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Comment by bpodgursky | Hacker News Reader

In 100 years we're going to look back and realize what a waste of time and effort corporate income taxes are. And what amount of time was wasted trying to levy and avoid them.

In the end, you can recover the same money by taxing dividends and income accordingly, and it's far more difficult to hide those (a person's residency is less ambiguous than a corporation; and while you can try to play games, with proper enforcement you will end up in jail for doing it).

Of course any politician will get castigated for suggesting removing the tax entirely, but that's just politics and not sound economic policy.

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The problem is that you remove corporation tax and next thing you know, everybody has a personal "corporation" owning all his belonging, totally untaxed. Something most people do already, btw, because corporation taxes are usually much lower than income ones.

> a person's residency is less ambiguous than a corporation

Lol, the opposite is actually true. A corporation is required to have a legal address, without which it simply doesn't exist; a person can have "no fixed abode" and still exist just fine. In fact, a favourite tax-dodging trick is to be officially registered as living on a boat, or not spending more than a certain amount of time in any country.

> with proper enforcement you will end up in jail for doing it

That's very unlikely, when you directly or indirectly influence most people making the rules... which you always do, if you're rich, regardless of age or country.

> The problem is that you remove corporation tax and next thing you know, everybody has a personal "corporation" owning all his belonging, totally untaxed.

Property tax is independent of corporate income tax. Moreover, putting income-generating assets in the hands of a corporation to avoid personal income tax is what happens today (the corporation is just incorporated overseas), so no change there.

> Lol, the opposite is actually true. A corporation is required to have a legal address, without which it simply doesn't exist

He's using the wrong word. It isn't that a corporation's address is ambiguous, it's that it's arbitrary. You can incorporate your business in whichever jurisdiction has the most favorable taxes. You can't file your personal taxes there unless you actually live and have citizenship there.

> In fact, a favourite tax-dodging trick is to be officially registered as living on a boat, or not spending more than a certain amount of time in any country.

Which is clearly illegal unless you actually do. And I don't think that works in the US since US personal income tax is collected from everyone with US citizenship regardless of residency.

> Property tax is independent of corporate income tax.

Politically, it's very much not, at least not anymore. As we said, property is now a concept almost entirely linked to companies, on the scale we're talking about. Very few people directly own the personal corporate jets they fly around in (this is just an example, please don't nitpick -- you can replace it with pretty much any item of significant value you can think of, with very few exceptions).

> You can incorporate your business in whichever jurisdiction has the most favorable taxes. You can't file your personal taxes there unless you actually live and have citizenship there.

That's unfortunately not the case. The UK has non-dom arrangements for non-citizens spending significant time there; most countries will have something similar -- the only exception being the US, which can sort-of strong-arm its own citizens because of its exceptional power and reach. In most cases, the global elite can shop around for their preferred residency, Montecarlo being the pioneer in this sort of market.

> [living on a boat] is clearly illegal unless you actually do.

Unless you're famous enough that authorities can easily clock the time you spend here or there, determining where you live X days per year in this day and age is extremely difficult.

This is why a lot of famous people move to Montecarlo then have to eventually switch back: unlike your average industrialist, they're very easy to keep track of, being a small elite with entire industries dedicated to tracking their movements and publicise them. Why did they think of moving to Montecarlo in the first place? Because that's perfectly normal among the "regularly rich".

> And I don't think that works in the US

Yes, the US is an exception. Most other countries accomodate this exception in their legal code, because their interest is to attract wealthy US citizens to their shores. You cannot extend this norm to all countries, nor would it be likely to survive the day the US stopped to be the dominant superpower it currently is.

- Corporate jets are not the kind of property that is taxed in most places (are there any jurisdictions that tax this kind of property?!) -- in all cases I know of, property tax is applied to real estate, and I suspect is mostly borne by individuals.

- Shopping for preferred residency is not what this is about -- if you actually live in Monte Carlo, it only stands to reason that you would be paying taxes in Monte Carlo.

- This exact time clocking actually happens everywhere all the time (e.g. take Florida residency as an example, or US tax residency for that matter)

Switzerland has "property" (wealth) tax over all assets (movable or not).

> As we said, property is now a concept almost entirely linked to companies, on the scale we're talking about.

And property tax still has nothing to do with corporate income tax, so I don't know what you're talking about.

> Unless you're famous enough that authorities can easily clock the time you spend here or there, determining where you live X days per year in this day and age is extremely difficult.

Not difficult, just expensive. But this is not rocket science: Probably someone who makes more than $100,000 annually and claims to live on a boat, doesn't. So make the fine higher than the cost of the surveillance and go bust all the liars and make back your costs.

Er, "most people" certainly don't do that; and incorporating comes at a tax penalty (corporate profits that are distributed to shareholders are taxed again) -- the primary reason people are doing it is limited liability. And people can and do end up in jail for not paying taxes.

> In the end, you can recover the same money by taxing dividends and income accordingly, and it's far more difficult to hide those

Don't forget VAT. People think of VAT as a consumption tax and corporate income tax as an income tax, but they're essentially the same thing because one entity's consumption is the next one's income. The primary difference between them is what happens at the jurisdictional border and that difference is why VAT is collectable and corporate income tax isn't.

There is no guarantee that you can collect tax through dividend and income. Companies don't have to pay dividends (Buffet's Berkshire doesn't pay dividends but is wildly profitable), and there is no way for a country to tax capital gains from a foreign stock holder.

What difference does it make if a German investor contributes capital to a U.S. business and as a result makes money that doesn't get taxed by the U.S.? (And could be taxed by Germany.)

The U.S. government could perfectly well fund itself by taxing only the income of its residents, who are the ones benefiting from its sovereignty. You could argue that foreign investors are benefiting as well, but only in a way (capital investment) that also directly benefits U.S. businesses and investors, which in turn will pay more salary, dividend, and capital gains taxes.

The US does tax that kind of income (generally). Look up "withholding tax". It's something like 15% or 20%. As a Canadian I have to be aware of this when investing in US-domiciled stocks. (But in the end tax-treaties means that investments held in special accounts like RRSPs get around the withholding tax. Not sure if Germany has such a treaty though.)

"What difference does it make if a German investor contributes capital to a U.S. business and as a result makes money that doesn't get taxed by the U.S.? (And could be taxed by Germany.)"

That business is still benefiting quite a bit from being in the US. They're employing workers that were educated by the US education system, they're sending goods and services on roads built and maintained in the US, and they're benefiting from police, fire, and emergency medical services provided in the US. Quit pretending that a company is an island.

"The U.S. government could perfectly well fund itself by taxing only the income of its residents, who are the ones benefiting from its sovereignty."

As I just pointed out, that's not true. The German investor is benefiting quite a bit from the services the US is providing to the business they're investing in.

"but only in a way (capital investment) that also directly benefits U.S. businesses and investors, which in turn will pay more salary, dividend, and capital gains taxes."

Not if all investors suddenly are overseas.

It's also unfair to smaller local businesses who cant use the same loopholes and are automatically disadvantaged against their larger competitors.

That, I agree. Progressive taxation is an intractable problem because on one side you want to make the rich pay more, and on the other you don't want to discourage growth or the black economy; but it's a problem that has to be addressed. It's simply not true that Apple and a mom&pop store are the same "concept" under the rule of law, you need arbitrary thresholds to distinguish them, and it's a very imperfect art.

I kind of agree, but with all sorts of hesitation. I agree that corporate tax is nearly impossible to police fairly or sanely and that this suggests something is broke deeper down.

OTOH, I don't think you achieve the same result with taxing dividends. First, I assume you mean capital gains or any income from investment. Just like corporation tax, this is full of loopholes, avoidance strategies and illegal but undetected non-payment. The latter moreso.

The crux of the matter is that when you have a greater control over ownership structures and the like, you can work around whatever definitions tax law puts in place.

I suspect that a clean fix of corporate tax, if it can be found at all, will be find in fundamentals of corporate law like the definition of a corporation and its rights. When it comes down to it, the legal entities that make up Google and incur (or don't) tax liabilities are pretty different from the entity in reality. All the transactions, fees and such between those "companies" are a lie.

Just move your assets to a country with banking secrecy and you won't have to pay taxes on dividends/only pay very low taxes of that country. You still don't even have to leave the EU for that (Luxembourg, Austria). When that hole is closed just move your money to the channel islands or some other tax havens under the British crown.

I kinda agree, although perhaps there might be valid policy reasons to have corporate tax as an instrument in the toolbox -- e.g. encouraging R&D or promoting energy saving investments?

>> In the end, you can recover the same money by taxing dividends and income accordingly

In different countries, which totally destroys this idea.

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