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Comment by smsm42 | Hacker News Reader

Rest of the population doesn't engage in these ways because it's not worth it for them - they do not pay enough taxes to warrant it. Some people, however, pay lots of taxes - so much that it may make sense for them to spend money and go to great length to somewhat reduce their tax bills. They most probably still pay much more tax than average person - just not as much as they could be paying if they didn't use these ways. And there's nothing wrong with that. You could send extra money to your state anytime too, and you probably don't - so why should they?

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> it's not worth it for them - they do not pay enough taxes to warrant it

Not only do they pay a larger portion of their fortune, that money makes a much bigger difference to them (us, why do I say them?) in our everyday lives.

> They most probably still pay much more tax than average person

They probably pay much less than what they should. They benefit from from an organized state much more than the average person.

This is so true, otherwise businesses would be flocking to set up in low regulation, low tax countries like Somalia.

Larger businesses disproportionately benefit from law-and-order and infrastructure.

I don't think it is true. Large corp can afford their own security force and infrastructure (and if you study the history of colonial corporate conquests, that's exactly what they have been doing). Small business or average consumer can afford none of this. Big corp can build their own protected bubble amid a desolated and decaying country, but if you are outside the bubble, you are in trouble.

A villa in the jungle is not what I was talking about. Large corporations benefit from their customers being safe and secure, and from infrastructure to distribute their products. And the companies involved in "colonial corporate conquests" were huge, royally chartered monopolies, directly supported by their countries, and usually acting as their official representative; there was a symbiotic relationship between the monopoly and the state, quite the opposite from an independent existence.

Large, successful corporations virtually always get started only in well-run states, while fruit stands are set up everywhere.

>> Large corporations benefit from their customers being safe and secure

Same way as the small ones do. Maybe even more so - you can find a market for luxury cars even in most brutal dictatorships (in fact, many brutal dictators are known for their love of luxury goods, and so are their henchmen as soon as they are wealthy enough) but trying to establish a small business with stable clientele might be quite hard.

>> there was a symbiotic relationship between the monopoly and the state, quite the opposite from an independent existence.

If you look at the relationship between big banks or insurance companies or resource companies, and governments, "symbiotic relationship" is not a bad description of what is still happening. What is good for GM is still good for the country, and the country spending billions to fix the screwups of GM management is a living proof of it.

>> while fruit stands are set up everywhere.

Fruit stands - yes. Startups - not so much.

> you can find a market for luxury cars even in most brutal dictatorships

But you're unlikely to create a luxury car company in an unstable country.

> trying to establish a small business with stable clientele might be quite hard.

There are plenty of small businesses with stable clientele in Bangladesh, Haiti, Yemen, and pretty much every country in the world.

> "symbiotic relationship" is not a bad description of what is still happening.

I'm not saying it isn't. But you still can't have a large company in an unstable country, while you can easily have a fruit stand there. It is the large businesses that benefit disproportionately from the state.

> Startups - not so much.

Right, you probably need a stable country for startups, too. But most countries don't tax startups much anyway.

> But most countries don't tax startups much anyway.

Because they reasonably think that letting them grow a bit is more profitable.

"you can find a market for luxury cars even in most brutal dictatorships"

But can you find a factory for them?

This is not a smart example, since it assumes Somalia has no difference with developed countries except for low taxes. I'm sure if you try hard enough, you could find a better example of low tax countries and compare their business development with high tax countries. If, of course, your purpose is gain better understanding of the matter and not to try sounding witty for cheap without actually having any substance behind it.

As for actual Somalia tax rates, they are kind of hard to find, but we can go other way. Somalia's GDP [1] is estimated around $1 billion, while their state budget is around $200 mln. [2]. Which means in the country the government is about 20% of the economy. Which is pretty close to US figures, surprisingly. More over, if you look up in [2], you will find:

High tax burden with corruption and extortions exacerbates poverty and prevents economic recovery.

So would I believe you saying Somali has low taxes and low regulation, or Somalians who complain about high taxes and oppressive government? Who knows best? Please help me choose.

[1] https://en.wikipedia.org/wiki/Economy_of_Somalia

[2] http://hiiraan.com/op4/2014/aug/56172/somalia_fiscal_budget_...

It's not worth it because the cost of obtaining the expertise to do it is higher than the taxes.

> They most probably still pay much more tax than average person - just not as much as they could be paying if they didn't use these ways.

It's about relative value vs absolute value. If you use 30% of your wages toward taxes but the next person use 12% of his to pay the same absolute amount, there is an issue that needs to be addressed.

In my experience, 30% would be extremely high and not at all common - if you look at full rate and not marginal rate. E.g. I am not 1%, but relatively well-paid employee, and my full federal tax rate has been around 13-15% (marginal, of course, quite higher). If I went to some lengths, I probably could shave off a percent or so off it, but that would require me to stash some money into places where they are not readily accessible, such as IRA or alike instruments. This is just not worth it for me. If I got much more money, to the point that I do not need any of the money for consumption and in fact can not consume them - e.g. if I were a billionaire - I would certainly use these and many other instruments, it would be stupid not to do so. But right now it is just not worth the trouble.

It's only legal because of corruption in the government.

I'm not sure what you mean by "corruption of the government", but it is legal because your money belongs to you, not government, and you have full right to do with it whatever you please, including investing them in ways that generate less tax income from the government. Banning that would require implicit assumption that your money do belong to the government and you are restricted in using them only in ways that benefit the said government. That would be corruption to me.

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