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Why should American corporations pay both foreign and US corporate tax on income made overseas?

They don't. They pay the highest rate in either jurisdiction, so either the US or the foreign rate. In the US, they get a tax credit for the amount of taxes paid to a foreign tax authority so that they are never double-taxed on their corporate income. Note that every country in the world of significant economic size taxes corporate income.

Dividends are taxed twice, as corporate profits and again when received by the shareholders as dividends, but they should be. Dividend taxes are the price shareholders pay for getting limited liability and all sorts of government protections and incentives.

>Dividend taxes are the price shareholders pay for getting limited liability and all sorts of government protections and incentives.

We provide for limited liability because we think it is beneficial to society in encouraging investment and risk-taking; it is not a sacrifice or expense we expect compensation for.

It's both/and, there are costs associated both with the laws around llcs and providing the need to play the of liability holder of last resort in certain circumstances.

I agree with everything you said except the double taxation of dividends.

Australia has probably the best system in the world for dividends. We use a franking credit to offset the tax paid by the corporation so effectively we have no double taxation of dividends.

I've never seen the point to any double taxation and I applaud any government willing to help citizens and business work around double taxation.

Foreign cooroate income is triple taxed, foreign income taxes, then us repatraition taxes, the state income taxes. Then on what’s left sgarehokders pay dividend and state taxes.

That’s sextuple taxed.

Most of what you said isn't true.

Foreign subsidiary gets taxed by, say, Australia at 25%. It pays dividend to US parent, 0% withholding tax. But the US parent gets an "indirect foreign tax credit" for the taxes its subsidiary pays. (The IFTC is only available to corporations, not individuals, partnerships, or non-corporate LLCs.) It's complicated, but the IFTC can include prior-year foreign taxes paid by Australia Sub, and correspondingly the total IFTC sent up to US Parent is proportional to the total amount of foreign earnings remaining in Australia being dividended up. If that's 100%, then USParent gets a full credit of 25% for the Aussie tax paid by the subsidiary. Note that the US Parent will also pay state taxes on the dividend, and will thus get a SALT deduction for those taxes (but not a credit, so not a dollar-for-dollar reduction).

The dividend, paid out to US shareholders, is subject to reduced rates, so it's actually taxes less than normal income. Exact rate depends on your bracket. Recipients will get taxed by their home states as well, but will also get a state tax deduction (at least through 2017...2018 onward depends on the GOP tax bill).

The effective rate of tax on foreign earnings from foreign subsidiary to ultimate shareholder thus becomes roughly 50% or less...cheaper than in every other economically relevant nation (meaning 1st and 2nd world countries) after all taxes and credits and deductions are taken into account. The US has the highest "statutory" tax rates but the lowest effective tax rates in the first world for business income.

>...The US has the highest "statutory" tax rates but the lowest effective tax rates in the first world for business income.

Lots of people claim this, but it doesn't appear to be true:

>...The U.S. effective corporate tax rate consistently ranks among the five highest of nations considered. The only nation with a higher ETR in each study is Japan, which not by coincidence is the only developed nation with a higher statutory rate than the U.S. Other major nations found to possess a higher ETR than the U.S. in at least one study include France, Italy, and Germany, but no clear patterns emerge; the U.S. outranks this sample more often than not. Significantly, both Italy and Germany have enacted rate cuts since many of these studies were conducted.

https://files.taxfoundation.org/legacy/docs/sr195.pdf

All these credits are misdirection, they don’t change anything. foreign profits go through 5 layers of taxes and you yourself admit takes at least 50% in taxes. Even for a poor retiree holding Apple stock.

Apple pays 8% income tax to foreign governments. The credit means it still has to pay US taxes on the 92% that’s left. It would be CRAZY to tax money already lost to taxes.

Returning foreign profits would have worked out this way before repatriation.

Apple pays 8% to foreign governments and repatriates 92% that’s left.

Apple pays 9% to state of california. 84% is left.

Apple pays 35% to Federal government, 55% is left.

Apple pays the 55% as dividends to shareholders.

CA middle class taxpayer pays 9% to state of CA. 50% is left.

CA middle class taxpayer pays 20% federal dividend rate, 40% is left.

You understand now why Apple didn’t repatriate?

Taxing investment at 60% is an egregious rate, and it’s bad for society. The best tax rate for investing for society is zero, to encourage investing.

Change the corporate rate to zero, and compensate by taxing dividends at ordinary income rates. Besides encouraging more investment (and raising the same or more tax over time) you restore progressivity to our tax system.

Dividends, especially qualified dividends are taxed way below regular income though, to reflect this.

As I understand it, if the cash is repatriated, the income is taxed at US corporate tax rates minus what they've already paid to a foreign government. So essentially they would be paying an amount equivalent to the US corporate tax. Framing it as "foreign and US corporate tax" is misleading.

There was a day, not long ago, where paying taxes was a societal duty. We all benefit from the governments programs and thus need to fund the government. There shouldn’t be this huge pressure to find a way to not pay for taxes at an ethical and functional level.

You might not (probably don’t) agree with everything government does, but government still needs to be funded. Many local governments would really benefit from paid taxes, fwiw.

There isn’t any period when higher than necessary tax rates were willingly paid. Tax policy that assumes any tax rate is fully collectible is responsible for the tax preparation and structuring industry.

The societal duty to perform sacrifices in order to receive benefits from a higher power is indeed an ancient idea, though.

There was a day, not long ago, where state and federal spending was less than 15% of GDP. Now it’s over 25%.

We also benefit from investment. So why are we taxing it at such high rates? The real corporate tax rate should be zero to encourage investing in the US. You could raise as much tax revenues by taxing dividends and capital gains at ordinary income rates. Which also would make our tax system more progressive.

It’s misleading because it’s far worse than what you describe.

First they pay income tax to the foreign government.

Then out of what’s left the pay state corporate income tax.

Then out of what’s left they pay federal income tax, or the special repatriation tax.

Then the dividend what’s left to shareholders who pay state income taxes on it.

Then out of what’s left they pay federal dividend taxes.

A little old retiree in California is lucky if they don’t lose 60% of their share of their Apple profits to taxes.

Remember that the point of these exercises, for the company, is not to avoid double taxation, but to avoid even so much as single taxation, by ensuring that the only country in which they legally make profit is one which won't tax them for turning a profit. The actual sales which eventually (after many twists and turns of international finance) resulted in those profits may have happened anywhere, and it's meant to be difficult to untangle exactly where (since if you could easily do that you could tax it).

A better solution, of course, would be a tax on the value of goods sold, at the location where the sale occurs, since it's hard to argue that an Apple Store in the US whose customer was standing in front of the register was somehow actually in a Caribbean tax haven.

Except that Apple pays massive amounts of taxes, more than any company in the history of the world.

I shudder to imagine how much you think they should pay.

Some cursory Googling indicates that the last few years Apple has managed to keep its taxes paid at a rate of between 18% and 19%.

For comparison, the Republican tax plan currently being debated in Congress is capping at 20% or 21% (depending on which day's negotiations you're looking at). And I personally am paying a rate around 36%.

I wonder what rate you think Apple and other large companies should be paying, and how much the rest of us would have to pay to give them that cut.

And when Apple’s owners make their share of that profit through capital gains and dividends, the government will take another cut.

You mean when they pay the capital-gains tax rate, which is much lower than the rate us ordinary mortals pay on our income?

The poor oppressed billionaires and even, yes, the mere multi-multi-millionaires, do not have my sympathy. I doubt you're going to change that.

Uh, this isn't about sympathy. I'm just pointing out that once you add the levels of taxation, it's about the same as the income tax rate. What looks like favorable treatment is just the government taking multiple cuts of the profits, where for wages it just takes one bigger one.

This isn’t about billionaires. A poor retiree in CA with Apple stock is losing close to 60% of their dividends to taxes:

The reason capital gains rates are lower than individual income rates is partial compensation for the effects of inflation. If inflation is 2% per year and your investment increases 20% over 10 years, you lost money but still owe taxes. During high inflationary periods this effect kills the stock market, because taxes make investing becomes a guaranteed loser.

The reason dividend rates are so low is that the money has already been taxed multiple times in its way to the shareholder. Foreign, State and Federal Corporate income taxes. Your 20% dividend rate is just the tail end of about 60% in total taxes, including state income taxes too.

"A poor retiree in CA" doesn't own AAPL. Not directly, not through a 401(k) or other vehicle. They're living off Social Security payments.

And retirement investment vehicles, smartly managed, start moving out of stocks and into less volatile securities as you reach actual retirement. So if that retiree is still in AAPL post-retirement, there are other issues going on.

Even poor retirees own stocks, and they pay huge tax rates on their dividends. You can’t deny that.

I think Apple and other corporations should pay zero in income taxes. Because taxing investment makes no sense. Let alone sextuple-taxing it like we do today.

And your googling is in accurate. Apple pays 24.6% in taxes.

Not perfectly sure about US tax system, but as far as I understand the basics are similar everywhere. Corporate tax or profit tax is paid, well, on profit and since salaries are sort of "operational expenses" are not subject to corporate taxes. Having profits corporations can effectively do two things (using many different mechanisms): pay dividends or reinvest.

As I see it, dividends are income and should be taxed as such - corporate tax plus capital gains tax should at least equal plain income tax so different means of income are not discriminated. In this light, having profits and dividends taxed separately effectively discounts taxes on reinvested profits.

Because it's the law? The problem is that especially with non-physical assets, it's easy to make them "foreign income' solely to evade taxes. With a large American company I worked with as a contractor, as part of their standard release process we would transfer the product binary to their Irish subsidiary, which they would then license the product from so that this income was "Irish" sales of their software.

It should be the law because it is the law? I don’t think that works.

And as for the Irish arrangement, I think it’s a good demonstration on why having a corporate tax at all is more trouble than it’s worth. It’s better to just get rid of it and make up the shortfall in capital gains and income taxes.