I'd be curious to hear someone who knows more accounting's view on this.
I've always thought that the answer was to have wealth taxes, easier to avoid but surely what we should actually aim for.
Oh, I totally think this is where we should be going, too! Income seems like such a weird thing to tax; the wealthiest people don't necessarily have income, and high earners aren't necessarily that wealthy. In terms of "tax the rich", I think wealth taxes are more along the lines of what people envision.
It would simplify things so much, too; you don't have to worry about capital gains vs. ordinary income, or gifts, or the so-called "death tax". Businesses don't need to withhold taxes.
It seems like a simple, low, flat wealth tax, over a certain cut-off, would be best. If would counteract the march to aristocracy and dynastic families, unless the children are similarly able to provide value with their assets. Otherwise their wealth will dwindle over time and others will have a shot.
I think the two negatives I can think of are: 1) dealing with liquidity - you might be "worth" millions, but does that mean you can afford your tax bill? and 2) off-shore havens storing the wealth. But neither seem insurmountable.
I'd love to see any discussions of pros-and-cons of this approach to taxation. I know Islam proscribes a wealth tax, Zakat, but I'm not sure how it works in practice.
Wealth is not a zero sum game, it's the opposite. Wealth creates more wealth for the society around us.
Number 1 in particular creates a huge intervention in the details of an economy. Any government would want to fine tune this, and not create a tax aimed mostly on revenue collection. In particular, you do not want to go out of your way to bankrupt people when they make productive investments.
You can already avoid paying any corporation tax by taking money out of a company as salary.
In the UK you have dividend tax credit so effectively when you take a dividend you get the tax back that has already been paid (as corporation tax).
So both those reasonable ways of extracting money from a company allow you to not pay any additional tax above what income tax would be.
However if there was no corporation tax then the loophole / incentive would be to move money out of the jurisdiction and extract the dividends in a zero tax country.
This is effectively what the big multinationals do via transfer pricing etc but not having any corporation tax would no doubt make it a lot easier for more companies to do that.
Yea, that needs to stop. This idea of being "taxed twice" is ridiculous because companies are not people. If they were then yes they would be taxed twice and it would be "unfair" but then they'd also be taxed at the proper rate.
So for instance instead of the 25%ish that you would expect to pay in tax on your income you pay 7.5% on your dividends which is more or less the income tax rate minus the corporation tax already paid.
You could then extend the existing international double taxation agreements to cover these dividends. So, for example, if a dividend is paid to a Dutch taxpayer, it is not taxed at source, but as income. You might want to retain the current UK arrangement in this situation, though, so as to keep some of that tax revenue in the UK. You wouldn't extend these arrangements to tax havens.
Manoeuvres like the Double Irish or whatever would still get around this, and would still need to be attacked in the way they are (or at least should be) now.
You would need to extend the spirit of this rule to share repurchases, which might be tricky.
Not any more, that got shelved a few years back AFAICT.
- Corporate taxes reduce the competitiveness of a jurisdiction and create a market for tax havens like the Caymans which add no value.
- Companies' tax avoidance schemes are massively complex and create an incentive to hide earnings and obscure profits, making this information less transparent to markets.
- A company's share price should reflect company performance only, not the performance of the company's accountants in the realm of tax minimization.
- Offshore tax avoidance schemes reduce government revenues. Google avoids taxes by running such a scheme. Why shouldn't Google pay the same fair share as a tiny startup that lacks the budget to set up such a scheme? Why should governments lose out on the revenues?
- By simply taxing the money when it is income or capital gains, governments can get the proper amount of revenue. Suppose Google evaded $10B in taxes via its offshore scheme. This $10B would instead have been collected from shareholders and employees via capital gains and income taxes.
Why don't we switch to a system of zero corporate tax? The firms like Google that have invested heavily to set up an offshore tax avoidance system are quite happy with the result. They get to be insulated from smaller competitors who do not have the budget to set up their own scheme.
Larger firms like WalMart are cash cow businesses that are not doing enough R&D to offset the profits. Investors in WalMart are OK with this and the shares are priced accordingly. If WalMart paid no corporate tax, the dividends would be higher and the revenue could be captured by capital gains tax and income tax.