Comment by econgeeker | Hacker News Reader

Comment by econgeeker | Hacker News Reader

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"private accounts of executives" is an interesting phrase when you cold have said "checking accounts of employees". It conjures up the image of Scrooge McDuck sitting on a pile of gold.

But that money is in the economy. If these "Executives" put it into stocks, then it funds company growth. If they put it into municipal bonds then it funds cities. If they put it into a checking account, then it funds home loans. IF they were to turn it into cash and put it under their mattress-- then it still funds government spending (via inflation.)

The only possible way I can think of to take that money out of the economy-- and granted this is even if your assertion that "all the money" goes to these fat cat "executives" were true, and I'm not buying it--- the only way they can take the money out of the economy would be to buy actual physical gold bullion coins and put it in a basement.

So, if these guys really were like Scrooge McDuck and literally had a basement full of gold coins then it would be out of the economy. But that is pretty much nobody.

You're ignoring the part where we were discussing a tax holiday. When executives hoard money overseas for a decade and then bring it back tax-free, they are basically depriving the government of the tax revenue that money transfer should have brought in.

Beyond that, there's not a lot of evidence for the notion that execs making more money is a net gain for the economy. It seems intuitive that more money in the hands of the wealthy would result in more investments and growth, but to the best of my knowledge there's not much evidence for that.

The real question is not whether handing the wealthy extra money is bad, but whether it's as good as doing something else. Sure, giving a wealthy man another million might get him investing more. Giving that million to the economy at large might do more, though. After all, those same investments you say the wealthy will make could be made by average joes.

depriving the government of the tax revenue that money transfer should have brought in.

I'm not sure about the "should have" part here. That money was earned in another country. It has already had tax paid on it, in another country.

It's silly for the US to try to double-tax companies, it just puts US-based companies at a competitive disadvantage against local companies when competing for foreign business. For instance, suppose US Sprocket International sells a million sprockets at a $10 profit each, in Germany. Meanwhile, Deutsche Sprocket Gmbh is also selling a million sprockets at $10 profit each in Germany. Both US Sprocket and Deutsche Sprocket have to pay, say, $3 million in taxes to the German government for doing business in their country, and that's fine. But while Deutsche Sprocket is done with their tax obligations, US Sprocket then goes and finds that the US Government also wants a cut out of their profit. This makes doing business in Germany significantly less worthwhile for US-based companies.

Besides, let's not forget that company profits are already double taxed anyway. Tax is paid when the company makes a profit, and then again when by the shareholders when they receive their dividends. So we're really talking triple taxation here.

I don't think you really understand how the offshored profits work. It's not just that money isn't brought back from overseas, but that money made in the US can be sent overseas. You create a wholly-owned overseas company that gets paid to do some kind of work for you. Then you way overpay them for that work. As a wholly-owned subsidiary, all the extra money they hold is actually owned by you, but you don't pay taxes on any money you send them because you call it an operating expense. So you effectively send a bunch of money overseas untaxed. Your German division does the same thing, and now all your money is sitting in the Cayman Islands waiting for a tax holiday so you can bring it home.

Your German company scenario is incorrect as well. Firstly, because they don't have to make any significant profit in Germany. US Sprocket GmbH could buy the sprockets from US Sprocket Inc at nearly the same price they sell them for, transferring the money to the US corp while paying almost no taxes in Germany (high revenue with equally high costs means no profit). Secondly, Deutsche Sprocket GmbH is dealing with the same "double taxation" in the US, so it's not an economic disadvantage.

I think the policy dilemma is that you are both right to some degree. If it wasn't such an ideologically charged issue, the solution would be quite simple. Tax repatriated profits but reduce the amount payable by the taxes paid overseas. Or enter into a double taxation agreement with the countries involved.

I think it would be reasonable to reduce the tax by the amount of foreign tax paid, but I don't think it would fix the problem. Most of the money in offshore havens was barely taxed. So instead of 35%, Apple can pay maybe 30% bringing it home. That's not enough of a drop to motivate them. It would probably open some more loopholes, too, but I can't be sure about that.

The real issue is that some countries want to allow this stuff. They want these shell companies because it brings them some revenue they wouldn't otherwise have. And who can blame them, really. So as long as we have international companies, we'll have tax havens. I'm not sure if there really is a fix.

Companies already get to reduce their US tax by the amount of tax they paid a foreign government. The issue here is that that they've moved the profits to places where little or no taxes are paid at all. This is not about double taxation.

That's not true. Companies aren't free to set transfer prices. The IRS has many rules on how much a company can charge a foreign unit for a product (and vice verse). That method of tax avoidance was closed a long time ago.

It was not closed, it was reduced. Companies are still doing it. They wouldn't continue if it wasn't beneficial to do so.

US regulations also don't do anything to transfer prices in other countries. Google apparently pays something like 2.4% tax on their foreign profits because they funnel them all to the Bahamas.

I won't argue that companies are still trying to reduce taxes through transfer prices. However, any company that tries to avoid US taxes through transfer price schemes is not going to get very far. I have no doubt that Google is funneling a lot of revenue through the Bahamas, but they must have setup the off-shore corporation in such a way as to fall outside the jurisdiction of the IRS. To say that they are only paying 2.4% on "foreign profits" means nothing. If that's what they are supposed to pay, then nothing is wrong right? Google is an international corporation.

Transfer pricing of intellectual property is at the core of this. Read the Bloomberg article and check out the interactive graphic. http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-sho...

If you distribute a million dollars across the entire US economy, that's roughly 30 cents per person, and it's likely to be spent on some chewing gum or a very small amount of food. It dissipates before it has a chance to grow. If concentrated, the million dollars can be applied to things that are only possible when money is concentrated, like doing research and development, investing in large construction projects, etc. Instead of spending the money directly on basic resource acquisition, when concentrated, it can amplify resource production, which lowers prices and provides a greater benefit to the average Joe than having another 30 cents in his wallet.

You make the assumption that tax money goes into the population's pockets instead of government-funded projects.

Your argument is easily reversible to raise taxes across the board in order to concentrate the money into government projects rather than having it spread around.

Money doesn't "dissipate" because it's spent. Money changing hands is what fuels the economy.

There's also no reason to assume that tax money goes from wealthy pockets to poor ones directly. The government can build infrastructure (which they do a lot more of than private industry), fund R&D, etc. Individuals could also invest their money into funds that fuel R&D, fund startups, etc. It's incorrect to claim that only the wealthy invest.

"There's also no reason to assume that tax money goes from wealthy pockets to poor ones directly. The government can build infrastructure (which they do a lot more of than private industry), fund R&D, etc. Individuals could also invest their money into funds that fuel R&D, fund startups, etc. It's incorrect to claim that only the wealthy invest."

And there are some project that only the government can take on due to how long cost recoup would be or the risk levels (Space, Internet...) but those things fund high paying jobs.

That's not entirely true. The effect you describe depends on loan growth. Money sitting in bank accounts isn't automatically funding anything. There has to be demand for loans and the banks have to be willing to lend, otherwise nothing happens.

In other words, there's a difference between capital being available and capital being put to use. Velocity of money is important.

Also, if I buy Apple stock today, Apple doesn't see a cent of it. Whether or not that money goes on to fund anything at all depends on what the person who sold me the stock does with the money.

But you did provide a little up-pressure on the stock price.

Sure, but that in itself does not make the economy grow. It could potentially make the economy grow if the person I buy the stock from uses it to buy other shares in an IPO and that company spends the money to fund actual work. Or if that person just puts the money into consumption.

I'm just saying that boosting some share price does not in itself fund any labor. That's important, because the difficulty of getting the economy growing again after a balance sheet recession like the one we just saw, is to get money moving, not just sitting somwhere with a nominal price tag on it.

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