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I was listening to Presidential candidate Andrew Yang in his podcast with Joe Rogan. His plans, since there's a lot of avoidance, is to attempt a different route called a "value added" tax where there's a tax for trucking mileage and online transactions. He mentioned other countries to both of these, but don't remember which he mentioned off the top of my head.

Here's the podcast for those interested, there's a lot of other interesting discussions here that are related to this topic, such as automation and basic income. https://youtu.be/cTsEzmFamZ8?t=843

A VAT tax makes a lot of sense. It would reduce the incentive for large market quasi-monopoly seeking companies to optimize for no profits to avoid taxes. The current dynamic is- why pay taxes when you can spend it to expand your market share?

VAT in European countries is often the highest or the second highest revenue stream. The downside is that it's usually a flat tax and it disproportionately affects poor people.

Except Digital sales take place in no-man's land, and are hard to tax. A federal tax hits Amazon, but would it hit Alibaba? The specifics are what make these ideas so difficult.

I think that's pretty simple. If the purchaser in this country, tax them for that sale.

VAT taxes are extraordinarily regressive. Next to lowering taxes on the rich, it's among the worst possible options.

Increasing the income tax and taxing capital gains at regular income rates, along with bolstering estate taxes on the rich, are the ideal near-term solutions to the US budget problem. The US still has a lot of slack taxing capacity on the wealthy. That should be maxed out long before we look at a VAT.

What if they're only imposed on corporations?

Can you expand on why you think it's regressive?

> That should be maxed out long before we look at a VAT.

This is relative. The US government sucks at being efficient.

Not the person you asked, but as I understand it, poor people spend a higher percentage of their income on goods and services (because they have less left over after paying for basic necessities). So a higher percentage of their income is lost on VAT than a richer person. This makes it a much less progressive taxation method than e.g. Income tax.

Regressive taxes can be fine, as long as you balance them with transfer payments so that the poor don't end up paying more.

They might even make the economy more efficient. I'll leave that argument to the economists, though.

I think you also need to have tax breaks on certain things, for instance groceries and non-luxury clothing. Many high-tax, high-CoL states here in the US are like this, so that poorer people don't pay so much for essentials.

Suddenly it strikes me that one fix might be eliminating international subsidiaries. It's possible it would be hard to enforce in practice, but the crux of the problem is the absence of a competitive relationship & autonomy between these supposedly independent companies.

> one fix might be eliminating international subsidiaries

I believe that means "no multinational companies" - one could certainly argue for that, but it's a much bigger discussion. And I think you would have to end up forbidding citizens (residents? how does it work when you move countries?) of country A owning shares of company in country B if you really wanted that to work.

The obvious solution is to eliminate corporation tax and shift it to areas that are harder to avoid such as dividends, capital gains and land value.

Or stop taxing "profits" but tax every transaction on its total amount, that would also end a lot of "tax niches"

We already have VAT or sales tax.

> Or stop taxing "profits"

By "profits" I meant to stop business being able to claim expenses and reduce the tax. We could replace complex taxation scheme only-on-positive-profit with a simple 1% (for example) tax on all transfers, on the total amount, no matter what is the purpose of the money transfer

The trouble with that is it will penalise low margin businesses, Apple could easily afford it on their 30% margin but a budget PC maker with a 3% margin would struggle.

Small businesses are already penalized by our current laws and ways of taxing profits. I believe the alternative I am proposing (that will never come to reality) is easier for everyone

Sure, it's easier, but it also means you'll just have a bunch of giant vertically-integrated monopolies. Easier, sure, but I don't see how that's better.

It's better because it's cheaper for everyone to do business. More competition, everything gets cheaper.

That incentivizes the creation of vertically-integrated conglomerates over small companies, in order to reduce the number of transactions; is that what you want to foster?

You need to take into account all the simplification it would imply in tax collection / paperwork / regulations etc. The cost of our current ways of taxing wealth and profits is huge

In the US, the IRS collected $3.33 trillion in revenue in 2018, with a total budget of 11.5 billion (2017). Thats 0.3453%, or 35c per $100 of tax revenue. Fairly minor in the scheme of things.

Monetary costs are a small subset of general costs (and the cheapest ones, easier to know and aggregate).

that's only one side of the ledger (collection). Now calculate the costs to the taxpayers (people and corps).

You mean like VAT/GST.

Not like GST : it would be on all transactions in the legal currency, including B2B. There wouldn't be an artificial difference between "businesses" and "customers"

Not like VAT : VAT is way more complex and expenses are deducted at each step

So cheaper for large integrated companies? Sounds like it'd really hurt competitors starting up.

It would kill any business with a long supply chain, the only manufacturers left would be the ones where ore arrives at one end of the factory and finished goods come out of the other end.

It would be cheaper for everyone because of tax simplifications. Current system is already unfair to a lot of group of people, including small businesses. And large company also have money transfers so I am not sure to understand the example unless we go into the specifics a little bit more

How does that help France? Those taxes would still be paid in Ireland.

Sounds very reasonable. I'm sure there's a catch, but I don't see where it is.

Taxing a business looks like a weird thing to do: a business can only spend money on business-related stuff pretty much by definition.

In order for money to be spent on non-busines things, it should be paid out as a salary, dividends or something like that which we know how to tax pretty well.

I'm certainly missing something, but what?

Not an economist so I don't know the official reason. But a corporation can theoretically accumulate profits indefinitely without making a payout, while governments need stable yearly revenue.

Maybe more material from a public policy point of view is that we like to tax different things at different rates, to favor or disfavor spending on various things. Hard to tax a salary based on what the employer spent their money on.

A corporation could accumulate although I expect shareholders would stop that fairly quickly.

You could still implement Pigovian taxes such as fuel or alcohol duties.

There's many valid reasons for accumulating profits, such as planning buyouts or expansions. That being said, sometimes it can be done for reasons such as waiting for a preferable tax regime. Due to that, some countries have a separate accumulated earnings tax that is similar to individual wealth taxes to disincentivize accumulating without a business purpose.

It's tax avoidance because we call it that, so why don't we start by not saying tax avoidance anymore and call it tax evasion like it literally is when a company invests massively in accounting to abscond with their taxes.

There's a big difference between the two. Tax evasion is breaking the law to pay less tax. Tax avoidance is working within the confines of the law to pay less tax.

Putting money in a retirement account is a form of tax avoidance, but it was provided and is working as intended. The issue is not the definition, it's that legal loopholes allows unintended tax avoidance. The way to correct it would therefore be to close the loopholes, and many of the remaining loopholes span international borders and are tough to close without negative unintended consequences.

The difference between avoidance and evasion is only relevant if you have tax law interpreted to the letter only.

Tax law should be interpreted by the lawmakers intention and companies should be ready to be fined or uptaxed if authorities find they pay less taxes than is reasonable given global profits and relative turnover within their jurisdiction.

Constructs such as paying “royalties” to parent companies, or taking very expensive internal loans to effectively move all profits to tax havens (using Dutch BV’s etc) should simply be outlawed. Countries simply shouldn’t recognize these as acceptable practices.

This obviously leads to what companies like to call a “hostile business climate” - so a country will need to be pretty attractive in other aspects to not scare off international business.

It's unreasonable to expect judges to divine lawmakers' intent on subtle issues of tax policy. If lawmakers want a tax to work a certain way then they need to just write that down so that it's clear to everyone.

You liter ally put it in a preamble.

Like, if you say "this tax break is intended solely for people who sell second hand cars" then you don't have to spend 100 pages exactly specifying every nuance to 100% prevent people not selling second hand cars from taking advantage of it.

Ots called principles based tax code and it works.

I was initially high sceptical of the idea but, based on outcomes, it is a vastly superior system to rules based tax codes. It makes it far simpler and clearer to everyone.

If it is that simple, you can add a clause to the law that makes selling second hand cars a requirement.

Then you have to clarify how much of your expanses are eligable. Just those directly involved in the sale? Upkeep of your main facility? Upkeep of your satalite corporate offices? Your finance division?

What if you sell new and used cars? What if you are actually a battery manufacturer that makes and sells cars and also buys back and resales used cars?

What if you are a software engineer who sells your current car every 6 months?

But what if the people 'engaged' in the selling of the cars are only tenuously engaged in the activity and are simply trying to game the law and rack up paper losses?

All the car buying and selling is racked up by agents working on their behalf and they pay absolutely no heed to buying a selling cars?

http://www.mynewsdesk.com/uk/hm-revenue-customs-hmrc/pressre...

https://www.theguardian.com/media/2014/feb/21/chris-moyles-u...

I disagree. Tax laws should be simple and explicit. The people in charge change over time. I don't trust that the people later will interpret the laws the same way as the people today, or that either will interpret the laws the same way they were intended, or that the group of people that wrote the laws all had the same intent.

> I disagree. Tax laws should be simple and explicit. The people in charge change over time. I don't trust that the people later will interpret the laws the same way as the people today [...]

You can say the same about law in general, yet law isn't "simple and explicit". It is very complex, hard to grok, therefore only a small amount of people are able to, leading to expensive lawyers and a law system which the poor cannot afford (ie. class justice).

Yes, ideally I also want laws to be simple and explicit. I'd even argue that worked quite well before globalization. Now it doesn't anymore. We need to adapt.

Crimes much more serious than tax evasion have grey areas specifically to create room for judicial discretion. Words like “with malice aforethought” or “forcibly” are used in statutes because the law can’t preconceive of every possible way to commit a murder or rape.

And crimes much less serious, too. There's a LOT of US laws that are intentionally vague and/or grant far too much leeway for the justice system. The grants extraordinary power because of edge cases they want the law to be able to handle ("think of the children"). Yet time and time again, it's the average Joe that has the law abused against him. These overly vague laws are used incorrectly, and yet we keep creating them because we don't learn that the people in power cannot be trusted; most of them are good, but it only takes one bad apple to ruin the lives of many people.

That would be a nightmare.

First, tax laws don't have clear intentions to begin with -- if a tax law passes with 51 out of 100 votes in the legislature, all 51 representatives could be supporting the "letter" of the law for 51 different actual intentions, many of which might not be noble in the first place (e.g. give a particular local factory a tax break to win more votes next election).

Second, because of this, "intention" would be left open to completely different interpretation by different judges and result in completely arbitrary, non-predictable outcomes in different cases, which would be a nightmare for companies to even attempt to comply with. There's a reason that laws are interpreted by their letter -- it's the only fair way to do it.

Third, the tax laws are passed by different countries and are not harmonized, so even if they had clear intentions, their intentions can completely conflict, and there's no reason why they should be harmonized -- different countries are allowed to have legitimately different philosophies on taxation, there's no "right" answer.

The things you say should "simply be outlawed" -- how? How are you going to determine which internal loan is merely "expensive" (OK) versus "very expensive" (not OK)? How are you going to differentiate between legitimate payments and the "royalties" you put in quotes that you call a construct?

The usual solution is a "General anti-avoidance rule" (GAAR). This doesn't get into the intent of the tax law, only into the intent of the business action. If there would be a simpler, more natural, and otherwise cheaper way to do it, but it's been done a particular way to avoid tax, then it's unlawful.

This seems kind of like the "What is / isn't gerrymandering?" problem.

I am not an accountant, but couldn't most corporate structures be reimagined by taxing authorities as an idealized "single company"?

Then calculate the difference between taxes that would be owed by that company vs the actual structure?

If there's a statistically significant discrepancy, require the company to provide a rationale. Or pay some penalty.

I wonder how well that would work for intangibles like branding, patents, or copyright - all three are artificial and can essentially be charged for arbitrarily and the company value is what provides their worth.

I suspect it would be easier to have a subsidiary rate rule - they may charge percentage either net or gross but not expenses for any IP including required external salaries but even that probably has loopholes or inviabilities.

> The things you say should "simply be outlawed" -- how? How are you going to determine which internal loan is "expensive" versus "very expensive"? How are you going to differentiate between legitimate payments and the "royalties" you put in quotes that you call a construct?

Example for interest rates: Credit risk and intrabank/central bank rates are considered by courts when judging whether a rate is “too high”.

Swedish tax authority guidelines from past cases

https://www4.skatteverket.se/rattsligvagledning/edition/2019...

Summary - interest rates should be based on market conditions and credit risk

- internal loans should not use significantly higher (or lower) than loans between independent parties.

So: the authority already makes a judgment of e.g credit risk. If the tax authority thinks the interest rate was too high, they will say what would have been reasonable - and the company will be taxed for the increased profit as a result of the lower interest rate.

I don’t see anything controversial about this and I assume this is how tax law is interpreted and enforced globally.

It should be noted that such cases are usually lost by the authority - that is, the courts do usually not find the tax authority could prove that the interest rate wasn’t a normal rate based on market rates and risk. I don’t think that’s a problem, but I think it’s important that this is how it works.

It's more complicated than that.

A few percent here or there is all it takes to make a company unprofitable. Most companies don't have huge margins even when they're not trying to reduce them on purpose. You don't need the rate to be higher by a lot, only a little.

And then there is the principal. If you want profits in a jurisdiction, the entity there can get cash by e.g. selling its shares to the parent, which it then has without having to pay interest on. If you don't want profits there, the parent pays nothing (or some nominal amount) for shares and the subsidiary borrows all of its capital, which it then has to pay interest on at prevailing rates which may by itself exceed its profits indefinitely.

And loans are far from the only opportunity for this sort of thing. Pay slightly more for COGS to a sister company and you make significantly less profit, because a small percentage of gross is a large percentage of net.

One percent here, two percent there and soon a 10% margin is -0.1%.

What causes this is trying to tax something (profit) which is independent of any specific activity or jurisdiction. If a company makes phones and sells them, there is no principled reason why a certain percentage of the profit should go to the place where the phone is manufactured vs. designed vs. sold vs. the residence of the investor(s). If your jurisdiction is the one where they're sold but not manufactured or designed etc. and you want to tax that, the bleeding obvious way to do it is with VAT or some similar product/service tax. Trying to contort income tax into that shape is silly and just provides more opportunities for lawyers and accountants to find new loopholes.

Yours is a very well reasoned argument.

We already have rules requiring that! So what's the content of your proposal?

My parent post was a description of how we already have “arbitrary judgement” - so my previous suggestions to e.g tax income based on share of revenue in a jurisdiction would be arbitrary but no more arbitrary than what we already have.

I don't think it is unheard of to have a judge interpret the intention of a law.

Enforcement of tax law is based on the spirit of the law, not just the text. Things which are legal for a few years could become illegal the best without any change in the tax laws themselves, though this is only a real risk if you structure your activities within the letter of the law but not the intent of the law.

(I'm a tax lawyer.)