbers of wealthy people, and degree of their wealth have coincided with a long-term decline in the earning power of the middle class.
Of course cause and effect is never provable in cases like this so you can't prove anything from this example, but it certainly doesn't fit with trickle down theory.
But since there is more money to be made telling the rich what they want to hear than what they don't, inconvenient facts like these never get reported in the political debate...
You've heard of three-martini lunches, right? You know that they existed because the cheapest way to drink was to make it a business expense (paid for with pretax dollars) instead of a personal expense (after-tax dollars). At a 92% tax rate, it's 11X as expensive to drink personally as to drink professionally--so the tax policy you laud had the wondrous result of making a decent fraction of American executives half-drunk by noon.
How could this be a win over high taxes? Simple. You would donate an asset that had appreciated for the full value of the asset, which was less than the purchase price. As long as you had a supply of rapidly appreciating assets, your effective tax rate was much lower.
The most popular kind of asset to donate for this purpose was art. The most popular place to donate it was to foundations run by the rich families in question. And appreciation was easy to guarantee when everyone else was following the same strategy.
So the idea is buy 5 Monets for $1 million. A couple of years later donate a million to the family run foundation, the foundation uses that million and buys one Monet from you. You then donate 4 more Monets at the new found valuation of $1 million each. For $2 million in expenses you have now canceled out $5 million in income.
The most lasting legacies of this tax loophole are insanely high art prices and public museums full of extremely expensive art.
Actually, the US federal income tax rate is far more "progressive" than that. If you're at/below median income, you're probably not paying any federal income tax. (You are paying social security, but you get that money back with a decent return. The rich don't.)
Problems arising from taxation shouldn't be solved by complicating the taxation process, they should be resolved after taxation. If you take 10% of everyone's wages then the top 20% will be paying 80% of the nations income tax. Distribution to people below the poverty line can be implemented (as in most countries it is) after taxation.
I get one vote, I should be getting one tax, just like everyone else.
IIRC there was an article from Warren Buffet in which he ponders why he pays less tax than his secretary, even though he earns far more than her.
That doesn't imply that they aren't taxed. (In the US, dividends come out of a company's post-tax profits, so they've already been taxed. Plus, there's an off-again/on-again tax on dividends paid by the recipients.)
> IIRC there was an article from Warren Buffet in which he ponders why he pays less tax than his secretary, even though he earns far more than her.
Buffet doesn't "pay less tax than his secretary". He pays taxes at a lower rate on some of his income than she pays on her wages.
Buffet is fond of advocating taxes on other people, using himself as an example even though he'll never pay the tax in question. For example, he pushes the estate tax, never mentioning that his estate is set up so it won't pay a dime. He just happens to own companies that make a lot of money off of people who will owe estate taxes.
Even if that weren't true, using Buffet as an example is a bad idea. He has the money to get around almost every tax law. Laws supposedly aimed at him end up hitting other people.
It's also dishonest - politicians talk about going after the "super rich", but they end up passing laws that hit folks a couple of rungs down. This is understandable, there's more total money a couple of rungs down and those folks don't have the political pull to do anything about it, but ....
Note that the super-rich get to decide where they'll be taxed. Buffet can take his income elsewhere. If he does, his US secretary loses her job.
Weirdly, he has not done so.
That doesn't mean they should pay 80% though - in a world where people and capital can move, the price you can charge people and businesses to be in your country is subject to market pressure. And assuming proper pricing, markets are the best way to efficiently allocate scare resources.
In other words, the top 20% aren't benefiting at the sacrifice of any one else... they are creating new wealth. And, it's frankly none anyone else's concern, in general, how much wealth they choose to create for themselves.
Consider if you would, yourself living on your own remote property. Suppose you have an excellent system of agriculture and infrastructure that you engineered yourself... which is immensely productive. Now suppose another individual migrates to that location and you then create rules b/w you and said person to respect each other's property. All the sudden, are you benefiting from your new society's system of rules and his agreement not to harm to you? No; you are benefitting from you own ingenuity and labor, as you were before he arrived. You are profiting from your own freedom and the use of your own mind, as you did before.
In this context you can call it rent. However extend that to an entire country with a ruling class, and you may rename it taxation. When democracy emerges and the ruling class becomes the people, then we are back where we started.
While I disagree any implication that the sole basis of taxation should be an assessment of "how much have you used"; I agree that this should be a part of it. If Google benefits from publicly funded UK/Irish IT infrastructure, then it is fair to tax them for the benefit recieved.
Let's say you make an agreement that this neighbor that you'll give him food throughout the year in exchange for him repairing your infrastructure at the end of the harvest. If he takes the food but then doesn't help you when you need it, what do you do? You either have to fight him or cease dealing with him and absorb the loss. Either way you're worse off.
Lets say your skill is canning and preserving food. Bartering with food producers is easy since you fill a mutual need with each other, but bartering with blacksmiths, bankers, and people that provide other services is much harder. You have to trade your services to people that value it less, or spend a lot more of your time to make arrangements. Any of which could be reneged on (see previous paragraph).
Hence government monopoly on force, contract law, and currency. Three things we've had for so long that we forget they're there. Three (of many) intangible things that you gain increasing benefit from the wealthier you are.
Warren Buffet, Bill Gates, or Michael Bloomberg would not have become billionaires living in the 1500s, nor if they were born in Zimbabwe (well, I guess they could have been trillionaires in Zimbabwe but you know what I mean).
After all, when the top 20% are taking over 80% of the money
10% of the population controls 85% of the wealth.
1% of the population controls 40% of the wealth.
More here: http://taxprof.typepad.com/taxprof_blog/2007/10/top-1-pay-mo... "The new data shows that the top-earning 25% of taxpayers (AGI over $62,068) earned 67.5% of the nation's income, but they paid more than four out of every five dollars collected by the federal income tax (86%). The top 1% of taxpayers (AGI over $364,657) earned approximately 21.2% of the nation's income (as defined by AGI), yet paid 39.4% of all federal income taxes. That means the top 1% of tax returns paid about the same amount of federal individual income taxes as the bottom 95% of tax returns."
The EU does have something that might be described as international tax law, but it's really EU tax law, where the EU is something very similar to a federalist nation.