Netflix Posted Biggest-Ever Profit in 2018 and Paid $0 in Income Taxes
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Anyone mad at a company for not pay taxes is misdirecting their anger. Companies follow the law. If you don't like the law elect different politicians. Don't get mad at companies that follow the law.
Your 45% number is misleading on it's own. People don't pay income tax because they had so little income to tax in the first place.
No it wouldn't. Our current regulated lobby 'industry' is an attempt to control something that would happen ANYWAY if it was made illegal. Furthermore, lobbying is necessary and a core part of any democracy. You need to be able to petition your representative government for changes, regardless if you're a regular citizen, an activist, a business owner, or even a corporate entity.
And I mean beyond just a decrease in tax rate which businesses would be expected to lobby for.
Then the question is, does it really influence laws? Well I think if it didn't, they wouldn't spend so much money.
It's also notable that you couldn't point to a specific tax law, like OP asked for. Lower taxes in general--nobody needs to lobby for that, there is a large contingent of people who favor that just on principle.
We have the same thing for judges. The conservatives have the Federalist Society. The liberals have the ACS. But for whatever reason, the Federalists have better branding, and are a perennial bogeyman. But all either organization does is keep track of judges that fit their policy goals. What's wrong with that?
It's also a matter of perception. Keeping the lobbying sums low(ish) also helps keep a lower profile. You don't want to draw too much attention to the fact that you're paying to get something done your way.
Plus, how much can you reasonably spend? In the end you're still trying to influence the same (relatively few) people, spending a considerable percentage of that "$19 trillion economy" is hard to make look legitimate.
I think this is really the crux of the issue.
If a CEO met with a politician and said "I've talked to all my CEO buddies and if you do XYZ we're all going to make substantial contributions to your campaign and PACs" that's clear-cut bribery and honest services fraud.
But if the same CEO hires a lobbyist to say the exact same thing to a politician suddenly it's "free speech" and we're expected to believe the government can't do anything to reign it in.
This is not what happens during lobbying. If you have any concrete evidence of this sort of exchange happening, please report it, since it's a blatant violation of federal law.
100 senators 435 representatives 1 President 1 Vice President
~7 million dollars per person per year
:)
During the bush tax cuts, there was also a tax holiday that allowed money to be brought back into the US at a very low tax rate. Can't imagine that 0 corporate lobbyists were involved in the process of creating these laws.
from wikipedia: "In 2004, the United States Congress enacted such a tax holiday for U.S. multinational companies in the American Jobs Creation Act of 2004 (AJCA)) section 965, allowing them to repatriate foreign profits to the United States at a 5.25% tax rate, rather than the existing 35% corporate tax rate."
Here is a HN discussion on it though: https://news.ycombinator.com/item?id=16841449
https://www.propublica.org/article/filing-taxes-could-be-fre...
This thread is about reducing tax payable. The intuit story is about making it harder for citizens to file taxes.
Edit: From this[1] Bloomberg article:
> Under pressure from industry lobbyists and exploiting a split among White House advisers, the Republican Congress in December failed to fulfill Trump’s promise to end the tax windfall enjoyed by money managers. And lawmakers seemed to stumble in trying to narrow their tax advantage, writing the new carried-interest rule in a way that provided firms an easy escape.
Closing the loophole actually has bi-partisan support... except among those who spend a lot of time with industry lobbyists.
[1] https://www.bloomberg.com/news/articles/2018-02-14/mnuchin-s...
I don't know the answer so this is just speculation and five seconds of Googling (but I am writing this regardless because I hope someone knowledgeable will see this and correct me so I actually learn something)
My first stop was https://www.investopedia.com/terms/c/corporatetax.asp
> Corporations are permitted to reduce taxable income by certain necessary and ordinary business expenditures. All current expenses required for the operation of the business are fully tax deductible. Investments and real estate purchased for the intent of generating income for the business are also deductible. A corporation can deduct employee salaries, health benefits, tuition reimbursement and bonuses. In addition, a corporation can reduce its taxable income by insurance premiums, travel expenses, bad debts, interest payments, sales taxes, fuel taxes and excise taxes. Tax preparation fees, legal services, bookkeeping and advertising costs are also used to reduce business income.
So here is my interpretation: Let us say for ease of math, I am Pupflix and I have 100 customers who pay $10 per month. I have an annual income of $100 * 10 * 12 = $12,000. Let us say I pay salary of $20 a month, so $12 * 20 = $240. I can deduct that. So my income is now $1200 - $240 = $960. Lets say my operating expenses are $10 a month. I can deduct that as well, so deduct $120 from $960, which leaves me with $840.
Now all this is relatively straight forward. From what I've learned from previous conversations, corporation tax is on profits, and not in revenue. Apparently, this is essential because some businesses are very low margin. Apparently, when all is said and done, a retail grocery store typically has under 5% profit (before any shenanigans).
However, what happens when our Pupflix pays Disney Corporation $1000 in licensing fees for the right to stream Disney content for the next ten years? Does our Pupflix deduct $1000 this year? That would be very wasteful because our income at this point is only $840.
I believe this is where Loss Carryforward comes in. https://www.investopedia.com/terms/l/losscarryforward.asp
> For example, if a company experiences negative net operating income (NOI) in year one, but positive NOI in subsequent years, it can reduce the amount of future profits it reports using a loss carryforward to report some or all of the loss from the first year in the subsequent years. This results in lower taxable income in positive NOI years, and reduces the amount the company owes the government in taxes. Imagine a company lost $5 million one year and earned $6 million the next. The loss from the first year can be carried forward and included in the current balance sheet for the second year, lowering the profits, and therefore the taxable income, for that year to $1 million.
I am not an accountant. My guess is that the accounting people will somehow run multiple possible execution paths and choose the "best" one. I think the tax field is very nuanced and just being able to classify an expense as either operating vs capital can make a difference in the amount of taxes a corporation has to pay:
https://www.investopedia.com/ask/answers/042415/what-differe...
For example, when I was a contractor my boss told me that I am a "cap ex" which is OK but for some reason he couldn't bring me on as full time because reasons. Not that this would change my work at all. I was working with the team just like any full-time employee would. I just wasn't their employee. How this makes sense, I have no idea. I doubt he lied to me. There are probably hundreds of things like this where you could argue an expense is one way or another depending on what suits a company the best at that time.
I welcome all corrections and additions to eliminate omissions and especially concrete examples that refurb asked for
My last job had a number of people in a similar situation. The reason was fairly straight forward: Higher-ups in the parent company decided how many full-time developers we would need over the next 5-10 years, and anything we needed on top of that had to be contractors because we were only filling short-term needs.
Nobody in the chain between us and them actually understood the rationale, because it was a totally arbitrary number for a plan made under assumptions that were no longer the case. Unfortunately, noone could convince them that it wasn't the case either, so we all just carried on.
My point is that hard problems rarely have simple solutions, as much as populist politicians might like to pretend otherwise. “Ban lobbyists” is a great soundbite but would introduce all sorts of negative consequences (like driving them underground and introducing more potential for corruption).
Imagine, for example, that all the fast-food workers unionized and wanted to get the minimum wage raised.
How would they do that when most live outside DC and have to work 1-2 shifts per day to keep their jobs?
They hire professionals -- lobbyists.
Unfortunately any unregulated system benefits the powerful, and we have the heavily abused lobbying system of today.
Think about it, it takes at least six months for us to learn our jobs, they have to learn about hundreds of things ongoing in the government before they can make informed decisions. You then even rely more on lobbyists (or "experts") who at least generally know what they are talking about.
Point being, I think this issue is a hell of a lot more complex than it seems.
The expertise they have is in glad-handing, personally enriching themselves, and playing political games. They're certainly not subject matter experts in anything outside that realm. Term limits don't have to mean that we're losing out on this valuable "expertise", it could be something as simple as "retire at 65", you know, like everyone else in every other industry aspires to do.
Except many of them clearly are. Bill Foster worked as a particle physicist at Fermilab for 22 years [1]. Sean Casten started and sold an energy recycling company called Recycled Energy Development [2]. Those are two examples just from suburban Chicago. Try not to let political cynicism cloud reality.
[1] https://en.wikipedia.org/wiki/Bill_Foster_(politician) [2] https://en.wikipedia.org/wiki/Sean_Casten
How many? And I think it's particularly telling that the folks you managed to find are newbies to the political arena and not career politicians, a class of individuals that can only exist thanks to the absence of term limits. Also telling is that in Foster's case, his expertise is completely useless in a political context. Let me know when he gets around to drafting a major particle physics bill.
I think it's time for you to counter by defending your thesis, that lobbyists generally don't have domain expertise, instead of demanding increasingly more evidence.
I'm not sure, I provided two examples to prove your assertion wrong. Surely, you can find more if you look.
== And I think it's particularly telling that the folks you managed to find are newbies to the political arena and not career politicians==
Can you name a career field where experience is considered a bad thing? Does your career have term limits, would people be more effective at it if they did? The free market seems to pay specialists more than generalists, due to higher perceived value.
Politics is the only place I have ever heard this argument. Foster was first elected in 2008, so he's hardly a "newbie".
==Also telling is that in Foster's case, his expertise is completely useless in a political context. Let me know when he gets around to drafting a major particle physics bill.==
Huh? The House holds the purse strings and decides funding on things like the Energy Department, which funds Fermilab, or NASA. I think he might have something to add in that arena.
If you want to outlaw lobbying by for-profit corporations, then they'll just create subsidiary lobbying organizations. The NRA is a 501(c)(4), which is also a tax exempt non-profit designation, and realistically it serves primarily as a lobbying group for gun manufacturers.
Lobbyists often are, and, whether or not they themselves are, are almost invariably supported by, domain experts.
> They are salesmen
Yeah, but they are salesmen who do the public policy equivalent of technical sales, and it's a field where selectivity is high because you are selling to a very small number of very high value customers.
"We know you don't have time to dig deep. Here is a summary of the research, and our recommendations based on it."
Edit: I also once had a fairly cynical view of lobbyists. But then some people I know went to work for lobby groups after they graduated. When I looked into the types of lobby groups they went to, they were fairly impressive. Things like advocating for homeless, advocating for people without health care, etc.
For example, H.R. 5323, Derivatives Fairness Act drafted on behalf of CitiGroup.
Career bureaucrats are the ones who run many of hundred things that run the government. Politicians need to provide direction and reflect the will of the people. Hardly need to career politicians for that. Younger representation is critical to make sure the voice of youth is being heard.
Do you think any politician understands the needs of the millennial generation ? Any long term policy like say education enacted now is going to impact the future generations more than anyone else.
In both houses, committees now screen out fewer bills assigned to them and are more likely to see their work rewritten at later stages. The practice of“hijacking” Assembly bills—gutting their contents and amending them thoroughly in the Senate—has increased sharply. As a body, the Legislature is less likely to alter theGovernor’s Budget, and its own budget process neither encourages fiscal discipline nor links legislators’ requests to overall spending goals. In addition, legislative oversight of the executive branch has declined significantly.
...legislators are learning more quickly than their precursors, but that frequent changes in the membership and leadership of legislative committees, especially in the Assembly, diminish their expertise in many important policy areas. Many committees lack the experience to weed out bad bills and to ensure that agencies are acting efficiently and in accordance with legislative intent.
That said, overall the summary finds that the effects of term limits were neither as good as proponents hoped or as bad as detractors feared.
1: "How Have Term Limits Affected the California Legislature?" https://www.ppic.org/content/pubs/rb/RB_1104BCRB.pdf
And lobbyists aren't experts either, they're simply paid to bribe people to get a result.
This implies that the EFF does not have expertise in privacy and free speech. Would you agree with that?
EFF is probably the antithesis of most lobbyists, certainly the ones being discussed here.
Moreover, it works the other way round as well. If, say, a teacher returns back to school after a term in state senate, the school will get access to invaluable wealth of knowledge of government internals.
Do you have a citation for this? Because term limits would mean that elected officials need to plan for what to do after they hit their limit. That could make them even more beholden to corporate lobbyists, who have the resources to offer termed-out lawmakers jobs or other benefits after they leave office.
One unintended consequence in my district is that we have two guys who trade seats back and forth between state senate and state house. They're totally interchangeable and neither one ever talks to their constituents (well, the ones who don't write big checks anyhow)
Yeah except they all say they can't be bought and paid for. And they probably believe it for a while. Decades in an environment where graft runs rampant will change a person though.
Don't see how idealism and fantasies of heroes is going to make our government better. How about we stop expecting mythical people to exist and come save us from the bad guys.
I think there are good people that want to serve, but they have to play the money game to survive (costs millions/billions to get elected?? What?!). Which eventually corrupts them ...
Term limits might be nice too.
The power of large lobbies is more closely related to the fact that they represent a large number of constituents who donate and vote (approximately) as a block.
With your example, Hillary Clinton would be a billionaire for doing that inane dance on Ellen.
[0] https://www.washingtonpost.com/politics/mike-pence-used-camp...
When you think there are simple answers to big problems it's generally because you don't actually understand the problem.
How would you outlaw lobbyists? Setting aside the fact that it would be unconstitutional, do you think it should be illegal for you to air your grievances to elected officials? That seems to fly directly in the face of democracy. Or should it only be that businesses aren't allowed to lobby? What about a small business that is being unfairly impacted by regulations, or being run out of business by a large company abusing a loophole in the law? Seems like them not having a voice in government would be a path to oligopoly or monopoly. If that's ok, where's the line in which business is allowed to lobby, and how do you keep a large business from simply hiring a small business to lobby on their behalf?
Yes, actually showing that political favors were exchanged for money is tricky, but still, it's better than nothing and it changes the whole discussion from "it's the system" to "who's doing something bad and hiding it?".
?
This is already illegal. It's generally termed "corruption".
You shouldn't be allowed to finance people whose decision you stand to profit from.
I guess the only "simple" way to solve this is to outlaw the private financing of politicians and their campaign. It should all be public money. Not that easy to operationalize (almost nothing of interest is), but feasible, desirable and fair I reckon.
Doing it for money - yes, that should be illegal.
God forbid we think outside the realm of what the Founding Fathers wrote down.
> fly directly in the face of democracy
Except the U.S. has long been classified as a flawed democracy.
The problems you list can "simply" be solved with a comission akin to the FTC. A small business can complain to said comission which would solve the matter.
It was a system designed to consolidate power among white landowners and to be extremely difficult to change. It's not a surprise it's got issues.
It was designed to be difficult to change because democracies always fail when the majority decides the rule of law is no longer important.
This is basic civics. It's taught, or I hope it's still taught, in grade school. It's not controversial, it's not surprising, it's fact.
0. Lobbying is a right, but one that can only be exercised by individual citizens, not corporations.
1. Anyone who wishes to "lobby" congressional candidates or congresspersons must register their financial interests
2. Make it illegal to directly accept money for lobbying services (akin to prostitution)
Sure, it wouldn't make lobbying impossible - but it would make it much harder.
So charities and environmental groups can't lobby? Lobbying for them means designating a representative. How is that any different from what corporations are doing? They just happen to have deeper pockets.
Furthermore, the fact that they have deep pockets is actually important. It means they reflect an important aspect of the economy, so ignoring their interests could also have detrimental economic effects.
It's not nearly as simple as you're portraying.
This embeds the idea that someone making more money has a right to a larger voice than someone that doesn't. - In my "if the world were simple" dreams I'd say something like "every voter can spend $200 - any lobbying group or corp can spend that $200 IN THEIR NAME, but then no one else, including that voter, can. Corps/groups can still raise money and represent their members (who don't have to each spend that money) but it doesn't make a small group of wealthy voters look like a big group of voters. The groups/corps would have to make sure they represented the views of their members, or those members would start revoking their permissions."
Of course, the world isn't that simple, but that sums up my views on money in politics.
No, it's a signal that you might be proposing an economically destructive policy. You're not required to listen to lobbyists or take their suggestions.
I don't see how. I just said their opinion shouldn't be ignored, which is what the OP was suggesting by banning corporations which represent large groups of shareholders and employees.
They could create form letters for their members to email their representatives.
Some charities I belong to operate this way.
Obviously Comcast could do this too but I don't think they'd be successful getting real people to lobby on their behalf.
>Furthermore, the fact that they have deep pockets is actually important. It means they reflect an important aspect of the economy, so ignoring their interests could also have detrimental economic effects.
The fact that they have deep pockets means that they can broadcast their message more easily so they have an inbuilt advantage. There's no reason not to compensate for that.
You might be surprised; see https://en.wikipedia.org/wiki/Astroturfing for the way it's usually done.
Incase you didn’t know, all tax-exempt charitable organisations are already severely limited in how they’re allowed to engage in politics. They’re never allowed to endorse candidates, or directly or indirectly campaign for them.
A "corporation" isn't a thing that exists in the world. They don't have mouths, and can't speak, so it makes no sense to outlaw their ability to use the mouth that they don't have.
There are people in the world. As well as groups of people.
A corporation is merely the pural of person. Each person in that corporation, whether employee, or owner, should have the same speech rights as any other individual.
What is facile is to argue that a law which simply bans corporations from hiring people describing themselves as lobbyists or government relations professionals will have any real world effect, or to pretend that there are no possible downsides from legislation which might prevent organisations like the EFF from existing or ensure that healthcare professionals are unable to make representations about healthcare to politicians.
Unlike with our our elected representatives. (https://en.wikipedia.org/wiki/Principal%E2%80%93agent_proble...)
Under the terms of the Lobbying Disclosure Act of 1995, anyone who spends 20% or more of their work time lobbying the Federal government already has to register themselves, and disclose both the clients they lobby on behalf of and any expenses they incur as part of their lobbying activities. (See https://en.wikipedia.org/wiki/Lobbying_Disclosure_Act_of_199... for more information.)
Many states also have similar laws in place regarding lobbying of state officials, though obviously the details will vary depending on what state you're in.
Funny. Most complex problems have simple solutions. It takes lot more effort to do it, but the simple solutions tend to stick around the longest. This is based on 10 years of work exp in top tech companies :-)
The only place when simple solutions don't work is when people have other vested interests.
This trope is both untrue and tired, as most cookie-cutter generalities are.
It is the very problem of representative democracy: elected officials need to form an elite of superior intelligence and ability to comprehend the world, yet at the same time be firmly grounded in the reality of everyday people to understand their problems and represent them...
This is much less of a problem if you can hold down scope-creep on the role and responsibilities of government.
What even is lobbying? A broad definition would include most any communication with a policymaker, a narrow one would exclude lots of activity that is obviously meant to influence policy.
If you want to reduce the influence that moneyed interests have over politics there's only one answer: take their money away.
So, no one is allowed to write their senators anymore? People can't request to meet with their elected representatives? Subject matter experts aren't allowed to express their opinions within earshot of a member of congress?
Lobbying is just people with a shared interest expressing their views to elected representatives.
Now, the concept has gotten a bit overly... complex, but outlawing lobbying all together would be a huge infringement on freedom of speech.
Doubtful. Then they are incentivized to secure a lucrative position after their term. Guess who can provide lucrative jobs for some consideration?
So rather than outlaw lobbyists, one alternative would be to balance this out by hiring public lobbyists. They would craft the legislation on behalf of the state.
The analogy I'm thinking of is that this would work in much the same way that we hire public prosecutors to represent the public interests in the courts by prosecuting criminal cases on behalf of the state. Otherwise the only criminal cases would be if someone hired a private prosecutor, as it was until the 18th century.
Currently the bill-writing is the responsibility of legislators and parties. This would make it a non-political, non-partisan role in the bureaucracy.
Vote.
All sorts of interests lobby, all the time. These include consumer-focused interest groups, as well as corporations. But, at the end of the day, politicians gain (and keep) office based on the votes of their constituents. These politicians are (generally) not going to vote on bills that they think might get them kicked out of office.
Voting isn't a real solution to unchecked corporate lobbying.
One of the lessons I've taken from this case and others related to gerrymandering and voter suppression, for instance, is how deeply the integrity our democracy depends on tactical execution of the broader ideals at stake. It's our ability to handle issues at the margin that will determine whether the whole thing works or falls apart.
It's equivalent (this isn't an analogy, it's literally equivalent) to allowing a person to spend money to buy a megaphone to make their speech literally louder than everyone else's. Not everyone can afford a megaphone.
It is also possible that the majority doesn't feel (read: vote) the same way about these issues as you. Would that mean that the system is flawed?
The level of cognitive dissonance the public has about politics is the most disheartening part of the whole burning shit show. Remember America; It's your own fault if he beats you, you made him do it.
It seems to me that democracy has been hijacked in the U.S. From my perspective, regardless of reason or solution it remains that corporations are not paying enough for the maintenance of society. Given that we have had free elections for some time it appears that the answer is more complex than just saying in theory we can vote out the scoundrels. In actuality this hasn't occurred and this suggests that something is wrong with the system.
You can find examples in almost any election of a heavily-funded initiative being defeated at the polls. Here in California, a recent example I can think of off the top of my head is the continual defeat of policies and politicians backed by charter school advocates, including in the Nov. 2018 election.
> It seems to me that democracy has been hijacked in the U.S.
Elected officials in the U.S. are in their positions because voters put them there. Unless you're claiming that substantial election fraud took place, you can't claim that democracy isn't working just because it didn't produce the result that you agree with.
In circumstances of elections is best to talk about probabilities and concentrate on what is normative.
...you can't claim that democracy isn't working just because it didn't produce the result that you agree with.
I claim that American democracy is broken because it consistently produces results that are not in the the long term interests of the nation and are not done in the interest of the people. There are lots of reasons to support my belief but none of them have anything to do with me personally not liking the results it produces. Indeed, I'm quite satisfied with the results of the last Presidential election cycle. My candidate won.
I might be wrong in my belief that American democracy is broken.
Lessig has a good video that breaks a lot of this process down. https://m.youtube.com/watch?v=PJy8vTu66tE
A major problem is that there's so much money in campaigns that in order to get enough money to compete, a politician must make deals with donors. Often these donors are small groups of high wealth individuals or industries.
Now the politician is effectively in the pocket of the monied interests, or else they are out of government cone next election cycle.
Until campaigns are equally financed by "the people", the results will not have a chance of being representative of what the people want.
But ironically, to make that change would require the current government to take action that most of the big industries do not want. Thus, it will not happen.
I know for folks like Sanders, it might have switched early on, but he's getting more and more curmudgeonly about corporate thievery, eco-destruction, and worker rights.
There is also the plain political game. You can't make a political career alone, you need allies, people that trust you and support you within the party, above and under. Over the years, you get stuck in a network of dependencies that ties your hands.
And there is the sad reality that no single decision is going to improve anything. You need continuous and consistent effort in one direction for years. So even if you are aware of all that I listed above, the truth is that you can't go fully lose cannon and actually achieve anything lasting.
Did they get a specific exemption against the public interest that no one else got? Great! Let's talk about that!
Did they deduct 100% of their costs for sham "IP licensing" from a foreign subsidiary? Great! Let's talk about that!
But you need to know the why before you conclude there's something objectionable going on.
Edit: More generally, every headline of this form comes with an implicit statement like "By my model, <company> should be regarded as having a profit of X dollars, but tax law views them as having a taxable profit of Y < X." That necessitates a good explanation of why you think X is the right value.
I find that objectionable.
Profits should follow arbitrary calendar years?
But if:
* their sole proprietorship loses money in one year, it can be carried forward to offset taxes the next year
* they have net losses in investments, those can be carried-over to offset gains in other years
* any LLCs in which they are members have allocated losses, those can be carried-over against profits in later years
These are the ways a private individual engages in economic activity that are analogous to what a C-Corp does, and for these, the standard is essentially the same.
There are a handful of available carryovers and the concept of NOL is very similar to a private citizen as this discussed concern is to a business.
Innovation and front heavy spending is very much improved do to this issue. It is a sound concept.
The average worker isn't allowed to do that even when they lose money in a given year. Why is it so naturally assumed to be acceptable for a business to do it? Maybe the time is to just remove the loopholes in general from both business and personal income taxes.
If you have investments that produce losses one year, you can carry those losses forward to cancel out capital gains in following years and reduce your tax payable.
The differences are significant enough that any sort of parallel like this does not hold a lot of value. Yes, it might make sense to disallow this for corporations, but the justification seems reasonable -- it's not a loophole that allows corporations to take home huge amounts of money without paying taxes, it just allows them to deal with time horizons longer than one year. As it is, a gain in the second half of the first month of the year can be offset by a loss in the first half of the first month of the year, just because of reporting frequency.
Professional expenses are usually deductible, but most of W2 people (including myself) don't have too much to deduct.
Because a business isn't a person. Taxing a business is taking real money away from payrolls, money that would get taxed again anyway once it was paid out.
Corporate income tax only makes sense when you look at it as a barrier to entry for competition in the marketplace. Big companies like Netflix know how to avoid taxes. Small companies don't. Thus corporate income taxes help to protect big companies from disruption by small ones.
The underlying issue seems to be whether it is ethical for a business owner to make money.
Payroll, benefits, offices, etc are easily >50% of revenue in virtually all ventures (including diamond trade and definitely your favourite tech unicorn)
Also implicit in this statement I think, is the assumption that shareholders don't provide as much value to the business, or perhaps the economy writ large. Arguably the investors at least initially play a more crucial role than any employee no mater how back-breaking their work because without starting capital most businesses don't even get started in the first place. But in general all aspects of the business contribute to success, Shareholders, employees, and executive. I don't think moralizing one class over another is useful to this sort of conversation.
Lots of "shareholders" are people's retirement funds, pensions, and the like. When those funds finally pay out, they get taxed as income just like for everybody else.
Saying that Uncle Scrooge and his buddies own all the stocks is not much worse than implying that normal people own a significant share of the market through their retirement accounts.
Each of the 90 people invest $5k and have 1000 stoks.
Each of the 9 people invest $20k and have 4000 stoks.
The millionaire invests $100k and has 20,000 stoks.
The top 10% have 99.96% of the stoks.
It would be weird if the richest people didn't own most of the stocks. It doesn't necessarily mean there's a problem.
Correct me if I'm wrong, but I think payroll expenses are not a part of profit, so no double taxation here.
The point is that any money that exits a corporation gets taxed again somewhere.
So if a company does really well one year and makes a profit, it gets taxed on that profit even if it keeps it in the bank. Then they use that remaining profit to pay payroll next year and then employees or owners get taxed again.
But your point on double-taxation is certainly valid in some contexts.
Franking credits minimise the double taxation issue in these instances.
Double taxation is the concept where a dollar could, in theory, be taxed at over 100% from the aggregation of taxes owed on it. There are to my knowledge only two real examples of double taxation in America. The first happens due to the new cap on SALT deductions. The second is with regards to FICA taxes.
Oversimplified:
Profit = $Revenue - $Expenses
Tax = $profit % $Tax_rate
By that same logic, taxing personal income is akin to taking money away from the goods/services/investments that that person would've spent that foregone income.
There's nothing special about businesses that warrants them special privileges.
Money goes into the business, gets taxed, and then goes to employees and taxed again or to shareholders as profits and taxed again.
Why tax twice?
100k house, 30k in damage, 20k insurance check. You can take 10k in losses.
*Also note, I am not a CPA, consult one. This is my current understand trying to deal with a town house I own in NC that was damaged this year.
I suspect that a change to this rule would cost the Exchequer a good £20b a year plus. As a home worker I wouldn't be impressed by that.
Let's say you wanted to give income from labor the same benefits as (negative) income from investments that lost money... How would you do that?
Say I earn a healthy $250K/year at my W-2 job. If I buy a large house with the proceeds from my job, have I incurred a loss? How about if I eat out at an expensive restaurant every night, spending my entire paycheck. Do I get to avoid taxes by keeping my lifestyle expensive?
That being said a corporatiom is not a person, and cannot eat a fancy dinner, so much of their profit can only become reinvested back into paying people who ultimately get taxed for eating fancy dinners.
I am not all that sure about carrying forward investment losses, and as you are aware some expenses are deductible while some are not. While eating a fancy restaurant is strictly optional, spending on medical of educational costs are quite different.
In general I think if someone investigates the edge cases first (eg looking at the second-order effect like carrying deductions on negative income) that's a sign of not wanting to look at the larger picture.
As you indicated above, so much of our personal expenses are "discretionary" in the sense that we could increase or lower them by choice. That's exactly the difference between business investment spending (required to produce the revenue that's taxed) vs. personal income/spending, which is based strongly on preferences. Hard to justify taxing frugal individuals more than lavish spenders just because they save a larger percentage of their income...
It's available through archive.org https://archive.org/stream/galaxymagazine-1954-04/Galaxy_195...
The lenient rates were introduced during high-inflation years. If somebody was pursuing a long-term project spanning over several years (let's say, building a new apartment complex), high punitive tax rates at liquidity time (let's say, 5 years down the road) combined with decreased buying would obliterate any real profitability.
The 12-month cut-off window, though, seems completely arbitrary.
The argument is kinda moot anyways, as capital gains are completely voluntary - one sells when they want to sell. If they don't want to sell, but need liquidity, they can access a bunch of asset-backed loans (HELOCs, PALs, cashout refinance, etc.) Ken Fisher in his book "Debunkery" (and I'm sure the data exists elsewhere) shows how total revenue figures collected by US government do not change over decades, regardless of the actual capital gains rates.
I am not sure what the counter-argument to that is, but one thing I can think of is increased complexity of a tax return for an average joe investor, who bought and sold a few funds in his portfolio. Opponents will also likely point that an official measure - CPI - can be manipulated for political purposes.
Love it when people shoot down proposals I never made
Of course, there's a political component of it too - taxes are always political, and are used to promote or suppress certain actions. I guess the government does want to promote long-term investment and thus defines lower tax rates for this activity.
Also, realize that the government does promote both labor and investments, just through different means. Lowering taxes isn't going to affect how a fully employed individual produces labor; they are trading their time for money. Lowering taxes on investment will promote more investments, since the money for those investments have already been taxed, and since the trade of investments is money-now for money-later, taxes have a much more significant influence over the extent to which someone will invest in a business. Someone fully invested in other things (non-stock commodities, etc) might move some of their investments into businesses instead.
However, once you earned enough money, beyond subsistence level, you have a choice - you can spend it all on consumption, or you can defer some of the consumption, or give up a part of it, as an investment, in hope that this would increase your consumption abilities in the future, or you ability to retire, etc. Modern economy would not work without investment - you need massive upfront spending to lift off something like Netflix of the ground, before it starts being profitable.
This investment is, ultimately, financed by people who chose investment over consumption (might be one very rich person, or tens of thousands of not so rich people giving their money to the bank, which in turn loans it to the entrepreneurs, or likely a mix of both). Ensuring this choice remains a viable and attractive one is something that the government would definitely have an incentive to support.
Moving onto more statistical approach, this one: https://www.fa-mag.com/news/most-millionaires-self-made--stu... says only 8% of millionaires inherited their wealth. For billionaires, according to this: https://www.entrepreneur.com/article/269593 18% got a jump-start (maybe parents were mere millionaires, but the child became a billionaire), and 62% are self-made. So inheritance effects exist, but maybe they are not that huge? At least, clearly, not a majority.
Of course, not everybody starts in the same place. But human behavior and motivations are similar, and thus you can reason about them despite the differences.
Also there is plenty of business income that is not double taxed because it isn't run through a C Corp.
Then in regards to incentives. We already have interest rates to adjust the knobs of investment versus consumption. Capital gains is just a way to make the tax system less progressive.
That is laughably small.
And you can't deduct the losses from your other income while you can as a business.
Example, in year 1 you have a $15,000 net capital loss. You write off the maximum $3,000 of this against your other income, carrying over a $12,000 capital loss. In year 2 you have a $10,000 net capital gain, this is offset against your carried over loss leaving $2,000 to write off against your income.
we don't
But it means something different to make a wage and to make a profit. There are definitely loopholes to close in our busted tax system, I agree with that 100%. While we are at it we should eliminate all subsidies for various types of carved out businesses from oil to corn. But Characterizing loss calculations as a loophole I don't think is correct. If I'm not mistaken most corporate tax schemes in the rest of the world use similar concepts, it's a fairly basic accounting concept.
Why? Other than "because our tax law says so"?
Now only farmers and fishermen are allowed to do this, and some retirees who receive a lump sum retirement plan distribution.
We should really tax companies on income to eliminate this unfixable situation. Fiddling with the tax code will not work. Personally, I would like this problem solved by a national land tax and the permanent elimination of the income tax by constitutional amendment. People trading with each other is a win/win situation. We should encourage that, not tax it.
but I agree with your overall statements - the rates and tax system for personal individuals is ridiculous and it gets worse the more income you make. For me personally, I intentionally took a demotion (and pay cut) because it isn't worth the sacrifices you have to do to get the higher salary. More stress, more responsibility, more extra unpaid overtime you have to work, more headaches etc. SIGNIFICANTLY MORE. Then what is the reward for all this extra headaches....you get 50% of the pay raise. So I said forget about it. The extra money isn't worth it if you only keep 50%.
Or TLDR: don't take away rights like this from corporations, give those same rights to individuals.
And even for individuals, losses over that $3k can be carried forward indefinitely to future years.
It's also possible to pay no taxes if you derive all of your income from investments every year as long as you don't exceed the allowed limit since we have a marginal capital gains structure that combos with our marginal income tax structure.
From my observation, most people on the internet doesn't seems to care. There was an argument about Apple paying little tax in US. I said Apple is the largest tax payer in US and paid 20%+, then the topic changed to he is paying ~40%, why is Apple paying 20% only?
There is Apple tax in France, there are even some saying Apple should pay tax in France, then paid Tax in Ireland, and pay Tax in US.
There are some saying how can Apple not paying any VAT in France and UK? ( Have they been watching too much Fox News ? )
I mean seriously, unless your whole life have been working on any non business side of things, if any of the job involves calculating profits and sales would know none of these makes any sense. And yet we are in a world with people demanding company should pay more. Which is fair point, but what they are suggesting is ridiculous.
I know many are concern about the lack of money for government spending, but as a counter point, do they realise how much money and inefficiency government have wasted in their bureaucracy, and their out of touch project which more than often leads to failure with sums that is unrealistic by any standards?
This is true. But politicians are playing the exact same game. Back when I was a tax lawyer, I asked my boss why the R&D credit was temporary but always renewed. Why not just make it permanent? He said it was because then the companies had to keep donating to the politicians in order to maintain the status quo. If they'd made it permanent, there would be very little chance of repeal, and therefore much less need to stay cozy with the politicians. It's a 2-sided game.
The only real issue I have is the difference between capital gains taxes and income taxes.
I don't want to shoulder the burden alone for their roads and traffic and pollution and power-grid-improvement requirements et cetera.
Maybe the system could be different where companies directly pay for the road upgrades they need and the power infrastructure upgrades they need, etc, but that's not the system we have where I live.
This is the solution most economists would suggest.
All of the tax avoidance would be reduced by the company that had the lowest corporate income tax.
The whole reason we have a corporate tax is because we feel rich people need to be taxed more, but the association between corporation and rich person is fuzzy at best. More nefariously, you are taxing pools of organizational and financial capital as opposed to individuals...which means that their ability to fight the tax code is amplified with pooled resources. It's regulatory capture waiting to happen.
The better option would be to dump the corporate tax entirely, and have all capital gains and dividends taxed as income. I know it can't be that simple because they're not the same as income, but working out those details would be a hell of a lot easier than trying to figure out how to get corporations to repatriate income after their international tax arbitrage schemes.
Your better option doesn't actually work, though, because the really rich can dodge it by borrowing money against their wealth as collateral, and because once stock (and other capital) is inherited, the new owner doesn't pay taxes on its appreciation before acquiring it - so most of it is essentially untaxed entirely.
No, it's because without either having it or treating all corps as pass-through entities (which becomes problematic when you've got layers of ownership before tracing back to individual taxpayers) corporations become abusable as tax shelters.
>I believe one way is to actually be involved in politics and get into the seats that govern and make the laws.
This isn't some conspiracy of giant corporations and lobbyists beating down the will of the people. This IS the will of the people. In many regions it's the overwhelming majority of the people.
Agreed. Are they supposed to purposely waste their shareholders money to take a moral stance against tax avoidance? When it's something that any corporation can do, then they have no choice but to do it to stay competitive. Regulators are the only ones in a position to stop it.
I don't expect anything. I am just saying that regulators are the only ones in a position to stop tax avoidance. Corporations might be corrupt or they might not, and it would have no impact on the issue either way. The corruption of regulators is the sole cause of tax avoidance, not the corruption of corporations. Even morally sound corporations are forced to use tax avoidance to be competitive, since it is legally permitted. If they don't, they will be outcompeted. Therefore whether or not a corporation is corrupt has no impact on whether it will use tax avoidance.
The same applies to tax avoidance. It might be legal but it's still wrong.
Conversely, tax law operates under a general regime where the expected and encouraged behavior of firms is to do their best to avoid paying taxes. In fact, maximizing share-holder value is even legally required (if blatantly ignored the firm is open to lawsuit).
More generally, analogy is an attempt to model one unknown phenomena, by claiming it is actually just a subset in the core abstract moral dimensions as another obvious and solved phenomena. While making comparisons isn't always bad, In practice it frequently seems to obfuscate or wash away really critical idiosyncratic differences (e.g. what I alluded to above) and as a result over-simplifies often complex topics.
The original point was really just 'legality is not the same thing as morality,' which is fine, I think most people agree with that. The question is how and does that concept apply in this given case, and I think to address that question properly requires engaging with the specific details.
Loopholes do exist for murder: for instance, self defense. The Trayvon Martin case is an example of this. The loophole exists for valid reasons, but it's often taken advantage of to circumvent the spirit of the law.
> In fact, concepts such as the intended meaning of the law mean that even if you hacked some edge case in the written law, you'd still go to jail.
Can you provide evidence that this applies only to murder and not to tax evasion?
> Conversely, tax law operates under a general regime where the expected and encouraged behavior of firms is to do their best to avoid paying taxes.
I'll agree it's expected, but I think you'd have a hard time finding a politician or member of the working class who would say firms are encouraged to avoid paying taxes.
I agree that it's not a perfect analogy, but I don't think it's fair to dismiss it entirely.
Clearly the majority think murder is wrong and if you could avoid the consequences of committing murder by way of spending money that would probably also be considered wrong. Murder loop holes would be closed up pretty quick I hope.
401K was not the idea of some smart legislator. The 401K name comes from a section of the IRS code. This section was added in 1978 but for 2 years no one paid much attention to it. A creative interpretation of that provision by a smart consultant gave birth to first 401k savings plan. The government tried to repeal the 401K provision twice once it realized the enormous tax loss from the 401K provision.
If I make $100k in one year and then $10k the next, I pay 19% of it in income taxes, even though I averaged $55k/year which should mean paying 14.6% of it in taxes.
(Using figures for a single filer from the 2019 brackets; assuming away the person deduction for simplicity.) https://www.nerdwallet.com/blog/taxes/federal-income-tax-bra...
Humans all have basically the same expense structure so taxing revenue makes sense. Corporations from different industries have wildly different expense structures so taxing on revenue would be nonsensical: you would end up undertaxing high profit industries like tech or pharma and massively overtaxing low profit industries like retail.
Second, what's your specific issue with the debt carryover exemption?
Let me ask you a question; have you ever deducted anything from your taxes? If so, you are “guilty” of tax avoidance. Every person claiming the Earned Income Tax Credit is engaged in tax avoidance. Anyone that ever deducted anything is a tax avoider.
You are implicitly incorporating the morality of supporting an unspecified government into business behavior.
If you believe that, on balance, expenditures by the US government of tax-derived revenues produces more harm in the world than good, you would therefore consider it a moral virtue to legally and lawfully minimize the amount of taxes delivered to the IRS. If you believe that expenditures by the US government of tax-derived revenues do more good than otherwise, then you would consider tax avoidance to be morally wrong. But then you also have to consider whether a corporation has a greater moral obligation to maximize value for its shareholders, or to pursue a specific purpose as stated in its charter. In either case, the corporation should seek to retain as much control over the disposition of its revenues as is possible.
In your "legal murder" hypothetical, I would consider it both moral and ironic to murder the person responsible for creating the legal murder loophole, along with any other person that has ever used it. I might still refrain, as that means I would be losing some of my morality-based protections against being murdered, with the knowledge that my legal protections are already nonexistent in loophole-compliant circumstances.
But I am a natural intelligence with moral agency. A corporation is an artificial intelligence, programmed by bug-ridden legal documents, and its program executed by its lawyers and C-level principals. It isn't a paperclip optimizer, but it is a banknote optimizer. It has no moral values that humans can readily recognize. It isn't a psychopath or sociopath; it's just alien. In order for a corporation to exhibit moral behavior, the morality has to be included in its programming. That's difficult. It is much easier to incorporate by reference the entire body of public law, and then allow the corporation to pursue "any lawful purpose". And tax avoidance, aside from moral considerations, is still "lawful".
how is a company supposed to determine the morally correct amount of taxes?
if they hire incompetent accountants who pay excess taxes, are they more moral?
You seem like you are privy to some inside information. What legal loophole did Netflix got their high-priced lawyers to exploit?
>I can murder someone and get away with it that wouldn't make it OK to actually do it.
Because murder is the same as following the tax code to the letter.
>The same applies to tax avoidance. It might be legal but it's still wrong.
Again, what are we talking about here? Why did Netflix owe no taxes this year. I would think that would be the first step before determining the morality their actions.
You might argue that none of those are actually "murder," but in fact legal "killing." I'd agree. I'd counter that a "legal loophole," is the same idea. The operative word is "legal," and "loophole" is tossed on to spark outrage.
There's also an argument to be made, that some of the legal killings I've described are morally wrong. That's a subject of much debate. You're welcome to hold yourself to a higher standard than the law requires, or to lobby to change the law, but we have laws so that people are not subject to the individual morality of everyone, but on the consensus we come to as a nation.
Why? I'd argue that the US federal government is mostly immoral, and thus paying taxes is wrong. I only do it because I'm coerced into acting immorally from the threat of violence.
Comparing an action like murder, which is overwhelmingly believed to be immoral by religions and philosophers for millennia, to not overpaying US federal taxes is just silly.
But what is the moral tax rate for a corporation, if not 0%? Is it 18.25%, as opposed to 7.09%? There's no objective answer, and it fluctuates from region to region, year to year, depending on how much governments can extract before corporations flee.
As an aside, it's rich that it's always Americans complaining about companies paying low American taxes on billions that they make overseas. Netflix is more international than American now (2/3rds of their subscribers are not Americans), yet they are especially adept at avoiding taxes everywhere else. In the UK they have repeatedly paid $0 because they claim to be a Netherlands operation there, etc. In Canada every single competitor has to charge a sales tax of 13% (and consumers weigh the total cost, so if applied it would put downward pressure on Netflix's prices), but Netflix charges none.
In any case, corporate tax rates are often much ado about nothing because in the end that money ends up in various other tax brackets. It becomes a capital gain, or a dividend, or some other form that often gets taxed at the personal level.
Clearly corporate taxes are charged for a reason and presumably the additional revenue would be of benefit. However it seems to me that in our outrage we lose sight of the fact that the money doesn't disappear. If a company retains a greater portion of its revenue it has to do something with it. And as you say whether they payout dividends, hire more staff, expand their operations the at least some portion of the money comes back into the system. I guess the main difference is that the government doesn't get to decide how it is spent...
Apple is a fairly decent point to the contrary; they were able to let money sit around doing absolutely nothing at all because they didn't want to touch it until they didn't face stiff repatriation taxes for doing so.
Generally speaking, though, I agree with your later points. The first one- corporate taxes are charged for a reason- I'm less convinced that the reason is a good one. It mostly seems like a feel-good way to bury the tax so people don't realize that they're ultimately paying for it.
Just to clarify, there's no 13% sales tax - that'll be 5% federal and X% provincial (which ranges from 0-10%).
But largely in practice you're correct as even the combined HST varies (13% in Ontario, 15% in the four Atlantic coast provinces).
Of course, in 2019, half of those people have been convinced that they'll become rich, if they just let large firms fleece them.
You say “in a democracy” but you really mean “in the corrupt US”. Political campaign finance works totally differently in a lot of places.
Why defend those companies?
Either way it's a symptom of a rotten system.
#1: "Excess tax benefits on stock-based compensation": (191,323) #2: "Federal and California R&D tax credits": (140,749)
https://www.sec.gov/Archives/edgar/data/1065280/000106528019...
Would Netflix OSS meet the Seven Tests for Internal Use Software [1] to qualify for the R&D Credit? Or is it likely to be something else? Is this information public?
[1] https://www.ftb.ca.gov/businesses/credits/rd/seventests.shtm...
If a company is dumping waste into a lake and it is not against the law to do so, it is then wrong to get mad at the company? What if this is the behavior of all companies in the area? They all need to dump waste in the lake in order to remain competitive.
Is it wrong to become outraged at the companies for their behavior? They should not be held accountable?
Companies are amoral, and they are emergent behavior that is a product of a particular political, economic, and cultural situation.
It’s a bit like getting outraged at a tree for falling on your house.
in 2017, Netflix dredged out a canal to allow access to another waterway.
in 2018, they added concrete to the new shoreline to prevent erosion due to the newly created canal.
2019 headlines: In 2018, netflix dumped over 18 bazillion tonnes of concrete into lake nature!
It's clickbait, almost every time.
Are there "loopholes" (incentive programs) that companies take advantage of? Of course there are. One might argue that those tax incentives are why the United States has one of the strongest economies in the world.
It's unfair, plain and simple. Stop pretending it's right only because it's legal.
There are lots of things that are unwritten rules in life. The consumer is expected to follow them, why would it be any different for corporations? Not paying you fair contribution to society might not be illegal, but it sure sounds immoral to me.
I think it's about time everyone stops shrugging this shit away.
Then politicians make policy that favors those wealthy companies.
lol, you are being hopeful. (for example, I voted for Obama because he promised to repeal the "PATRIOT" Act and instead of doing that, he made it worst)
(But I agree with you that the laws are the problem...)
The best way to highlight loopholes and broken parts of the tax system is to point out when they're being used and taken advantage of.
I think citing people "mad at the company" is a straw man. I'm sure someone is, but most people are angry at the system.
It's really quite simple. My marginal tax rate is probably 28% or 32% or something. My effective federal rate is, I'm sure, sub-20%, but every additional dollar I make is taxed at that top rate.
I don't need billionaires to be taxed at 70% or have a wealth tax. I just want people to pay the tax they're supposed to pay. I don't want loopholes where someone made $100m through cattle future derivatives that have a carve-out when implemented in cities in farm states with populations of under 10,000, so they pay 0%.
Same for corporations. Fine, you write of x,y,z. But at some point if you're making more money than ever you shouldn't be paying less tax than ever, let alone $0. The solution, in my mind, is not to soak them for being successful. The solution is to find each and every loophole they're exploiting, and tear them the hell up.
They're not. Not in EU or USA at least.
So, not they aren't under any obligation to be shitty to the public by diminishing tax paid in the countries they operate in.
Anyone posting an attempted contradiction should cite the relevant laws making it a legal requirement for companies to maximise profits [above any [other] moral consideration].
Now, once the "business and purpose" of the company is defined to be profit for the shareholders the company has fiduciary duty to perform in the "best interest" of the company and its shareholders as defined by this mission statement.
As long as paying minimum tax serves the best interest of company that is brought for profit of its shareholders then that's what the company is bound to do.
As I mentioned, it is possible that pure monetary value is not the best interest in the company. That's why, for example, companies spend on image building, because it believes it is in the best interest for the company and the shareholder in achieving long term mission of bringing profit (as long as the mission is "for profit").
The company may build local school or feed poor children in Africa, as long as it serves the best interest of the company and shareholders as defined by its mission.
"In a famous 1970 article in The New York Times Magazine, Milton Friedman wrote that the “great virtue” of the shareholder wealth maximization norm is that “it forces people to be responsible for their own actions and makes it difficult for them to ‘exploit’ other people for either selfish or unselfish purposes.”" (https://www.nytimes.com/roomfordebate/2015/04/16/what-are-co...)
The way I understand it is US, the people, who decide what is in the best interest of the companies. We have power to decide that being pro-environment is in the best interest of every company and we also have power to make it in the future the best interest of every company to pay taxes. But now that the standards are set, at any given point in time, the officers of the company have obligation to serve in its best interest and we only have ourselves to blame for allowing this to continue be the best interest of the company.
Absolutely not. Here are the fiduciary duties of corporate management:
https://www.nolo.com/legal-encyclopedia/fiduciary-responsibi...
The closest that comes to your assertion is the "Fiduciary Duty of Loyalty" and that states managers must put the best interests of the corporation (note, not just the shareholders) above their own. In general, the management of corporations in the US has significant leeway (from a legal standpoint) in deciding how best to run their corporation. If the board doesn't like the choices upper management is making, their recourse is to fire upper management.
Furthermore, the standard you are asserting is legally ludicrous. Not every shareholder has the same "best interest". There is no litigable standard of "best", thus no way of holding executives legally responsible for actions they didn't take. Additionally, such a standard would open up people to civil consequences merely for being bad at their job.
> "In a famous 1970 article in The New York Times Magazine, Milton Friedman wrote that the “great virtue” of the shareholder wealth maximization norm is that “it forces people to be responsible for their own actions and makes it difficult for them to ‘exploit’ other people for either selfish or unselfish purposes.”" (https://www.nytimes.com/roomfordebate/2015/04/16/what-are-co...)
That was Friedman's opinion. It was never substantiated by any statute or case law.
I think people are outraged because the laws themselves are unfair and special tax breaks are doled out.
> If you don't like the law elect different politicians.
In our form of government it's possible for a presidential candidate with fewer total votes to win (Trump & Bush). If we had a popular vote for President this argument would make more sense.
Also, on a ballot we're often given 2 (maybe 3) choices for representation. These representatives often need to raise money and they raise money from the companies and wealthy individuals that benefit from the tax breaks and exemptions.
Unfortunately, it's a cycle of influence (aka - light bribery) that keeps these unequal laws going.
A flat tax without exemptions seems like the fair and simple way to address this, but there's so much money to be made by making taxes complicated that it's hard to imagine well funded politicians actually passing something like that.
The companies... make the law. That's what people are angry about.
What an incredibly naive statement that is. Of the 11K registered lobbyists in Washington, DC more than half of them 6200 of them worked on tax related issues in 2017. 4,200 of them specifically on tax reform[1][2][3] Put another way that is 11 lobbyists for every individual member of congress. The lobbyists are the ones shaping the tax code. Further tax reform is a generational thing, the last time it was taken up was under Reagan in 1986. Simply "electing different politicians" will accomplish nothing.
>"Anyone mad at a company for not pay taxes is misdirecting their anger. Companies follow the law."
No, one of the reasons that the US is great place to start a business is because there's a mature legal system, a stable government, and infrastructure and those things take money to run. If the country provides an environment that allowed a Netflix to start up and prosper then why shouldn't that company be expected to help pay for all those things? Both individual and corporations should share the burden of that. So no the anger is not "misdirected" at all when it's directed at entity who's shirking their responsibility. Just because something is legal does not necessarily make it right.
[1] https://www.citizen.org/sites/default/files/swamped-tax-lobb...
[2] https://www.nytimes.com/2017/12/15/us/politics/lobbyists-tax...
[3] https://thehill.com/business-a-lobbying/business-a-lobbying/...
If the lobbyists had infinite power, I guess the corporate tax rate would be zero -- or negative. So, popular voting must be accomplishing something.
> mature legal system, a stable government, and infrastructure and those things take money to run
Which is by no means the lion's share of a state or federal budget. Chief are all the transfer programs, followed by defense well in excess of the necessary spend for protecting the 50 states from invading armies.
Nowhere did I or anyone suggest that lobbyists had "infinite power." Further Lobbyists work on behalf of specific industries or specific companies to to get specific provisions that benefit their client(s). There is no "corporate tax rate lobby" working on behalf of corporate clients everywhere. So no there is absolutely no reason the tax rate would ever be zero. What an absurd comment. Popular voting? Firstly he electoral system in the US isn't even based on "popular vote" it's based on electoral vote. And there is zero connection between the practice of voting and the practice of lobbying.
Netflix revenue for 1 year was 845 million.
Netflix can afford a few senators if they want. Instead they just lobby existing legislators and put bills on their desks.
Corporations are not just "following the law", they're writing it.
>If you don't like the law elect different politicians
How? Government officials are far more beholden to corporations like netflix than they are to people like us. If push comes to shove then corporations can spend a trivial amount of money to crack the consensus among the group of people pushing for change.
> Netflix did it twice, and paid an average tax rate of 13.6 percent over the eight-year period
Carryover losses is the most likely reason, and focusing it on only one year makes for a good headline but terrible economic/policy analysis.
Slave owners followed the law also. Kings followed the law.
If we can't get mad at companies for following the law, can we at least be mad at them for creating these laws?
it’s called net operating loss. when you’ve lost money over the last ten years you can deduct those losses from your gains and only pay taxes on the difference.
Makes senses, right? A business needs to cover the losses before there is really a “profit” to pay taxes on. But this ends up incentivizing losing money, and makes the silicon valley business model of raising a ton of money and running at a loss to try and dominate the market a lot more profitable
Looking at a successful company like Netflix, boasting massive profits and growing fast while paying no taxes is a reasonable proxy for something not being right.
Either Netflix is doing something wrong (and the public needs to take action) or the system is broken (and the public needs to take action).
In either case, anger and discussion is in its place
I'm sure Netflix paid tons in employer contributions to employee income taxes, social security taxes, etc. They probably paid a bunch in sales taxes where they made purchases. Property taxes for data centers, office buildings, etc. So there are many more taxes that everyone pays beyond the income tax.
As others have pointed out, the tax code is immensely complex, but you probably don't need a deep explanation for a $0 income tax bill: previous years' financial performance can carry over into the current year.
As someone once told me: with complexity comes opportunity. Simplifying the tax code, regulations, and laws removes the opportunity for well-funded operations to exploit the existing complexity.
I pay sales taxes, and my landlord pays property taxes, and I gave $500 to charity last year.
Does that excuse me from paying any income taxes on $300,000 of salary, or do I need to structure that compensation through a double Irish sandwitch, first?
Alternatively, if a shoplifter steals $500 of goods, but pays $50 for some cigs, and a bottle of wine, do we shrug our shoulders, and say: 'At least he paid for the wine!'
Individuals have all their obligations deducted and we can spend the rest.
Companies spend first and pay obligations on the remaining.
This situation should not be viewed as Netflix paying tax. An employee's benefits, pay, time off, etc. are all part of the compensation of an employee. If Netflix did not pay this on behalf of the employee then the employee would have to pay it. For instance, for contractors they (the contractor) pay the full FICA and not half. This is partly why contractors generally get paid more in terms of hourly rate.
The FICA that Netflix pays on behalf of employees is an expense. Corporations don't pay tax on expenses. They pay tax on profits. It is a bit unseemly for some corporations to have large profits but pay no income tax.
I am not talking about the tax you charge on your product and collect on behalf of the government. I am talking about the tax you pay for stuff you consume as a company.
While you may be able to offset some of the taxes you have paid already against what you collect from the customer like in Value Added Tax, you still pay those taxes on your consumption even if there are no customers.
I think most people would agree with this statement, but the devil is in the details. Republicans have been trying to accomplish this type of tax reform for decades, but even with control over both houses and the executive branch, they couldn't overcome the influence of special interests. The question isn't whether a simplified tax code is beneficial -- it's how we get from point A to point B that is contentious.
For Netflix this is true for 2018. In fact they paid $131 million for income taxes, which, as a percent of their income is way higher than "$0" which the original article claims in its.
Also, the article makes no mention of R&D tax credits, which saved NFLX $141 million in state and federal income tax credits (the second biggest component).
It would not have been difficult to find this in NFLX's 10-K.
Netflix says the Tax Cuts and Jobs Act of 2017 _cost_ them an additional $79 million
[0] "In accordance with the Act, we recorded $79 million as additional income tax expense in the fourth quarter of 2017"; https://www.sec.gov/Archives/edgar/data/1065280/000106528019...
> "In fact, the company reported a $22 million federal income tax rebate."
So if they paid 131 in income taxes, and received 141 in tax credits, then that accounts for $10 million of the $22 million the article mentions.
That's pretty cool, I was assuming their earnings were just debt fueled. Therefore spending more money than they made, which is always a fun way of not sending that money to the government but on something you feel is more productive.
https://www.investopedia.com/terms/d/deadweight-loss-of-taxa...
neither markets nor governments are perfect, and such superficial arguments are at best misleading. you can't just compare idealized markets to practicing governments to reach substantive understanding.
$32 million of that was paid to repatriate foreign profits that they would have had to pay even more to repatriate before the tax cut.
Edit: For those unaware, in Chrome, you can type "cache:" before the URL in the address bar (not with the quotes of course) to get a cached version from Google.
[1] http://webcache.googleusercontent.com/search?q=cache%3Ahttps...
Hugely profitable tech company provides first look at how corporations are faring under new tax law
The popular video streaming service Netflix posted its largest-ever U.S. profit in 2018—$845 million—on which it didn’t pay a dime in federal or state income taxes. In fact, the company reported a $22 million federal income tax rebate.
After a year of speculation and spin, the public is getting its first hard look at how corporate tax law changes under the Tax Cuts and Jobs Act affected the tax-paying habits of corporations. The law sharply reduced the federal corporate rate, expanded some tax breaks and curtailed others. The new tax law took effect at the beginning of 2018, which means that companies are just now closing the books on their first full year under the new rules.
If Netflix’s earnings report is any indication, not much has changed. Many corporations are still able to exploit loopholes and avoid paying the statutory tax rate—only now, that rate is substantially lower.
Netflix’s tax avoidance should come as no surprise to those who followed the debate leading up to the passage of the new tax law: A 2017 ITEP report identified Netflix as one of 100 profitable Fortune 500 corporations that paid a 0 percent federal income tax rate in at least one profitable year between 2008 and 2015. In fact, Netflix did it twice, and paid an average tax rate of 13.6 percent over the eight-year period, meaning that the company sheltered more than half of its profits from the 35 percent federal income tax rate in effect at the time.
Leading up to the 2017 tax battle, the hope of reformers was that Congress would take a fiscally responsible approach and weed out loopholes that made Netflix’s tax avoidance possible. Instead, GOP leaders who championed the law and President Trump chose to focus on cutting the corporate tax rate as far as possible—from 35 to 21 percent—while leaving in place special breaks and loopholes.
As more 2018 earnings reports begin to come in, we will see the results of this profligacy in real time. Netflix appears to be every bit as unaffected by corporate tax laws now as it was before President Trump’s “reform.” This is especially troubling because Netflix is precisely the sort of company that should be paying its fair share of income taxes. With a record number of subscribers, the company’s profit last year equaled its haul in the previous four years put together. When hugely profitable corporations avoid tax, that means smaller businesses and working families must make up the difference.
A small or medium size business does not have the legal or accounting capability to navigate the tax code as successfully as a company like Netflix can. Similarly, even a high income individual can't stretch the tax code like billionaires can. On net it seems like the lower and middle income players subsidize the high income players both in business and personal taxes.
[1]https://taxfoundation.org/summary-federal-income-tax-data-20...
This is the problem people are trying to point out. Yes, poor people pay a lower % of their income in taxes than rich people, because the real number is more important due to the static cost of goods across all income brackets.
The problem is, everyone expects people to pitch in their share, and it feels like the ultra-wealthy and corporations frequently find or create new ways to pay less than "they're supposed to". What anyone is "supposed" to pay in taxes is obviously entirely subjective, but when you hear things like "rich people are making more money while also paying less in taxes" at the same time you're hearing about how our economy is funneling wealth away from the lower and middle classes and into the investor and upper classes, people get annoyed.
They made 1.2 billion in 2018 income before taxes compared to 485 million last year.
The corporate tax rate was brought down from 35% to 21% in 2018. So they should have paid 257 million in Federal, 33.6 in State and 63 million in foreign taxes
With the Federal and California R&D tax credits (140.7 million) and tax benefits on stock based compensation (191 million) and other odds and ends they brought it down to 15 million for an effective 1% tax rate. "In 2018, the difference between our 1% effective tax rate and the Federal statutory rate of 21% was primarily due to the recognition of excess tax benefits of stock-based compensation, Federal and California research and development credits (“R&D”), and updated adjustments related to U.S. tax reform as a result of the U.S. federal tax return filing, partially offset by state taxes, foreign taxes, non-deductible expenses and the international provisions from the U.S. tax reform enacted in December 2017."
Netflix has also deferred tax assets - easiest to think of as tax prepaid but could also include taxes paid to foreign countries, losses from previous years, etc.) of 689 million. So they counted the taxes against it.
In the cash flow stateemnt the supplemental disclosure is 131,069 for Income taxes paid. So there was actual cash tax payments made.
1. Abolish corporate income tax.
2. Tax capital gains (and dividends) as ordinary income.
The corporate income tax is absurd. It doesn't generate a lot of revenue, but it has a bazillion highly specific loopholes, supporting a whole cottage industry of lobbyists and accountants. It's an unfair advantage to large corporations that can afford the tax-cutting power (like Netflix).
The capital gains rate is the source of our most gruesome wealth inequality. It's absurd that Mitt Romney pays half my effective tax rate on 200 times my income. The justification for low capital gains rates is "double taxation" due to corporate income tax. Abolishing corporate income tax eliminates that.
If the rich don't want to pay taxes, then they need to not liquify their investments. If corporations don't want to pay taxes, they need to reinvest their profits in growth.
Eliminating the corporate tax would supercharge equity prices and since many corps don't pay dividends any more, it would be a very long time before any of the tax revenue is realized.
You're better off just taxing revenue based on company size if your goal is to collect reasonable amount of income and to limit the chicanery that goes along with corporate tax planning.
[0] - https://www.reuters.com/article/us-usa-campaign-romney-ira/h...
I think the correct reform of the corporate income tax is to abolish the "bazillion highly specific loopholes." If it was abolished entirely, I think you'd very quickly see corporations being set up and used purely to evade individual income tax, especially among the extremely wealthy.
That said, I do think it makes sense to not tax money at the corporate level that's remitted as dividends that would be taxed individually.
abolishing corporate taxes would be counterproductive to your goal of leveling the playing field. corporations would become even greater bastions of wealth shielding, not less. rather, equalizing corporate, capital gains, and individual income tax rates would go a long way to making things more fair. however, you have many other inequalities, like the corporate tax shield and carry-forward (-back) deductions.
and the capital gains rate is but one brick in the wealth accumulation firewall. the justification for lower capital gains rate is to encourage putting capital to productive use, not double taxation (as sibling commenter mentions), but it's a poor justification. as long as one more dollar can be made, (some) folks will find a way to make that dollar, with or without any external incentive. it's just a giveaway to wealthy patrons by politicians.
The lower capital gains tax rate leads to income tax inequality, but I doubt it significantly changes wealth inequality. In CA, top long term bracket is 37%, top ordinary is 54%. That 17% jump will reduce dividend compounding a bit (by 17 bp or so) and require withdrawing 20% more portfolio [if at zero basis] to cover expenses -- but when you have $1B, neither change fundamentally changes your lifestyle.
And don't forget that cap gains tax can be avoided or lowered in all sorts of ways (step-up on death, donations, gifts, tax advantaged accounts, etc.) You also have business owners subject to QSBS getting no federal cap gains taxes.
The site loads, but really slowly. I feel like it has been slashdotted maybe.
Here's a similar article: https://www.commondreams.org/news/2019/02/05/whatever-you-pa...
People see these "tax evading" corporations as so evil, but why? Do they really even remotely understand what is going on? I suspect they don't. Or maybe I don't get it.
Edit: Maybe what I fail to realize is that income for a company is essentially what I'm thinking of as cash holdings, anything else would be an expense that would be deductible?
However, I do agree that the annual basis of corporate taxation creates odd incentives - if on December 31st a company finishes the year with $10 million in cash, and on January 1st they spend $9 million, they will still pay tax on the $10 million, while if they spent it just a few hours before, they would have just paid tax on $1 million.
Estonia's corporate tax system seems more sensible to me; profits are untaxed until distributed to shareholders, therefore a company can accumulate as much as needed for more long-term spending.
The $9 million in spending will be deducted for the year's taxation period of course, but that leads to the situation of the company paying say, $3 million in tax one year, then $0 in tax for the next period, which seems similar to Netflix's case as per the article.
You pay taxes on what you earn, not on your cash balance. The company will always pay taxes on the $10 million, regardless of when it spends the $9.
Also GAAP taxes are different from cash taxes paid to the IRS.
Income that doesn't go towards economic activity (salaries, expansion) but goes back to profit does get taxed - mostly because dividends and capital gains are so much harder to tax for the ultra-rich due to loopholes on offshore tax residence, inheritance tax uplifts, trusts/foundations. The alternative would be to tax dividends and capital gains worldwide at income tax rates -- a great idea but impossible to implement against the resistance of every US millionaire and billionaire (also operationally quite difficult).
Tax evasion is evil morally because every dollar they don't pay, others have to pay so they are stealing money from millions of other people. The legal kind of tax evasion is called "tax avoidance" instead, it is still morally wrong if loopholes are created and exploited in a very obvious fashion for the sole reason of avoiding to give back to the society that enabled the profit. For some reason the US and many other countries don't have General Anti-Avoidance Rules where bad-faith tax avoidance structures can be outlawed.
You mean the government makes others pay (unless the government just wants to go into debt, as it usually does).
>give back to the society that enabled the profit
Most government expenditure (see: military spending unnecessary for national defense) does jack shit for your economic productivity.
Having a 35% corporate tax AND a 35% income tax on all earners who make more than 120k/year, means the Government would essentially recieve %70 of all of Netflix's revenues, assuming inbound revenue and outbound expenditures are maintained at a 1:1 rate of growth.
Netflix doesn't pay (nor should they be paying any) taxes right now because they invest heavily in producing original content using borrowed money. When that original content flops they still have to pay back all that money they lost plus interest.
Netflix might have made a ton of profit this year but im pretty sure they are still heavily in debted (in the billions last i checked). To tax netflix at 35% now that they are finally starting to see a return on their investment would only cripple the corporation from maintaining their upwards momentum of growth.
You only want to start taxing a corporation when they are completely self reliant on their own revenue when funding their day to day operations and investments towards R&D.
I wonder where all this falls on the laffer curve:
Either way it seems that well paid accountants are easily winning the arms race on how to avoid taxes. I'm curious if a government can actually win that race.
The effects of the current tax laws were well known before they could even be observed.
The government can easily put a stop to this. It's just about electing the right people, in the right party that aren't going to invoke visions of political and economic astrology. I think it goes without saying which party to NOT choose.
Take a look at Netflix’s free cash flow for a better understanding of what a SaaS-type business experiencing hyper-growth looks like.
Their customer acquisition cost in this case is spending on content. That content will be consumed (and hence “paid for”) by subscribers primarily over the next 1-3 years.
So as they ramp up their subscriber count, and likewise ramp up their production spending, they are constantly outspending “Year 0” (today) to create content which will earn back that money, and then some, over the next 1-3 years.
Netflix is able to report financial metrics which show “Net Income” I think (and I haven’t dug into their statements to confirm this) because they spread/amortize the cost of licensing the content over the timeframes they expect it to be used.
Whereas for tax purposes, the money they are spending on content can be deducted fully in the year it is spent against income for that year.
As long as Netflix grows the amount they spend on content each year, they will have negative free cash flow and pay little to no taxes.
If they grow their subscribe base at 20-30% YoY it means they can spend 20-30% more on content this year than they would typically be able to spend based on their current subscription revenue. E.g. if they spend 60% of revenue on content, and content is consumed over 3 years, they can spend closer to 80% of this year’s subscription revenue on content, and in theory over the next 3 years they earn it back. By doing this, as far as the IRS is concerned their cash flow and net income is truly negative.
Eventually a company will flatten out its growth curve and the weight of servicing all that debt will require spending on content to fall below the subscriber revenue, and in the long run cash flow must be positive for a company to survive.
Keep in mind income taxes are just one for of tax revenue that is generated by a company like Netflix. There is a tremendous amount of tax revenue generated overall by Netflix, everything from taxes on the internet connectivity people are buying to use Netflix, to sales taxes and employment taxes.
In any case, Netflix is still cash flow negative and probably carrying forward previous losses. If that's undesirable, change the tax code, but still would rather Netflix have the money than Uncle Sam.
One word to describe it is Leeching.
Just because you could do something does not mean you have the right to do so.
Here is the Golden rule https://en.wikipedia.org/wiki/Golden_Rule "One should treat others as one would like others to treat oneself (positive or directive form)."
The fact is, a company is a fiction and the idea that you can tax a fiction is just...fiction. But if the state didn't do it, then one or all of the following might notice that in reality they are paying quite more taxes than is actually leaving their account: employees, investors/owners/shareholders, suppliers.
https://s22.q4cdn.com/959853165/files/doc_financials/quarter...
They paid 15 million in tax for 2018.
They would have to lower their prices in order to keep the same price to the end user (to keep the same number of users) and therefore get less profit.
Is it because in the states you show the same price and local (state) sales taxes are added on top that makes it a tax to the consumer?
Could try and pass legislation to force all companies to only ever advertise after-tax prices, but that's a doozy to enforce.
Sales tax is always regressive. The only ones who are paying it is the consumer.
We have no problem enforcing the after-tax rule in VAT jurisdictions.
Rather, you should be mad at your elected representatives at the federal level and in the state of California in particular that they passed the laws that make this possible. Stop electing the same idiots for decades, force them to pass term limits, and _maybe_ something will change. Until then, enjoy Netflix's free ride.
Why is there no YC/SV initiative to help make tech companies freaking pay their goddamn taxes?
Sounds easier than basic income experiments, robocars and going to Mars.
I genuinely wonder which is harder. One is a problem of politics and capitalism, the others are largely technical hurdles and one where you're giving away money instead of trying to take it from giant corporations with armies of lawyers.
This combined with the lobbying power that the said company X has, takes away any incentive someone might have to do something.
Limiting the lobbying should probably be the first step.
This greatly annoys me. We have a massive federal budget already. Personally 30 cents of every 100 cents I own is taken from me forcibly.
Carryover is a pretty basic aspect of corporate taxes, and it makes sense. Previous years' financial performance (losses, debt) can carry over into the current year.
If they are okay paying no tax I'm okay not paying for their content.
I made a copy of that through 2read, here's the IPFS cached copy https://ipfs.io/ipfs/QmWAz8WZsufXPJFCWaneCt4QsvxiYumUQjZgpt2...
Is it different when Netflix takes advantage of the tax code to not pay taxes different than when I do it? For example, I'm married and file jointly because it lowers my tax bill compared to if my wife and I filed separately.