Hacker News Reader

Comment by parineum | Hacker News Reader

All of the wages that Nike and Amazon pay are taxed though. They create commerce that is taxed at just about every turn.

View on HN

True, but it must be emphasized that that tax is tax being paid _by individuals_. It is simply withheld by the corporation as a convenience. The monies are earned by the individual and paid by the individual.

Corporations have no moral right to claim that as 'tax paid' in these discussions.

A person earning $X for a company that pays corporate tax would have the same individual tax liability as an individual earning $X for a company that does not pay corporate tax.

Corporations are merely shared collectives owned by groups of individuals, who pay taxes on it's earnings when they receive dividends or sell their shares.

That's true in principle, but many of the shareholders of US corporations never pay those taxes in practice, either because they're not US residents or because they avoid capital gains taxes through tax-advantaged accounts, trusts, non-US shell corporations and SPVs, etc.

To preempt one likely response to this: no, it's not appropriate for a non-US-resident shareholder of Amazon to not pay any US tax on their share of Amazon's pre-tax profit. Amazon is leveraging US-taxpayer-funded resources, including roads, the electrical grid, the military (which protects Amazon's buildings and shipping routes), arguably the educational system, etc. to generate profit, and anyone with a claim to a portion of that profit should have to help pay for those resources.

First of all, if you want foreigners to pay U.S. income taxes when they invest capital in the U.S., I have to ask, why do we want to discourage foreign investment in the US? Amazon pays sales/gas taxes for much of what you mentioned, and it's U.S. investors, who also pay income and property taxes for the rest.

Second of all, U.S. citizens absolutely do pay taxes on investment earnings. If you hold stocks in a tax deferred IRA, you pay your taxes when you take distributions and at full income tax rates, no capital gains or dividend tax breaks. That's true of any tax deferred account.

Anyone "shielding" taxes in a "non-US shell corporation" is committing tax fraud.

The best solution to that is to eliminate the extra layers of taxes on investing in the U.S, in one way by eliminating corporate income taxes or allowing corporations to deduct dividends as expenses. Then the benefits of hiding your investment earnings become far less, and not proportionate to the risks.

This isn't entirely true. There are payroll taxes levied directly against the corporation, for example social security which is 6.2% by employee and 6.2% by employer

Theoretically, yes. But much like sales tax, employer payroll tax is passed on to the employee. Unlike sales tax however, this cut isn't as transparent due to the salary itself being preemptively calculated in such a way as to offset the cost to the employer. In other words, the "true" gross income could, all things being equal, be upto 6.2% greater then what one is getting.

I feel like there is too much outrage fueled by a complete misunderstanding of how our tax system works right now.

If corporations are taxed then there is effectively double taxation. Corporations can only spend the money on business expenses, such as paying people. However when people are paid they are being taxed already.

So our current tax system taxes a corporation if they have excess money they sit on. If they spend the money on productive uses it doesn’t get taxed, but then the people who receive the money get taxed.

So the headline is extremely disingenuous because if Nike had $0 taxable income it’s only because they shifted the taxable income to the CEO’s pay.

> If corporations are taxed then there is effectively double taxation.

Not really. Corporate profits are taxed, not revenue. Taxes aren't figured until salaries are already paid.

> ... if Nike had $0 taxable income it’s only because they shifted the taxable income to the CEO’s pay.

I'm sure it's a lot more complicated than that. Companies aren't avoiding tax by giving all excess revenue to their CEO as compensation. That wouldn't really make sense at all.

> Not really. Corporate profits are taxed, not revenue. Taxes aren't figured until salaries are already paid.

We're saying the same thing here. My point is that double taxation is avoided by figuring the taxes after salaries are paid out, which ideally would be brought to $0 because nobody wants to be double taxed.

> I'm sure it's a lot more complicated than that. Companies aren't avoiding tax by giving all excess revenue to their CEO as compensation. That wouldn't really make sense at all.

The CEO is just another employee. Obviously they don't just give the CEO all the extra taxable profit... Why do you think end-of-year bonuses are given out at end-of-year? Because there's taxable income on the balance sheet and if it doesn't get bonus'd to employees then it would be sent to the Trump/Biden/whomeever is president's administration as taxes. Nobody's going to give you bonus points for paying extra taxes, but if your employees get a nice bonus they might stick around or work harder at least.

I pay income tax, then I take some of the money leftover to buy food and pay sales tax. Was I double taxed? Where is the "complete misunderstanding"?

It often feels like HN threads on big company taxes revolve around the same patterns, the people that repeat ad nauseam "but if it's legal it's legal!" and the ones that bring up double taxation as if that is some sort of tax cheat code.

Getting rid of double taxation from corporations would essentially mean getting rid of business deductions. Which means that companies would have no extra incentives to spend their money on business expenses such hiring because they'd get taxed either ways. The corporate taxes are working fine and most companies aren't avoiding taxes so much as being incentivized to spend their profits on hiring or giving out pay raises. Think of it is coerced minimum wage increases in lieu of corporate income taxation.

Double taxation on income and then on your food is just extra tax revenue, and nobody's going to stop eating because of it, though you might eat less expensive. Some places do indeed do not have taxes on basic food.

> I feel like there is too much outrage fueled by a complete misunderstanding of how our tax system works right now.

Honestly, there is no benefit in fixing that because everyone is a useful idiot perpetuating the status quo and not even realizing it.

The best populist uprising starts off with this observation and ends with salaried workers getting a slightly higher tax and never touching the rich who obtain goods and services very differently.

The framing always starts about "the rich" and gets deflected towards the top 5% of wage earners who will become masqueraded as "the rich". Everyone involved will agree for two reasons: 1) it's the best they'll get from Congress and they feel like they're "doing the thing" and participating, 2) because they are wage earners and that's the only form of taxation they can relate to or even really somewhat know about.

For example, in a thread like this, someone will quote some flawed study about diminishing returns of an undefined form of "happiness" after making $75,000 a year, and then someone will talk about cost of living disparities as if that's an insightful addition to the conversation (wow, complex topic there, Champ), and all of this is being used for wage earners to fight amongst themselves about why they shouldn't have any feelings for the person that got a six-figure salary, when that new target wasn't even the person that their angst was originally directed towards.

Yeah, and in my opinion the level of happiness doesn't start diminishing until after $150k. I would straight lose my shit if I had to live on $75 k again.

(and that particular study was about a family of four lol. so divide the discretionary income of $75k by a lot.)

> All of the wages that Nike and Amazon pay are taxed though.

That labor income is taxed particularly heavily (compared to generic income, which in turn is taxed extra compared to capital income) is another, and bigger, problem, yes.

It doesn’t mitigate the fact that effectively untaxed corporate returns amount to potentially infinite deferral of taxes on capital accumulation on top of the low rates paid when capital gains are realized.

Corporate retained profits that aren’t passed through to owners for tax purposes should be taxed, with no sheltering or protection, at the maximum marginal personal income tax rate, corporate distributions should be deductible expenses, and capital distributions and gains should be taxed as normal income to the recipient (but, to fairly treat long term gains—as well as irregular non-capital income—asset basis values should be adjusted for inflation and there should be provisions for optional advance recognition of income for tax purposes and optional deferred recognition over a period of years for windfalls. And “payroll taxes” shouldn’t be separate from personal inncome taxes; all incone regardless of source should be taxed for the programs they support and be counted for eligibility purposes (for social security specifically, additional bend points at and points beyond the current maximum should be adopted instead of the income and benefit caps.)

One could argue Amazon's success is based largely on the unfair sales tax advantage it had over brick-and-mortar retailers. Brick-and-mortar retailers were compelled to pay sales tax under the penalty of law, while Amazon had a built in 6-9% since it didn't have to collect sales tax.

I'm not saying that's the only reason Amazon is successful, but it absolutely played a role. My early shopping with Amazon was always of two varieties - to purchase things I couldn't find elsewhere or to save money on more expensive purchases. Only relatively recently has Amazon become the most convenient way to shop.

Their success is clearly based on actuating efficient communication within the company (AWS) and getting packages to the door ASAP without charging extra.

Their recent success, sure. Amazon was around a long time when it wasn’t the convenience and cloud computing king. It was with their retail growth and the investment dollars that brought they used to build what they’ve got.

Yep. Don't have any idea why we are taxing businesses. They are just vehicals. People pay tax. This is just government engineering cost opacity.

Stock compensation is taxed at a lower rate than wages, and isn’t exposed to Social Security and Medicare taxes such that wages are.

Yes it's a very blatant hole that needs to / should be fixed. There's also no reason there should be a cut-off on FICA taxation as you scale up in income. The Democrats should target those easy taxation wins (if they can stop for a moment trying to get tax cut handouts for higher income persons in their coastal cities in the form of SALT deductions; pretty hilarious to watch the Dems argue in favor of raising taxes on nearly everything that moves while simultaneously arguing that people earning six figures desperately need a tax cut - solely because it's overwhelmingly for their voters in affluent blue cities).

There is a real reason FICA has a cap, because it's not an income tax. It's sole purpose is for a retirement & medical benefits program that was sold as fair to all when introduced. Forcing someone to pay 10X or 100X over their lifetime for the same benefits as someone else doesn't strike anyone as fair.

Social Security payments are progressive but have no fixed limit, so those paying 10X or 100X would also receive higher payments.

You can easily reach the hard cap on future SS payments while earning barely more than the median pay in the US during your career. So every dollar you contribute above that earns you nothing. Someone who contributes 100x gets nothing for that.

> Forcing someone to pay 10X or 100X over their lifetime for the same benefits as someone else doesn't strike anyone as fair.

Respectfully, I disagree, that's just progressive taxation and it's true of every other aspect of our tax system. Someone who pays 10X or 100X more taxes than me isn't getting 100X the value out of our roads, bridges, or the army.

It's fair IMO because of the marginal utility of money. If you make $50,000 per year, $10,000 means a lot. If you make $10M, $10K is a rounding error or a fun weekend in Vegas. A progressive tax system is IMO flat when plotted against the marginal utility of the value accrued. Think of it in terms of burgers. I require 3 burgers a day to live. I get paid 3. If you try and take 1, I go hungry. That burger is worth a lot to me. On the other hand if I get paid 10 burgers, and you try and take 1, it means nothing to me. That burger is worth a lot less because I'm already so full. Same is true in the abstract in terms of dollars.

Again, SS was designed to be a fairly funded retirement plan, where your contributions determined most of your payout. The amount of the contributions were designed to fund those payouts, and nothing more.

Of course we can remove the contribution cap, but now it's not a retirement plan funding mechanism, it's an income tax that has no justification for retirement plan funding.

Is it? You pay one time 21% on company profit and another time whatever ordinary income taxes on that dividend.

I'd say the bulk of stock-based compensation these days is RSUs, and RSUs are treated as deferred income with income taxes due at settlement (either a liquidity event or on vesting). It's taxed exactly the same as income -- including Social Security and Medicare taxes.

The next most popular choice are NSOs, which are taxed as ordinary income when exercised on the difference between the strike price and the fair market value -- and you do in fact pay Social Security and Medicare taxes. Once you hold the stock, it's no longer compensation, it's an asset you've bought and paid for.

Third most popular are ISOs which do have some preferential treatment, although it's rare to be issued ISOs at anything other than a very early stage company, and at that point, you're likely to exercise early, and then once again, you've bought and paid for an asset and the it's no longer your compensation.

Founder shares are also assets and not compensation, and taxed as such, assuming you file your 83(b) election in a timely fashion.

I think it's fair to say that the rare issuance of ISOs notwithstanding, stock compensation is taxed as ordinary income and is exposed to social security and medicare taxes.

Finally -- and most importantly, IMO -- social security tax stops accruing after you've earned $142,800USD. Chances are if you're earning stock compensation in the Bay Area, that's covered by your base pay plus bonuses, if applicable.

Reply on news.ycombinator.com