Biggest companies pay the least tax, shows new research
theconversation.com
theconversation.com
https://cepr.net/book/rigged-how-globalization-and-the-rules...
Select a corporate tax rate and require nonvoting shares given to a government fund equivalent to the tax rate percentage of the company. If you buy back shares, you buy back the same percent in government shares. If you give a dividend, it goes to the government fund in the same proportion. If you issue new shares to your executives, the government participates at its rate. For companies like Abbott which return a lot of profits, the people benefit the same way. For companies like amazon, the people continue to own shares in a company that investors think will eventually return those profits.
A large part of trying to hide profits will go away because the shareholders will be incentivized to have proper accounting and the public will benefit.
Governments don't want a stake in future profits, they want to tax income. Dividends payouts are taxed 'again' at the time of payout. Share buybacks are taxed 'again' as capital gains and FYI that has nothing to do with the corporate tax rate, that's part of personal income.
Your Amazon example is flawed:
If Amazon is worth $100B it's because people think they will eventually have $100B in the bank. Or a financial equivalent of cash flows. Either way, it means people assume profits. If that's true, then the taxable income will also be there, in which case they'll have to make $150B in income, then pay tax THEN have the $100B in the bank (or financial equivalent).
So the government 'taking an equity stake' at formation, and sitting on the stock is moot: they already get a 'stake' of the income stream that forms the basis of that valuation.
That Amazon pays no tax is not such a bad thing - it means they're making $0, which means the surpluses are going to their suppliers, customers or employees etc. All of whom are taxed for those surpluses (except for consumers).
On the other hand, if the share price has increased because the company is more valuable, then the government shares have also increased. If there is, in the future, a 1% quarterly dividend, then the government will partake in a 1% dividend on its higher-valued shares as well. The federal government doesn't need to pull in all the money now. It has a large ability to borrow where it needs and corporate taxes make only a fraction of tax revenue.
The current problem is that, in theory, it is worth it for a company to pay accountants and lawyers $99M to reduce the tax bill $100M. Economists call that waste. I'm pretty sure just about everyone else thinks it's problematic to create industries that get rich off of nothing but moving money around to avoid paying taxes.
The whole problem is that the public is not getting a "stake" of the income stream. The law says we do but in practice we do not because the money is being very cleverly moved around.
Arguing that there should be no corporate income tax is a different thing. This discussion is about how to collect such a tax.
"On the other hand, if the share price has increased because the company is more valuable, then the government shares have also increased"
These two statements are completely contradictory.
>>>>>>> "The current problem is that, in theory, it is worth it for a company to pay accountants and lawyers $99M to reduce the tax bill $100M. "
This is not remotely true.
First, complicated taxation is the decision of the government, not the industry.
Second, Amazon's low tax burden is not a function of $99M in lawyers, it's a function of the fact they don't make any profits.
"The whole problem is that the public is not getting a "stake" of the income stream."
This is again, is not true. The public is absolutely getting a stake of Amazon's income stream. The problem (as some see it) is that Amazon has very little income.
Amazon, as it stands today is like a non-profit NGO. They make very little money. Their surpluses are given away to some other part of the value chain: suppliers, customers or employees.
This is specifically an issue of international repatriation and has little to do with anything else really - and your OP doesn't really aim at that.
Amazon is a poor example because they're not in the business of fancy IP arbitrage: this is what Apple, Google and FB do. Less so Amazon.
But the problem is that US taxation with respect to repatriation is messed up.
1) US corporate tax is very high - the highest in the developed world. 2) US expects companies to pay 'full tax' when repatriated money, even already taxed money. Every other country just expects a 2-5% repatriation tax.
The US tax system is not designed for globalism.
What the US and the world need to do is find a new harmony which will entail:
1) Lower US corporate taxes 2) Close all the special loopholes 3) Get rid of double-taxation on remuneration 3) Especially for digital and IP - taxes need to be paid in the local state where business is done. FB is selling ads and consumers are consuming them in France, then a good chunk of taxes need to go there. Same for Google. The US is going to have to eat this or face punitive war forever from EU and other nations.
If Apple has no reason to recognize profits in the US, I assume Matsushita has less reason to, so it doesn't really matter if foreign companies don't pay out to the US. If anything, it makes it more useful for the US government to prefer to give business to US companies.
I'd love to see how one would "close all the special loopholes" and force the companies to "pay taxes in the local state where business is done". This is exactly the problem. You reacted to the "ideology" of having a government share of the company, but your solution would require a much more invasive bureaucracy to accomplish the goal.
Today, we want stock market growth above all else and that is what we have. People complain Amazon pays no taxes (corporate) but they pay lots of payroll and property taxes and employ tons of others and enable other companies to thrive. This isn't strictly good or bad. We want our 401k going up 20% a year but also want companies to not make profits. These things are interconnected.
Every other retailer, employer also pays payroll, property, sales taxes too.
Superior tax avoidance as a competitive advantage is a serious problem. Would Amazon be so dominant today if they had had to play by the same rules as everyone else?
Taxes or no taxes Amazon got big because they relentlessly pursued these effects, and after reaching critical mass, there was not much anyone else could have done.
Now, of course these advantages should be taxed.
The typical case is small shops in all the cities around the world that are in very efficient markets. For example here anyone can start a hairdressing salon and can employ anyone. No qualifications needed at all. Only the venue has to pass some basic cleanness inspection. Consequently there is no big hairdressing chain, there's not much going on in hairdressing for the past decades. There's not an Amazon of hairdressing, and no one is investing billions into hairdressing R&D to become more profitable. It might change if automation reaches that level.
It's not like there is any shortage of people pivoting to entirely disrupt new industries when technology allows.
As for whether competition in that market is effective, I find that hairdressing is a great healthy market. No price gouging, plenty of options for the consumer. The price reflects the amount of time of individual attention spent by a trained professional with little to nothing on top. (Don't like your barber? literally just go for a walk and you can probably find a new one)
There is R&D in the tools used for hairdressing (scissors, chemicals, hairdriers, chairs, hairwasher chair), just as there is R&D in shaving tools (even if it's just adding one more blade, or using a better battery for electric ones).
Automation will eventually eat the world, why would hairdressing and shaving be the exceptions? Maybe that doesn't count as technological advancement strictly in those fields, but it'll certainly have an effect on those markets.
> If large hairdressing technological advancement was indeed possible then why hasn't somebody done it yet?
There's always a first. And likely it will come from some unexpected place, enabled by either some very general change (automation) or from some obscure thing.
Nicely compliments the policy advice of bailouts taking the form of debt, convertible to assets.
The main issue is that we have multiple tax jurisdictions. If a corporation is, say, based in the US, but also sells to Europe, what should be the rate the US and Europe charge?
Well, we can't split based on profits, since we already decided that profits are easy to game.
Maybe equity ought to be allocated on the sales split, since sales are harder to manipulate? But let's pretend in this scenario the US has a higher rate than Europe. I'm a tech company, my staff is in SV, let's say for discussion that that is a big reason why my company is successful.
Here, I have an incentive to not sell anything in the US. I get the best of both worlds: access to a great engineering team, and also a lower tax burden.
And what if I'm a startup, and I don't have any sales yet, but my valuation keeps rising because I'm actually doing valuable engineering? Which countries get a claim?
Maybe charge based on expenses? But we already saw that profits are easy to shift, which implies that expenses are easy to shift.
Ultimately, a fair regime would allocate equity to governments based on the future economic value to the corporation due to that country existing, but I can't think of any easy way to measure that split. This is the key point. Does the book detail how to solve it?
Also, you get weird effects, like clawbacks. Let's the US owns some large fraction of a company because it sells products there. A large recession hits the US, Americans buy fewer of its goods. Under this regime, the US should give up some of my equity stake because it's responsible for a smaller proportion of future profits.
As far as I can see we can either dilute the shares of the other shareholders, which really wont go down well with the shareholders, or we can buy shares in every company in the country, which will cost the taxpayer a mindboggling amount.
I mean I suppose diluting the other shares isn't all that different in absolute shareholder returns to what we have now, but the optics of seem somehow different and likely to cause trouble to me.
For example, amazon dividends have been $0 for a long time because like many companies in the modern economy, they reinvest profits. Shareholders are okay with this, because their shares increase in value, and a tiny bit because future bonds could exist.
However, in the modern economy companies seem to always reinvest profits right up until they collapse under their own weight.
I suspect the only reason we have corporate income tax at all is because clever financial engineers find ways to make what is really personal income to shareholders and management look like retained corporate income.
(I would add "windfall taxes" to the set of ok corporate taxes since those aim to redress a monopoly profit situation).
Sure except profits end up as dividends or stock buy back. Companies end up with limited cash and will still need a bail out.
What f&cks up the system is differentiating money you've made by buying shares, from money you've made by working.
Owning shares isn't contributing to GDP - working is.
For some horrifically f&cked up reason (lobbying) the former is taxed less than the latter.
Taxes should be directly proportional to what one consumes, not what one earns.
E.g. companies over $100b pay a 5% revenue tax. Over $500b pay a 10% revenue tax.
This exists for many giant companies; it's called "sales tax".
(Of course, sales taxes apply equally to small companies, so the incentive to break yourself up isn't there.)
As a matter of logistics, your claim isn't nonsense. But it is quite obviously false. The consumer gives money to the merchant. The merchant gives money to the government.
As a matter of legislation, it is, once again, plainly false. Here's the beginning of the California law imposing the state sales tax ( https://www.cdtfa.ca.gov/lawguides/vol1/sutl/6051.html ):
> For the privilege of selling tangible personal property at retail a tax is hereby imposed upon all retailers at the rate of 2½ percent of the gross receipts of any retailer
(emphasis mine)
And the law _must_ be stated that way, because if a vendor is selling something for $100 + sales tax, the customer pays $100 ("no tax"), and the vendor accepts it, the customer hasn't violated the law. The vendor is allowed to charge whatever price he wants. It's the vendor's responsibility to pay tax on the $100 of gross receipts he just received.
There is no framework in which "sales tax is paid by the consumer" is true. What were you thinking?
>There is no framework in which "sales tax is paid by the consumer" is true.
If you want to interpret him as commenting that the ratio of elasticity of demand to elasticity of supply is very low, you then need to explain how that observation fit into the conversation.
> Why do you think sales tax can't be incident on the consumer as you imply here:
>> There is no framework in which "sales tax is paid by the consumer" is true.
In the tax incidence framework, in order for the tax to fall entirely on the consumer, elasticity of demand would need to be 0. The easy point is that this is never the case. But the better point is that in this framework, you don't assign taxes to a single party, and therefore "sales tax is paid by the consumer" is a conceptual error.
You just replied and exhaustively dug up a citation to refute every apparent interpretation of a comment.. But the moment I point out the obvious, charitable interpretation you missed, suddenly, you can't google? This seems like bad faith. You're apparently willing to research every claim, as long as doing so makes someone else look wrong, but not when there might be an actual reasonable meaning of what someone else said.[1]
And then, again, you misinterpreted me to make my claim trivially false. I said that it's "mostly true" that the sales tax is incident on consumers, and then you "misread" me as saying that the burden falls "entirely" on the consumer, thus creating the much higher burden of proving an elasticity of 0?
That's really not how to have a productive conversation.
If you or other readers still want to go that route, then here you go: a (summary of an) OECD working paper that shows that sales taxes in practice are mostly incident on consumers:
https://taxfoundation.org/new-oecd-study-reviews-research-be...
In any case, as fate would have it, the original commenter was harboring the confusion you suspected about the distinction between physically paying the tax, vs bearing its economic burden:
https://news.ycombinator.com/item?id=22787539
But still, if you're going to be charitable, be charitable. If you're going to research every possibility, research every possibility. Don't suddenly lose this ability when it might not make someone else wrong.
[1] i.e. "paid by" being a casual way to say "economically incident on".
You said that.
klyrs said "sales tax is paid by the consumer". You were discussing how to interpret his comment.
> In any case, as fate would have it, the original commenter was harboring the confusion you suspected about the distinction between physically paying the tax, vs bearing its economic burden
It's difficult to see how you can say this, since he quite clearly says the opposite. He's drawing a clear distinction between physically paying the tax and being the source of the money.
> It's semantically true businesses are required to make those payments to the government, but they're coming directly out of my pocket.
In that comment, he claims that every single expense a business incurs, tax or otherwise, is paid by that business's customers. He is in fact arguing for an elasticity of 0. That claim is not correct as a matter of cost incidence. As a matter of pure cash-flow accounting, it sounds obvious, but it's actually self-contradictory -- you can repeat the analysis to show that in fact business expenses are not paid by consumers, but by the employers they work for. But he clearly understands that there's a difference between suffering from the tax, and physically transferring the money. His confusion is over the idea that, if a flat $5 surcharge is levied on Oreos, and when you buy Oreos the receipt includes a line saying "Oreo tax - $5.00", that that might be costing Nabisco anything. He says it doesn't. He is wrong.
Of course it's the latter. Same with the gasoline tax, tariffs, value added tax, cigarette and alcohol tax, the list goes on.
Disastrous? Were we better off in the days of Sears and Barnes and Noble? Companies like Walmart with $500 billion in revenue have margins of about 3%. A 10% revenue tax must increase prices, or Walmart would lose money on each transaction.
What you're promoting is a tariff on goods bought from big companies.
Tariffs are bad. They are regressive and anti-consumer
Thats a perspective, not a universal fact. They are effective and useful from a political perspective, which may be beneficial to consumers long term. Alternate levers being circumstantial.
They are anti-consumer in the sense that they raise prices without offering more or better goods in return. Sure you may try to muscle in some roundabout logic that concludes that tariffs will punish the consumer into using their money the way you want them to, such as buying overpriced goods from domestic producers, but history has shown again and again that only free trade produces net benefits. Tariffs just obsfucate the damage.
For instance, the EU guarantees European farmers a certain minimum price for agricultural goods. This price is 200% above market price. The effect is that every European consumer has reduced purchasing power because they must pay 200% more than they need to for food, African farmers are kept in poverty because they can't sell their goods to EU consumers, and the only people who win is the extremely small percentage of people in the EU who farm.
In this way, they are factually anti consumer.
> They are anti-consumer in the sense that they raise prices without offering more or better goods in return.
There is also to say that economy of scale is real, so (within bounds, I wouldn't meddle in guessing numbers) it is reasonable to ask the company making 10 billion per year to be more efficient per-dollar than a 2-persons shop.
Regarding the EU I believe you are missing the point. Farming in the EU (outside of the Netherlands apparently) is almost by definition going to be a terrible business profit wise in an unregulated market; too little to automate too high cost of living for workers.
The regulations in place exist because of an explicit consideration that keeping those industries alive (especially regional traditional products) is something with a value in and of itself.
For sure many regulations have serious issues and some of them are plainly wrong, but arguing for anarcho-capitalism to me sound as reasonable as arguing for communism.
It is not. You use a non gradiated tariff as a bad assumption. Good luck with whatever.
Even if this is true, benefits + low-wage job is better both for the worker and society than a lesser total entirely from public benefits and no job, so, the WalMart jobs are a net win.
> presumably have worse education
Hence why they can't get better jobs, but punishing WalMart doesn't fix that.
> and health outcomes than the average American.
Probably, that comes from being poor and is exacerbated by a wealth-dependent healthcare system. Again, punishing WalMart for employing them doesn't improve this.
Would Walmart go backrupt or employ noticeably fewer people if wages and taxes were higher? I don't think so, as similar companies exist in many economies with better wages. Is it inflationary? Only if the wages grow disproportionally with the economy (like costs have in health care). Basically richer people are effectively charged more for their shopping, and shareholders see less profit.
People employed at below cost of living wages (reliant on welfare for basics) by definition can't save much, and in the US are excluded from education and quality health care. I couldn't be happy with a system that perpetuates that just to get groceries 1% cheaper.
For example, most of the US population is currently under lockdown, most local businesses are closed, and households are dependent on delivery services for many products. A weak, broken-up set of former Amazon companies would have less capacity to provide such services, or even to survive.
Starbucks and United Airlines have been hit much harder than many small tech companies that have seen minimal impact.
Most Starbucks stores were ordered to close by the government, and the government has advised against (and in some cases banned) air travel. Of course those companies are suffering.
Furthermore, I'd argue that Starbucks is more likely to survive this than local cafe chains, and United is more likely to survive than regional discount airlines.
Smaller tech companies are already seeing the impact from the pandemic, and they will soon see more impact. Tech employees can work from home, so the companies are still producing things. However, most tech companies will have dramatic drops in revenue for the next few quarters and larger ones are more likely to be able to stick it out until the economy recovers.
High end/home toilet paper is in increased demand because people are using fewer public toilets which use the cheaper bulk toilet paper. Inversely, Starbucks voluntarily closed many stores because they served areas like collages that where going to be devoid of people.
So, while there is plenty of spin around both topics the reality is significantly different from how things things are being reported.
The negatives of consolidation aren’t relating to being in a pandemic situation but the before and after, normal times. Things such as reduced labor choices, killing cheaper products and your competitors that would supply them, etc. that’s what’s been bad about the consolidation. (See that great example about how Covidian killed the cheaper ventilator.)
If Starbucks survives and local stores close and all we have in 5 years are Starbucks everywhere why is that good? Why is it good that Starbucks benefits from the pandemic this way? Why isn’t it better if there is no behemoth Starbucks to crowd out those local stores, so that they end up being able to be reborn in the aftermath of this as more new local stores? Or why isn’t it better to just have lots of local stores and if them closing and having to reopen is a problem you point the $4 trillion fire hose at your small businesses instead of large businesses? Such as how some other countries have done by backstopping payroll and other things.
That is the wrong framing of my argument. Here is a better one:
It is inherently good that some companies survive rather than none. The ones most likely to survive are big, and Americans are increasingly reliant on big companies during the lockdown. Therefore we should be glad we didn't break up those big companies, and after the pandemic we should be more skeptical of calls to break them up.
I’m not sure why everyone gets hung up on the tax number.
Employing people, providing service, all contribute. And if a state sees a deal where they can keep X citizens busy, contributing and Y services for their people, that’s part of the aggregate result.
“Taxes” is one of many chips on the table for the deal making.
If there’s not a net gain, then don’t take the deal.
But with such a large, diverse pool of companies, I highly doubt they could get their interests to align.
But it’s not uncommon to see lobby groups for specific industries lobbying for favorable legislation.
Now, when the companies are such that it makes some amount of sense to merge them together, that often does happen, and it can lead to tax efficiencies.
https://www.pwc.com/th/en/deals/transaction.html
> M&A transactions provide unique opportunities to improve tax efficiency.
M&A helps eliminating inefficiencies in cases where there are huge redundancies and excess capacity. (For example two big multinational conglomerates, both have at least one of eeeeeverything, HR, law, finance (bonds, insurance, stocks, investments, controlling interests), payroll, VAT/CIT/sales tax, supply chain management, operational risk management, security/compliance, IT. Plus all the actual business units, and usually big companies have some competing interests here and there, and simply eliminating one or the other (through unification, acquisition, or just closing the less profitable one) frees up resources and leads to better profitability.
Economies of scale create value when leveraged to, say, produce more goods with less effort, but they do not create value when they are leveraged in zero sum games against customers, workers, or society.
> If there’s not a net gain, then don’t take the deal.
The thing about deals is that what happens between deals is always more important than the deal itself. Focusing on the value flow exclusively at the point of exchange is a terrible mistake. Otherwise highway robbery would be a value-creating activity: "Hey, I'm offering you your life in exchange for everything you own, that's a great deal! If you don't like the deal, don't take the deal!"
Agree.
>Economies of scale create value when leveraged to, say, produce more goods with less effort, but they do not create value when they are leveraged in zero sum games against customers, workers, or society.
Both sides have to arrive at a value where it makes sense for them to move forward. Subjective value judgements have to occur.
>"Hey, I'm offering you your life in exchange for everything you own"
Sounds like a bad deal. Don't take it.
Your business uses the state financed infrastructure to exist. Just like your employers do.
Not paying for those contributions is anti social behaviour.
Again, you’re fixated on a single dimension.
Keeping people employed with quality jobs is a hard problem to solve.
People demand jobs. And demand them from elected officials to “fix this”, even though they have little to do with creating efficient, viable businesses.
So lost tax revenue from the business. Balanced against a larger, working class that pays taxes.
Depending on the terms and needs of the community, there’s a threshold where the deal will always make sense.
Your rich investor who gains a little bit more due to tax evasion of the company they invested in gives you nothing most of the time because they just reinvest it elsewhere and even if he buys one more yacht with it, they are so few, that their impact on the job market is negligible.
Now the fact that the company which does not pay the taxes for the infrastructure they freely use to generate their revenue can go to a politician and tell him: "give me taxpayer money/let me pay less tax or I go to the county next door" does not have anything to do with employment. It's a hole in national law. If there would be no politician who's allowed to throw money at those already wealthy companies, they would have null leverage, the subsidies would go to those who really need it, the companies would have to pay their taxes (you can't outsource everything) and the mass of citizens would profit from more money in their pocket, a properly maintained infrastructure and money the state has in emergencies like we're witnessing today.
Your "single dimension" view on the situation is the old prayer those who steal taxpayer money/not pay for what they use have told us for years. It's a ridiculously shitty story nobody buys, so please get a dimension.
You lost me between "If the mass of employers" and "please get a dimension".
A gain for the dealmaker isn't necessarily a gain for other stakeholders.
Either (or both) sides can walk away. That's negotiation.
Though that’s just me, I think of the tax burden as a zero sum game. To get X revenue today from Y people it’s pure tradeoffs. Long term that’s slightly less true.
They actually mean different things. Your headline wouldn’t mean Fortune 500/Inc 5000 etc companies pay the most. They aren’t the same.
The most simple reason why a big business could pay little taxes would be to be at loss. The intention should be to accurately and reasonably determine a correct measure for loss/income.
Small caps have higher variance than large caps + Companies that go out of business aren't included in statistics -> Year-end statistics show small caps doing better than large caps.
Then,
Companies that do better on paper pay more tax + Small-caps do better on paper at year end -> small caps pay more tax than large caps.
Avoiding taxes by legal means, is neither illegal nor immoral.
This was after a huge media outrage about a certain pop star allegedly being a sexual predator in countries where it was legal.
The EU also forced those cookie notices on pages and GPDR about movement of data globally.
Being a holocaust denier will get you arrested in Germany, even if you broke that law in another country.
That's just three examples off the top of my head.
Plenty of people have left CA for UT/NV to do the same.
The solution to all of this is to fix the tax code to represent what we actually intended, not blame those who are following the rules.
Tax is simply math, calling tax avoidance immoral is as silly as calling encryption immoral.
> U.S. Royal Caribbean is based in Liberia, Norwegian Cruise Lines is based in Bermuda, and Carnival/Princess is based in Panama.
More specifically, I think the immorality comes when someone who already is able to provide for themselves is enriched at the expense of societies ability to provide for those who cannot provide for themselves.
There are discounts for capital gains and extra taxes for gasoline, travel and cigarettes.
So companies act the way they are told to act.
Edit: why was this downvoted? HN is a site where not explaining yourself thoroughly often leads to mod intervention. The parent post didn't explain themselves even remotely.
If businesses operated in a vacuum from politics, then maybe you could have an argument that taxes have “nothing” to do with morality. In the real world, businesses are lobbying for changes to the tax codes to benefit them, holding disingenuous or rigged contests to extract the maximum concessions from tax authorities, relocating or transferring intellectual property and licensing it back to subholdings to min/max gains and losses, and a myriad of other schemes.
To directly answer the questions you posed: Corporations which incorporate in a state like South Dakota or Delaware to take advantage of incorporation policies, with no intention of operating primarily in those states, the majority of their business conducted in a higher tax state like California, and trying to avoid contributing back to the society of the states that they primarily operate in - yes, those corporations are less moral. They are less moral than companies which are incorporated in e.g. South Dakota where the owner lives in South Dakota, and serves primarily South Dakota residents.
Hungary is harder to answer. Did the corporations of Hungary lobby for lower taxes which resulted in that tax decrease? Does the tax decrease adversely impact Hungary as a whole, or was there a budget surplus which allows the state to lower the rate? Does the relaxed rate improve the lives of “normal” Hungarians? The answers to those, and probably more, questions would guide the answer to the question of morality.
Anyway, this is a long winded way of saying that morality is not a binary choice. It’s the perception of right and wrong guided by context.
The fact that businesses can shop around, or move to other jurisdictions, or lobby politicians, is a good thing. It is a necessary check on government power.
The alternative would be the government having absolute power to raise taxes. I don't trust the government, especially state and local governments, to handle that well. Many would raise taxes to a level that would strangle businesses and harm the economy.
Is there any evidence to support the claim that state and local governments would raise taxes to a level that harm the economy? I’m sure you could find some examples, but does the evidence support that claim in more than a few outlying cases? There’s ample logical reasoning (The Federalist Papers, for example) that state and local governments are more responsive to their populations and that the federal government should be the culprit that “shoots itself in the foot”. Outliers can exist in the inverse as well, as Kansas showed us that it’s possible to reduce taxes so much that it harms the economy!
Also, and I don’t want to come off as too nitpicky here, but I’m pretty sure governments already have absolute power to raise taxes. That is, a non-government organization cannot levy a compulsory fine on you. And don’t take this as a personal attack, but if people don’t know those sorts of things, they are not a very engaged citizen. Since the government is elected by the people, if we have uninformed and disengaged citizens, we should distrust the government. The best way to gain trust, in my opinion, is to be an engaged and informed citizen (and encourage others to be as well!), and to only elect “the best”.
edit: I may have misinterpreted your “absolute power to raise taxes”. I think now that you meant the power to raise taxes with no regard for its consequences vice meaning that another entity could raise taxes. Sorry if I put words in your mouth. In that case, yes “voting with your feet” can influence tax policy, but there are still other methods of doing that which do not require moving. I also want to point out that there’s an injustice in the ability to move in order to lower tax burdens. For example (and IANAL so someone please correct me if I am wrong), Bob’s LA Auto Shop, LLC can’t pick up and relocate its headquarters to Delaware to take advantage of lower taxes like a multinational corporation can to the Isle of Man. Is it moral that a large MNC can, but a mom and pop shop can’t?
I'm not the one claiming it is. I've stated that morality and taxes have no connection. Others in this thread, including you, are claiming that paying less taxes = immoral.
>> Corporations which incorporate in a state like South Dakota or Delaware
A grand total of 3 of the Fortune 500 are incorporated in SD or DE. 110 are in NY or CA. It would appear that by your reasoning, the number of immoral companies who "take advantage of incorporation policies" are overwhelmingly outnumbered by companies with such high morals, they selected the highest tax states.
https://www.statista.com/statistics/303696/us-fortune-500-co...
Looks like your data is paywalled. Is it the same that’s available here? https://hifld-geoplatform.opendata.arcgis.com/datasets/fortu...
Because if so, I think it’s a little bit more complicated. For example, Alphabet’s corporate headquarters is located in Mountain View, but it looks like it is incorporated in Delaware [1].
1: https://abc.xyz/investor/static/pdf/alphabet-certificate-of-...
https://www.delawarebusinessincorporators.com/pages/delaware...
>Second, Delaware’s tax system gives businesses several ways to legally minimize their tax bills. Companies that are incorporated in Delaware but do business in other states don’t have to pay state corporate income tax to Delaware. Some groups accuse Delaware of being a tax haven because the “Delaware loophole” allows companies to declare certain types of revenue in Delaware rather than in the state where the business actually occurred. Delaware also doesn’t tax profits on royalty payments, trademarks, or copyrights.
https://www.mentalfloss.com/article/76951/why-are-so-many-us...
This is hilarious.
Can you explain why that is immoral?
*Call it campaign contributions, or lobbying, or whatever you want. It's paying money to get rules made in your favor, which is bribery.
What is immoral is when someone decreases their contribution to society (in the form of taxes) through something that either does not benefit society as a whole or which is actually harmful.
That clearly benefits the homeowner (lower taxes), while is harmful to society (less tax revenue).
So are people who take the mortgage tax deduction being immoral?
I would argue it a selective tax break that benefits the homeowner 100%.
As I see it, it's not so much that a given instance of home ownership benefits society as a whole so much as it is that I see enabling its members to own a home is a core purpose of society. So I guess I could say it as: it benefits society as a whole because if it doesn't exist then, in my opinion, the society is by definition dysfunctional.[1]
When I say that enabling its members to own a home is a core purpose of society, I don't so much mean this from a white picket fence "American dream" perspective or from a home as investment perspective; although I think both of those perspectives have merit.
Rather, I think it's important that an individual has somewhere that they have autonomy, that they can modify as they see fit, that they cannot be arbitrarily evicted from, where they are their own boss, etc.
Without that:
- I think that it would be difficult for an individual to have enough autonomy to really be a full member of society.
- I think it would be difficult to say that an individual really has any stake in a capitalist society if they do not own any capital.[2]
[1] A more obvious example of similar reasoning might be food. The fact that a given person is able to eat isn't necessarily particularly beneficial to society as a whole. However, I think that most people would say that unless the vast majority of people are able to eat, then a society is dysfunctional.
Clearly in this instance there is some benefit to society as a whole from an individual being able to eat; since that allows them to work more efficiently. However, I think you could also say that home ownership provides psychological and practical benefits that allow individuals to work more efficiently.
[2] I realize that strictly speaking a home isn't capital (unless the owner runs a business out of it); however, I still feel that it can provide a "stake in the system" in the way that other property like clothing or even a car do not.
My first thought would be, it is. Only a naive reading of the law reaches the conclusion that "if it's legal, it must be moral."
And morality 101 is kind of, "with great power comes great responsibility."
And these big corporations have great power. Therefore, avoiding their responsibility to contribute to society via taxes, even if legal, is immoral.
I don't mean to imply this is black-and-white. I'm sure these corporations are smart enough to figure out a reasonable balance between paying as little as legally possible, versus as much as legally possible.
I'm curious to hear your logic why it is not immoral for a major corporation to attempt to pay as little tax as possible.
Especially when we consider that, via lobbying, corporations have a huge influence on the laws to which they are subject!
Not only do they have great latitude within the law, they also have significant influence in creating the laws which govern them!
More influence than the citizens of the U.S. where many of these corporations operate.
Consider... If I pay for a politician to run for office and they get elected and then I write a bill that lowers my taxes for him to push through into law, and then I donate to all (or even just enough of) those in congress to vote for it and it gets passed that may not illegal (right now) but many (me included) would certainly consider it immoral.
For example... if that reduction in taxes collected was offset by firing hundreds of workers in, say, the Center for Disease Control, and then we are left unprepared for a serious and deadly viral disease outbreak and 100s of 1000s of citizens die as a result... yeah, that qualifies as immoral for me.
That is the premise of Andrew Yang's Democracy dollars. Every American gets $100 to donate to a campaign.
It's not that they don't want to pay tax, it's just better for shareholder value that they don't.
This is a bizarrely uncharitable take. Posting an article implies some form of novelty, which is why we don't see articles posted saying things like "if you don't water your plants, they die" or "companies with large valuations tend to have high profits or revenue".
The parent comment isn't claiming that the lack of novelty makes an otherwise-bad thing acceptable; he's saying that any reasonable model of the current state of corporate taxation should already have assumed something like this.
He _separately_ makes the claim that legally minimizing one's tax burden isn't immoral; this is a claim that you can disagree with, but pretending that he's dismissing this entirely due to its lack of novelty is a bizarre non sequitur.
That's an assertion. Getting your congressman to treat you more favourably than others will certainly benefit you, but it's not guaranteed that everyone else will also benefit.
No matter where you stand in the hypothetical debates on taxation and public spending in the real world it boils down to government will spend tax money, taxes should adjust for the ability to participate and avoiding them just shifts the burden from people that should be able to afford them to others - I think this is immoral by most accounts. And IMO, arguing that it's not not worsens the problem, laws have a limited impact and will always have flaws - morality and social judgment (as absurd as these things are getting these days) are another correction mechanism for undesirable behaviour.
This argument falls apart when you recognize how and why companies become eligible for tax deductions. The top 3, according to the CBO, are exclusions stemming from providing health insurance, pension contributions, and capital gains & dividends. By doing so, companies actually accept a huge burden that would otherwise be left to taxpayers, like paying healthcare costs and providing an income for eligible retirees & spouses.
Cap gains & dividends -- while they certainly enrich corporate management and wealthy owners -- are the primary means through which massive public pension funds (like CalPERS) provide the benefits promised to public employees. And if you want to take it further, probably the biggest incentive to get people to work in the public sector at all, is the promise of a generous pension post-retirement. (and even further -- all that money is taxed at the individual level, albeit at a different rate, but certainly not tax-free)
One might even make the argument that a company that refused to provide any retirement benefits, refused to offer health insurance, and which refused to return any capital to investors, is the one that is immoral.
that's a 180 from your initial comment
>> Avoiding the behaviour they were supposed to stimulate but avoiding taxes
I very clearly stated that I was talking about legal means. If a company claims a tax deduction for an action it did not actually perform, that would be illegal.
>> recent crisis tax reliefs
I can't speak to non-US policy, but in the US, the recent stimulus is not a tax relief bill, and thus inapplicable (though I will agree there is likely to be a lot of fraud).
Why are you assuming that anyone is surprised?
Sometimes research is conducted to confirm what we already suspect.
And if that were the whole story, it'd be no surprise that those with more taxable income and resources would pay lower tax rates. It's true for individuals too.
However, that's not the whole story. It all depends on tax systems that are complex and gameable. And that in turn depends on political systems that are gameable, where big players can create the tax systems that they can game.
Somewhere in there we at least get to immoral.
Create a pension system to provide income stability for longtime employees? Good for you, take a tax credit.
Give money to charity? Good, take a tax credit.
Offer health insurance? Tax credit.
Invest in green energy? Tax credit.
Build a factory or office in a distressed community? Tax credit.
Pay for employees to go to school? Tax credit.
etc. etc.
But that doesn't mean that they're all the same.
And, in similar vein, determining how much value one created is again a general problem.
Economics is full of these problems, where the theorem/definition/principle is easy to state, but hard to compute. That said, it's not impossible to estimate these things and use those to guide policy.
Income tax is based on profits, not gross revenue, not market cap.
Corporations are people too!
/sarc, but only slightly...
"The 379 profitable members of the Fortune 500 paid an effective federal tax rate of 11.3% last year" https://www.axios.com/fortune-500-companies-corporate-income...
Amazon, in particular, made over $10b in 2018, but the US government paid them over $100m.
ETA: And for comparison, I made $36k last year (missed a lot of time for health reasons) with a family of 3 (= negative profit, I'm still in debt from it!), and my tax rate is ~8%.
Income averaging is for companies that naturally have interspersed fat and lean years. For example, Boeing may invest enormous amounts of money in new aircraft development one year and make a bunch of money off of it the next year.
> The 379 profitable members of the Fortune 500 paid an effective federal tax rate of 11.3% last year
Since the tax rate is graduated, a technically "profitable" corporation who made only $10 in profit would pay 0% in income tax.
This is why such statistics, while pedantically correct, are usually nonsense because they deliberately omit such information.
Yes, there are actual unprofitable businesses that are facing cyclical downturns or that are on the way to bankruptcy that legitimately truly lost money, and thus have no profits to tax, but this is often not the case.
You may be thinking of "Hollywood accounting" where costs are shifted onto a profitable movie in order to not pay profit based royalties. This is possible because the movie is not an independent accounting entity. This doesn't work with federal income tax, which is applied to the corporation as a whole.
> more favorable tax regimes
That is true, but leads to the problem of the money being stuck in those countries and not spendable in the US. Apple has this problem big time. But it's also true that it is propaganda to count a company's properly profits earned in a foreign country and where proper taxes were paid in that country as somehow evading US taxes.
For example, if X Corp was half in Germany, and half in the US, and paid 50% taxes in Germany and 50% in the US, if the headline says "X Only Paid 25% US Tax On Global Profits!!!!!" then it would be propaganda, wouldn't you say?
> this is often not the case
When the influence of unprofitable or low profit companies is not accounted for in the statistic, then the author has an agenda and the article is propaganda.
> depreciation
Depreciation allowances are based on what was paid for the item, not its value. If it is sold for more than was paid for it, the difference is taxable income.
Value not realized is also not taxable income.
I took a class in basic business accounting one summer. It was time well invested. I recommend it. (Though that doesn't make me a qualified accountant, I still use a CPA for the company books and rely on his advice. I pay no attention to what journalists say about accounting, they know as much about it as about Quantum Mechanics.)
Is it though? US citizens and tax residents (green card holders, people on work visas) pay US taxes on their worldwide income. Doesn't matter if it's earned outside the US. Doesn't matter if the person lives outside the US and hasn't set foot on American soil in decades. Doesn't matter if the income is derived from property acquired before the person ever came to America.
At best they get credit for foreign taxes paid and if that's less than their US tax liability, they pay the difference to Uncle Sam.
Why are the rules (seemingly) different for corporations?
Why? It would apply to all corporations doing business in the US, which is basically any company of note.
One reason that could explain the difference between corporate and private taxes is that the companies can (in theory) prove how and where went/came from.
That is perfectly fine to me, especially when Interest rate is ridiculously low it is simpler to borrow than to sit on cash.
Buying Back Stock in order to avoid tax is wrong to me. Especially if they are borrowing money in doing so. Since its incentive is only to its shareholder ( and its executive ) at the expense of Tax. And as far as I know it was illegal pre 1982.
Correct me if I am wrong, but it seems people often mixed up the two.
Small companies pay what the government tells them to pay. Big companies hire someone who figures they can save 5% on their taxes by having their factory in Tennessee instead of Kentucky.
It's just the ability (and scale) to afford to employ any advanced tax strategies.
I have friends who live in Hawaii. A high tax state. Another friend moved to Puerto Rico, a low tax one. You don't have to be big to save on taxes.
We rarely think that countries are "competitive" with each other when it comes to tax deals and tax rates. But they are.
Just like people shopping around for the best deal on a car, why do we expect companies to NOT shop around for the best deal on taxes?
We made these things up because they are a convenient and useful abstraction, but let's not forget that they are a legal fiction. So guess what you call a company that pays taxes? Fiction! Companies can't pay taxes because they don't exist, only people can pay taxes. So when you tax a company, it ultimately comes from the pocket either of an owner, an employee, a supplier or a customer.
If we were honest about this and not just looking for a boogeyman that we can pretend to stick the bill to, then we'd switch to a conversation about capital gains, income and consumption taxes.
For publicly traded companies, the owners don't make executive decisions,the execs do and the owners range from random people on cash app to multi-billionaires. Perhaps instead of a tax, they should grant the government equity and pay dividends?
I see no contradiction in taxing companies in a manner generally consistent with that of a person and treating employees of the company as a type of laborer paid by this entity.
Families. Don't. Exist. apparently either. The only fiction is that we anthropomorphize the group like it's singular. That doesn't mean that the group isn't a thing unto itself.
I would hope you don't think of yourself as just a mound of cells.
It is not just an abstraction, without the concept of companies a lot of financial concepts are simply impossible to express.
Bulk have risks like spoilage or require additional resources like real estate. Or that a quality product isn't really quality.
Taxes are immaterial.