How Corporations and the Wealthy Avoid Taxes (and How to Stop Them)
nytimes.com
nytimes.com
I'm on the far right economically but really think tax law is not working, now that companies can distribute operations internationally. As such many of the benefits markets bring to the world are offset by global corporations skating the tax system and get advantages that are only due to their scale and do not add any efficiency. A country should have the ability to lower corporate rates so they attract more business. But they gain nothing if they're just attracting shell companies that simply stash money. They need business to move in that offer jobs and wealth creation.
I doubt those on the left would agree with me on the finer points, but I'm sure they want to see these companies paying their fair share. So why is this not being dealt with?
We’re really better off eliminating the corporate tax altogether. It’s a pretty small portion of tax revenue and the only reason it exists is to be a plank for politicians who want to tax the "greedy corporations." All corporate income is either paid as dividends, paid as salaries, or reinvested. When it is paid as dividends, it is taxed as capital gains. When it is paid as salaries, it is taxed as income. When it is reinvested, it is either lost, or eventually becomes income and capital gains. There is no need to have another layer of taxation that just makes a giant accounting mess and creates all sorts of ridiculous incentives to use tax shelters.
Would we be changing any important incentives by leaving untaxed that portion of corporate income responsible for foreigners’ appreciation? Otherwise, it doesn’t seem like a very significant source of revenue.
Taxation on foreign individuals is a thing done all the time with duties.
I assume because people with money do not want to pay more taxes, and people with money find lobbying has an excellent ROI.
Campaign finance reform is a prerequisite for any policy that goes against the interest of any concentrated pool of wealth.
It's talked about and being dealt with constantly!
President Bush had a repatriation holiday for lowered taxes of repatriated capital.
President Obama tried to get assets repatriated.
President Trump's tax plan has a lower corporate tax rate in order to stop the movement of capital to lower tax jurisdictions. Also, this plan attempts to close this offshoring move, for multinationals, by requiring the repatriation of assets.
There are valid reasons that so many companies decide to offshore profits to a lower tax jurisdiction from what is onerous taxation by the US.
Wage a military war against tax havens? Is that in an attempt to obtain other people's money?
I don't think you really understand the issue. Tax avoidance is, by definition, legal in the US. Tax evasion is the problem. If you don't know today who is engaging in tax evasion, how will military strikes on Ireland and Bermuda ferret those people out and make them pay? Do you have the particular law offices and bank locations mapped out on GPS to strike with tomahawks?
So in reality, the 35% tax rate is yet another moat that keeps large companies entrenched. By lowering to (say) 15%, the playing field would be drastically more equal.
The problem with this is that most international companies I've seen with funds offshore made that money offshore and ultimately, the cost of paying US taxes is unlikely to be worth the negligible benefit of being a US company. If the loopholes are closed I think it likely that companies will move. There are plenty of places with free trade and low tax.
The US should limit taxation to US-sourced income. If there's no penalty for a company to bring its revenues to the US, it will likely do so and use it to drive local investment.
1. Agency of sovereign nations. Ireland, and other countries, set low tax rates to attract businesses. That’s their prerogative.
2. Revisionist history. After a company moves to capitalize on the offered low tax rates, people start screaming, “hey, look at all the taxes being avoided because the company did exactly what the country wanted them to do!”
3. Obligation to shareholders. Corporations are not philanthropic charities. They are required, by law, to try to maximize returns. It would be illegal, for example, for Apple’s executives to charitably repatriate their money and pay taxes — they would get sued by the shareholders, and they’d lose.
4. Side-effects of complicated tax laws. Every time a politician proposes a new tax increase, other politicians scream, and they all seek a compromise. They successfully compromise by inserting loopholes into the new tax. Then, predictably, people take advantage of those loopholes.
No, they wouldn't, because contrary to popular belief, that's not actually a law. Please cite which US statute you're referring to if you'd like to refute me.
Here’s what would happen:
1. Apple would declare that they are repatriating the money.
2. The shareholders would disagree. They would sue, claiming that the company’s directors are obligated to do what’s best for the corporation. The shareholders would vote to replace the board, and the newly elected board would replace management.
The threat of #2 prevents #1.
Semi-relatedly: Why do you think religions for eons have set the tithe rate to be approx 10%? Seems like history has worked out a rate that most people are comfortable paying.
No. International conglomerates should have to follow the same rules as everyone else, and that means that we as a country determine what their fair share is, not them.
To be clear, I'm in favor of tax reform, though not the sleight-of-hand that's currently on the table. I agree with the argument that small to medium sized businesses are really the ones taking the brunt of a higher tax rate, because they can't afford or otherwise don't have the means to avail themselves of the kind of accounting tricks that multinationals do, and I'm in favor of closing those and reducing the corporate tax rate.
But its not up to the company to decide what taxes they're going to pay or not.
[1] https://www.theverge.com/2013/5/21/4351978/tim-cook-defends-...
Should only the very biggest player, to whom the overhead is inconsequential, be allowed to avoid taxes?
Most of the time there are a multiplicity of overlapping cost; Opportunity cost (you have your money safely in a tax-haven, but now to move it out for legitimate production use has another cost and associated accountant / lawyer overhead). Or simply ongoing inefficiencies - You've opened an office in Country Z because doing so allows you to save on taxes in your main area of Country A, but the truth is you have no real need for an office in Country Z - its simply an ongoing and perhaps ever growing cost subject to a whole new need for budget forecasting, currency fluctuations, etc.
I have no idea what the number is, but currency fluctuations alone could make a corporation decide to simply pay their 15% and escape headaches and split brainpower, trim staff of lawyers, consolidate offices, etc.
Now, if the corporate tax rate is 36+% well, thats a different story.
That will certainly raise the bar to which paying for those services is worth it, assuming none of them change their prices, find a loophole or scheme, or don't develop new technology to reduce their operating costs.
In fact, establishing a 10-15% tax and then getting the public to wring their hands while saying "thank god that's taken care of" is asking to continue to lose tax money to these schemes.
I really wish that we, as a nation, started thinking in terms of what good works we could accomplish with our tax dollars instead of what stupid waste we could remove by not collecting them.
/s
When proponents of “fair share” and “ethical tax planning” resist giving exact definitions of these terms, they cannot be implemented but are instead red meat talking points to toss out to fellow partisans. In his book The Millionaire Next Door, Tom Stanley characterizes American millionaires, some 80% of whom received inheritances no larger than $10k, as being good at playing defense, that is keeping unnecessary outflow down. With this mindset, tax bills are only another expense to drive down, and they’re skilled and determined at doing so.
What it comes down to is it’s always easy to spend someone else’s money. Everyone thinks he is paying his fair share of taxes, but the guy down the street is another matter.
The benefit of it is the following:
1. You aren't taxed on any of the unrealized gains the asset had when you donated it.
2. The trust receives tax free growth.
3. You are taxed on the percentage you get back using something called the four tier rules of CRUT taxation (explained further here: http://floridadomicilehandbook.com/2009/12/11/the-four-tier-...). Basically, any money you take from the interest is taxable, but the principle is not.
4. You get a tax deduction for the full amount (which can be spread over 5 years. For each year, up to 30% or 50% of your AGI can be deducted, depending on whether the original investment was long term or not)
It sounds fair, but in reality it's easily gamed. You just take out the highest percentage you are allowed each year, and invest in the safest low-earning investments possible. In this way, most of what you pull out is principle, which isn't taxed at all. Given that and the fact that you can deduct the donation from your other income, you can, in effect, pay negative taxes on it.
More info can be found here: https://en.wikipedia.org/wiki/Charitable_trust#United_States
It's a lot better than it used to be. In 1997, congress cracked down on it, (http://www.mclaughlinstern.com/docs/publications/pub_kosakow...) but it's still a mighty windfall if you're looking to store some of your wealth in safe investments.
Being able to legally avoid tax by allocating it to zero or low tax states is obviously one problem. The fact that US politics is bought and paid for by a small number of very rich interests is actually a bigger problem (since that diminishes the chance of the first problem being fixed).
But the biggest problem is the increasingly ultra-wealthy who feel no obligation to pay any tax whatsoever to contribute to maintaining the infrastructure, stability and government services that made their wealth possible. Extreme wealth simply isn't possibly in anarchy.
I favour a number of reforms here:
1. Allocates profits by sales in each country. Now this isn't as easy as it sounds as the obvious next step is to create holding companies to mark up sales (ie transfer pricing).
2. Every $1 borrowed in the US repatriates $1 of profit held overseas. This should include borrowing money overseas and repatriating it to the US.
3. Companies that are substantially present in the US should be treated the same as citizens: you report worldwide income and pay US taxes on it all with credits for any taxes paid overseas. Such things like a "substantial presence test" are common and well-travelled ground in the law.
4. Charge withholding taxes on any money being transferred to any entity in any jurisdiction that doesn't report or disclose ownership. Being able to hide ownership behind CAyman Islands corporations, Panama foundations, Panama bearer corporations, Swiss holding companies and the like is a cancer. Make the entity transferring to such an entity responsible for the withholding tax. This can be simplified by creating what's essentially a Schengen area for money. Create a zone of countries that all abide by rules on ownership disclosure and reporting that you can transfer easily between. Leaving that incurs a cost.
As the article notes, banks can and do violate their reporting responsibilities here. Fine. Just remove that country from the zone and suddenly all transactions to that country incur a withholding tax.
I personally applaud the leakers and whistleblowers who have brought much of this information to light.
> Meanwhile, an estimated $8.7 trillion, 11.5 percent of the entire world’s G.D.P., is held offshore by ultrawealthy households in a handful of tax shelters, and most of it isn’t being reported to the relevant tax authorities. This is… not so legal.
Then later after the Google example:
> In doing this, Google didn’t break the law.
Edit: s/\./?/
I personally think income taxes have proven to be a beauracratic and political nightmare with high economic overhead. I don't see a VAT being much better. And as others will mention, just switching to a general sales tax is highly regressive.
For the government and businesses, that may be true, but if taxes were sales/VAT based instead of income based, then it would remove a significant burden from individuals (since they would no longer have to file taxes every year).
> A system similar to this already governs state corporate taxes in America.
Really? I thought Delaware was still a tax haven...
Western democracies are going to get increasingly authoritarian, as voters, the majority of whom favour social democratic policies, call for increasingly harsher laws against privacy and tax avoidance, in reaction to the inevitable stories of individuals and corporations attempting to avoid the tax burden placed on them.
We've gone from a tax rate of less than 10% on the top income tax bracket, with the first income tax passed in 1799 to support Great Britain's war against France, to today, where in many countries 50% of people's income is taxed during peacetime.