Warren Has a Good Beginning for Ending Corporate-Tax Avoidance
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They pay, or should pay, for education, health, military, roads and infrastructure and a wide variety of other stuff that is good for everyone.
It puzzles me that people hate taxes so much.
I agree with that notion to a certain degree. For example, I wish there is a way to allocate the tax that I pay yearly to the programs that I want to fund. Specifically speaking, say if I pay $100 in tax, I should have a say to paying at least $50 of that to programs that I think are important for me (e.g., dept. of transportation; dept. of education; EPA...)
Which is the whole reason why individuals should not be making such choices. Small, marginalised causes or departments should still get funding.
If we followed your method of fund allocation, some aspects of Govt would not get any funding at all. You may also end up funding departments which don't need as much funding. This misallocation is worse than today's imo.
Isn't that what voting for representatives that represent your general viewpoints is meant to do? You delegate decisions to representatives because it wouldn't be practical to keep up with everything you need to make a large number of informed decisions.
The idea is that rugged individuals should have absolute property rights, and that business will take care of things.
I don't have a solution for a better system, but I can absolutely see why people do not like taxes. They aren't building the world I want to see.
People's problems with taxes typically fall into two buckets, sometimes both.
1. On a fundamental economics level, the Government is an inefficient third party spender: it spends other peoples money on services it doesn't utilize. There is no feedback loop there besides bureaucracy.
2. We actually have a pretty moderate tax burden already, mostly footed by the average US worker. Everyone talks about the top rate, or federal taxes, but we also have sales tax, property tax, estate tax, in some areas a county tax on top of city or municipality tax, and additional education-related taxes, not counting the outlier states that have even more taxes on top of that. (There's a saying in NYC: Every day is tax day). The common worker pays the majority of the taxes, and they are the ones who are most sensitive to any increase in taxes, and feel pinched already, so they naturally, and very expectedly are against being taxed more. (Realize that the typical HN'er is not the average US worker, making ~60k median salary with few benefits)
http://fortune.com/2019/02/04/support-for-tax-increase-on-we...
this would contradict your theory that "the common worker hates taxes", since most Americans want more taxation, not less.
If you hate taxes and love services, the obvious thing is to get someone else to pay for them.
See? Platitudes are easy.
Reducto ad adsurbium just lets anyone sit comfortably inside the edge of the boundary you've set. It's an extremely uncompelling form of argumentation.
No, not at all. Democracy means rule of the people, not rule of the strongest.
> Just because something is democratic, doesn't mean that it is unassailably good.
Of course not. But if something is not democratic, then it is definitely bad.
> Democracy is another name for mob rule
Doesnt matter. That ``mob`` has a right not to be ruled by someone else.
> and provides zero protection for minorities against the majority.
It does not provide electricity either.
> There is a reason we are a republic and not a democracy.
That is an accurate description of North Korea.
It’s like asking somebody if they want free stuff. Of course they say yes, it costs them nothing.
Ask the same question where their own taxes go up and see what the answer is.
Reminds me of the HN thread about the 2018 tax changes (limited SALT deduction). The same people who call for higher taxes (many of them in the top 5% income range) start complaining about their taxes going up.
Everyone is fine with higher taxes when it’s someone “richer” than they are.
OK, why don't you ask these same people if they think taxes should be raised on people poorer than them. Do you think 71% would agree with that also? Because that also costs these people nothing, right?
In other words I disagree with your assertion that Americans cannot tell, or care, for the difference between an under-taxed wealthy person and an over-burdened poor person.
> Reminds me of the HN thread about the 2018 tax changes (limited SALT deduction). The same people who call for higher taxes (many of them in the top 5% income range) start complaining about their taxes going up.
that is because property taxes vary wildly across different states due to policies of the local state governments governments and it amounts to punishment of states that have more comprehensive taxation and social services for their populations, in other words, have a larger number of Democratic voters. Taxation should not be distributed based on political affiliation. The states that have higher property taxes are less of a burden on the federal government since their populations are more educated, less desperately poor, and have better healthcare.
As you won't be surprised, I live in a SALT-sensitive state, but even people here who live below the poverty line in a house that was long ago paid for are being killed by their property taxes. They are poor people who are over-taxed and the recent changes made things worse. My taxes did not go up at all since my property taxes happen to be quite low in any case. However, I still oppose the changes in the SALT deduction, for the reasons above. So another anecdote of someone that can actually apply reasoning about the common good to a taxation question rather than caring only about myself paying more.
I know in many countries people are happy to pay taxes, if I saw everyone was treated well, got free healthcare and free universities I'd probably be happier about paying tax too.
How much do you think the Navy actually costs? Crunching the numbers, the tax the corporation I work at (admittedly, not a small company) is by itself sufficient to pay for running one of those carriers.
We don't need 355 deployable navy vessels. Improving education and health care of our citizens would do more to improve America's economic position than jostling for terrority in the Indian Ocean. Climate change is a bigger treat than terrorism.
It is important to note that the 25% for SS/MC is funded by a separate tax, targeted to those programs. Without getting sidetracked over budget unification, it is equally important to note that this separate tax has generated a surplus for decades, and has therefore been used to subsidize the rest of the budget.
The United States Federal Government is a heavily armed HR benefits company.
https://www.pgpf.org/budget-basics/budget-explainer-medicare
Edit: I think maybe you were reading a source describing "health care spending" including not only Medicare but also Medicaid, CHIP, health care for veterans, and possibly other categories of health expenditures. Which doesn't really take away from your point! TIL
During the Bush years, military spending was in the 25% (or greater) range.
SS/MC was lower (as a percentage of the budget) than today, but it was closer to 33% than 25%.
See e.g. https://www.thebalance.com/fy-2007-u-s-federal-budget-and-sp... which has links to other years.
I’m on the more conservative side of things, but I’m not opposed to taxes if they are efficiently spent.
I wouldn't classify taxes as "a good thing". I'd say it is a necessary evil or something that could be good in a limited form. If it truly was a good thing, then we should maximize the good and tax everyone at 100% and give all our income to the government.
Also, considering the poor state of our education system, healthcare, infrastructure and "wide variety of other stuff", arguments can be made that taxes aren't as good as people think. Toss in the neverending wars to justify military budgets, you could argue taxes are bad.
But I think most sensible people reject the good/bad extremes and take a moderate view. Some taxation are or can be good. It can also be wasteful and bad.
Your examples are great places to start. Is the military good for everyone? How have we been using it since WWII, and how has that worked out?
Is spending on roads good for everyone? Is the Interstate Highway System’s effect on the American lifestyle and built environment, on average, a positive one?
How is education funded? How is funding related to outcomes? Can you improve outcomes by spending more?
How closely does the political process track popular will? What considerations determine whether something gets funded and how much?
The world may be less puzzling (or at least, puzzling in different ways) when you become more familiar with the complexities and controversies in these questions.
What happens under high corporate taxes is that executives of the corporation manage to extract their share, while using the share of those not in control (the workers) to pay the tax. The end result is that the government does not decide who must pay; instead, those with power in the corporation decide. This outcome is always unfair to the worker: a line cook at McDonalds cannot decide whether McDonald's should cut wages or decrease dividends to pay for the corporate tax this year.
That doesn't even describe the case where a business cannot operate under a heavy tax burden and ceases doing business, which is a loss for everyone in the economy.
Taxes on corporations should be reserved for those situations where we need to control behavior at the corporate level, where a tax at the individual level cannot efficiently be used. For example; a carbon tax levied on a corporation to effect the corporation's behavior re: carbon.
This is not an argument for lower taxes.
This strikes me as an inflammatory — and generally untrue — statement. Even if you assume that all of these corporations pay zero federal income tax (they don't), then roughly half of Americans don't pay more (recall Mitt Romney's impolitic-but-true statement about 47% of Americans not paying any federal income tax).
But of course, most companies do actually pay federal income taxes, and when they don't it's often because of loss carryforwards. This particular aspect of tax law is not a "loophole", and lumping it in with lobbied-for tax credits/deductions doesn't help move the discourse forward.
The scope of the proposed tax hasn't been fully fleshed out, and I won't comment in-depth on it (as a former tax lawyer) at this point. But when I click through to see the original proposal and am greeted by this inflammatory and untrue statement, I am reminded that even the wonkiest of policy wonks will spin things pretty hard when it's election season.
"There are 47 percent of the people who will vote for the president no matter what. All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. That that's an entitlement. And the government should give it to them. And they will vote for this president no matter what…These are people who pay no income tax."
This is Protestant work ethic taken to a corrosive extreme. This is Romney playing to an audience that believes those who take government assistance are conniving malingerers looking to squeeze every penny they can out of hard working taxpayers. It is an indictment of people who had the audacity to be born without the ability to fully support themselves. It begrudges them for daring to ask for a home, food, healthcare and maybe even a few spare moments of happiness.
In my opinion, this type of thinking is the greatest moral failing of the 21th century. It frees the thinker of any social responsibility by demonizing those least equipped to defend themselves.
I do not agree with many of Elizabeth Warren's policy proposals. Her thinking on technology is dangerously benighted. I will not vote for her. But the essence of Warren's argument is that we need to rethink the relationship between the most successful members of society and the least. Tax loss carryforward is a standard accounting practice that makes rational sense. Nevertheless, it's the type of policy that helps those who need help the least, and I think we need to start to rethink these kinds of policies.
We as a society can continue to pass legislation that favors the strong and punishes the weak. What we can't do is look at ourselves in the mirror afterwards and continue to believe that we live in a humane, compassionate, egalitarian society.
Get rid of this and you will find all manner of foolish inefficient corporate behavior. Companies with huge losses will be bought by companies with gains they want to soak up that year. Companies will make investment decisions based on their current year's tax position instead of the needs of the business. The end result will not be a more equitable system; it will be a system in which tax lawyer and accountants are the only ones who come out ahead.
And to be clear, I only mentioned Romney's infamous 47% line because it is well known and makes the point quickly. There's no need to rail against the larger message he was giving, which doesn't bear on whether Warren's headline is accurate or misleading. It leads us down a rabbit hole of discussing whether it was appropriate in the context (stumping to potential donors, IIRC), etc. I only referenced it because many people are aware that he said it and that it was a controversial comment but a true one.
Here's an easy plan to end tax avoidance:
1. Any company that sells more than $X/year to people living in the US needs to be registered in the US.
2. Flat tax with no exemptions (all corporations would be taxed like C-corps).
3. No more rules.
A plan that won't work is one that adds even more rules on top of the the enormous mound of rules currently in place.
People need to remember that the United States doesn't exist in a vacuum. We are in competition with all the other countries out there. Maximizing productivity matters at a national level.
The more competitive we are, the better off Americans are on average. If we lose that lead position to other countries, we may achieve greater equality internally but we will be worse off relative to the rest of the world.
The idea that there's a substantial aggregate effect on behavior if you increase taxes from 40% to 41% probably needs a little more proof than just assumption.
And for those below the median wage, they can just keep making all the money they want all the way up to that median wage and pay $0 in taxes.
What exactly am I missing that's giving me all these downvotes? I just want a fair tax code all the way up and down the socioeconomic ladder and I want to wipe out all those incredible deductions given to the capital gains class so that we're all on the same page.
My definition is that everyone has skin in the game and feels the same pain when it comes to raising or lowering existing taxes or creating new ones. Any thing else is a wealth transfer and theft from one to give to the other.
Having everyone feel the pain proportionally, would have all taxpayers questioning the efficiency of how their money is used. When most taxpayers don't feel the pain is when government starts wasting money. Why pressure governments to provide more bang for the buck when you're not the one footing the bill.
Furthermore, you're also distorting the cost of labor and distorting how taxes are handled. Those that don't pay any taxes end up providing artificially cheap labor. If a worker needs $10/hour for it to be worth their while and the taxes they pay are $0, businesses will pay $10/hour. If they need $10/hour for it to be worth their while and their taxes are $2, the business will have to pay $12. If the product/service the business provides sells for $20/hour, the business gets $10 in the first scenario and $8 in the second scenario. The business actually makes more in the scenario where the labor doesn't pay taxes and businesses are better at avoiding taxes through clever accounting so less money is likely to be raised than a flat percent that everyone pays with no loopholes.
Having the rich pay all the taxes also gives them the most economic incentive to make modifications to the system in their favor, and it puts the most money in their pocket to spend on lobbying activities. In the example above, the business has up to $10/hour of profit to allocate to lobbying with when they are paying the taxes.
At the end of the day, the market will adjust to all the distortions you bake into the system, hiding the true cost of inputs needed to produce goods and services, which reduces market efficiency.
Overall, society is better off if things are priced as accurately as possible since people can make more accurate decision about the worth of providing goods and services. This also applies to making sure the costs of externalities are priced into the goods and services provided.
I believe in economics but I also believe we are living in a deranged Markov process with selfish actors. and I don't see how allowing multi-generational piles of money to accumulate is good for society in the long run because you end up with an unassailable ruling class which is exactly the opposite of what this country has evolved towards until recently, no?
I'm no fan of either major political party because the right cuts taxes and increases military spending whilst the left undoes those tax cuts and increases social spending. And in both cases we go deeper and deeper into debt.
What's your solution here? I could go for a wealth tax or I could go for 100% inheritance tax here. And in doing so eliminate income tax. I'm open to anything that doesn't excessively redistribute wealth yet at the same time stops the accumulation of wealth into a very small number of uber wealthy families.
I think it's not obvious to everybody that what you're suggesting is really a progressive income tax, BTW, since that flat rate is paid on different proportion of income, and with a high enough cut-off, it can easily be more progressive than our present arrangement for most middle class tax brackets and below.
Edit: This wouldn't stop a company from doing what Amazon did and reinvest all the time but at least given a profit an entity would be pressured to pay out cash in order to cover tax liability of owners. Would help avoid hoarding of cash on balance sheets.
While strictly better than the alternative for business owners, I always felt the incentives were a bit weird; if you left profits in the company to expand, you'd pay tax on that up front which would slow growth. So it would bias you towards withdrawing profits (at least compared to the tax policies of other countries).
https://en.wikipedia.org/wiki/Franking_credit
In my opinion, corporate taxation should be tied to liability; essentially being the compensation to society for the risk that your company will go though bankruptcy. If you are willing to be personally liable for your business, you should be able to operate it as a simple pass-through vehicle. And this should apply even to something the size of Apple - investors willing.
It's commonly argued that capital gains combined with corporate tax is double taxation, but limited liability has a huge amount of value; making the link between them explicit and optional would (I think) be the best of both worlds.
If Apple were suddenly permanently excepted from income tax tomorrow through some bizarre legislation, its future dividends would be proportionally increased, and its market cap would (should) rise to match.
The water is muddied due to a few factors such as inflation, uncertainty around future tax rates, potential tax holidays for overseas income etc. But they're in very general terms two sides of the same coin.
In theory, dividends and stock buybacks perform the same function. Because stock buybacks have more favorable tax implications (capital gains instead of income), they are often favored by institutional investors (who also like the added liquidity).
And if you eliminate the corporate tax, it follows that repealing the bush tax cuts would be a thing, because no more double taxation argument.
You kind of want to collect at least some taxes in the year the economic activity happened.
The difficulty with taxation is not calculating tax rates, that's simple, the difficulty is determining what is taxable income/profit.
Exactly! Flat tax is just another trick to reduce top tax rates while not solving any problems.
If you really don’t make money then you should be required to report that to your shareholders, and conversely if you tell your shareholders you’re making money, then you should be required to report that value to the irs.
I don’t care which one you use (I mean I do, but in this case it’s not the specific point), what I’m saying is you don’t get to make money by having overvalued shares (by giving one profit number or the market), while not paying tax (by reporting a different number to irs)
"Accounting for Growth" was a classic book written after the late 80's stock market bubble in the UK about how people were fooled by bad accounting and how to spot fraud. One of the main pieces of advice is that the tax number is usually more correct. If a company says it makes huge profit while paying little tax its likely not real profit.
Andrew Yang's proposal of doing a VAT might be another way around it, though I'd guess that probably has other problems.
It has upsides and downsides.. it certainly encourages reinvestment, rather than pulling the money out.
You could mark to market, but it's tricky for investments that aren't liquid. Do you want to pay capital gains tax on your house every year because the market price is supposedly higher? Do you get it back if the market goes down again?
This proposal assumes that, when the tax rate is based on the value of reported shareholder profits, corporations will continue to report their "true" profits to shareholders, rather than just reporting the values returned by corporate accounting tricks to shareholders. I doubt that would be the case. The best argument for it I've seen is "Presumably they want the stock to go up so they will report a profit", i.e. investors will move to companies that are on paper more profitable. But actually, investors do their research and can update their profit models of companies; a higher reported profit number will be seen as (and will actually be) a liability to the company. Companies that forgo accounting tricks will be seen as forgoing potential profit by paying taxes that they don't need to. (The same is true today; if Google announced today that they were voluntarily giving up tax accounting tricks and paying full rate, their share prices would go down.)
The one caveat is whether the SEC enforces that the reported profits really are the true profits. But that model of enforcement (self reporting, cheaters rarely get caught and if they do settle the cases for amounts less than their profits) is silly. If we want taxes paid on true profits, we should implement tax law that precisely defines what those are and instruct the IRS to determine those exactly and send them a bill. Reporting requirements to the IRS should be set up with incentive structures that make cheating unprofitable or impossible.
There's an argument to be made that we can get foreign shareholders to pay taxes they otherwise wouldn't, but that's a much different argument than "corporations aren't paying their fare share".
That's not correct - corporations are meant to be paying significant tax.
Which IMO is a fair group to target. But that's the point. Corporations are just things that are owned by people. People, ultimately, pay the taxes. So the question ought to be, which people do we want to pay more taxes, and what's the best mechanism to get them to pay those taxes?
I disagree, you're skipping a huge governmental benefit that almost all the biggest corporations request/receive: "Limited Liability."
If Nuclear Asbestos Infant Toys goes bankrupt, everybody else is picking up the tab for land-cleanup and tumor-removal.
In other words, those owners have chosen to socialize their company's risks, so it's only natural and fair for some of the company's profits to be socialized at the same junction.
But then company owners ought to be able to drop the limited liability feature and receive a lesser tax burden, right? I'm suspect Apple's owners would be happy with that trade. Unlimited liability in exchange for a zero percent tax rate? Bring it on. What, realistically, is the most damage that a computer is going to cause? The damages from patent infringement are often limited by the economic harm, which is at any rate likely to be far less than profits.
Not to put words in your mouth, but if I had to guess you would not be willing to offer companies this out. I think that should make you question whether limited liability, specifically, is why companies should be taxed.
Ultimately corporate taxes come out of the pockets of owners (via lower profits), workers (via lower wages), and customers (via higher prices), with the exact incidence depending on a number of factors.
Even when corporations do stock buy backs, it's not like most of the money goes to the investors to spend frivolously. Instead most of it just gets reinvested in different businesses that have a better plan for the money than the company that did the stock buyback.
Any way you slice it, Warren's plans just reduces reinvestment and puts the brakes on economic growth. You can't tax your way to prosperity unless the taxes are used strictly for things that are an investment in the economic future of the country such as education and infrastructure. Taking the money from those investing it and blowing it on entitlements is a terrible idea.
At the end of the day, all this reinvestment creates jobs and allows individuals to provide for themselves instead of being dependent on sucking at the teat of the state.
The idea that money is better in private hands than in the collective hands of government is a story that is oft repeated, but is far from proven. Arguably, studies I've seen of late show loss of efficiency and increased cost when privatized. This is a requirement for profit anyways.
Further, money spent by government has had massive effect on economic growth. Hoover dam made the much of the West livable, nasa still had massive scientific output, and welfare programs are incredibly effective.
While I agree that Amazon should pay their fair share, I find it hard to believe that there is a general loss of efficiency when privatized.
Companies have strong incentives to reduce costs, whereas government projects often have negative incentives to reduce costs. (Cost-plus contracting and use-it-or-lose-it budgets).
NASA is a great example, that organization made some amazing breakthroughs early on, but has arguably stagnated. It is now being surpassed by private companies due to ballooning bureaucracy and cost-prohibitive mission proposals. Something that many thought impossible.
https://www.scientificamerican.com/article/space-exploration...
NASA should go back to working on big leaps instead of being forced into things like the SLS by Congress. But private companies would go nowhere without the public investment through NASA.
The main problem with taxes used for roads is that they are grossly distorted. We should be paying for roads on the basis of vehicle miles traveled multiplied by gross vehicle weight per axle. That would force those responsible for the most wear and tear to roads to pay for the maintenance. This may increase the cost of goods and services to cover those costs, but at least then those goods and services will be accurately prices based on the input costs and that will determine if they should be produced in the first place and if so, in what quantities.
If trash needs to be moved, charge for that service. That's what most businesses do. It's part of the costs of doing business and ends up impacting the price of the goods and services produced.
For crime and military, even those are being paid for, directly and indirectly, by the business. By hiring people or making purchases, they are paying sales and payroll taxes and the people they employ are paying income taxes. The amount of taxes paid is proportional to the economic activity they produce. If they reinvest more, they pay taxes on that additional activity.
The idea that some companies pay zero taxes because of zero profits is a blatant falsehood. Their activities still result in taxes being paid, just not on taxes on profit.
Amazon benefits from many government-funded programs: educated workforce, road & rail infrastructure, national defense, judicial contract-enforcement, etc.
Is it fair that a company that reinvests gets all that for free while a company that makes a profit pays substantially?
Corporations are really just groups of people. Those people already have to pay taxes on the income they receive from the corporation. They shouldn't have to pay taxes on it again when the corporation reports it as income.
The presence of loopholes, tax havens and other mechanisms (including corporations themselves) for hiding personal income means the bucket is very leaky.
Given that corporations have to maintain complete records of their cashflows and disclose them to investors and authorities anyway, using this data for intermediate tax collection seems reasonable.