55 Corporations Paid $0 in Federal Taxes on 2020 Profits
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It is not a loophole, it is a deliberate policy to accommodate business plans that simply do not fit in a single tax year. For example, building a chip fab, designing an airliner, creating rocket technology, is a multiyear process. There can be many years of expected losses before it is possible to start showing a profit. It is perfectly reasonable to offset those profits with the years of losses.
It also applies to businesses that expect to have lean and fat years, like farming. It allows companies to rebuild their reserves after years of losses.
BTW, individual taxpayers used to have this, too, it was called "income averaging".
TIL about income averaging, I've never heard of this before. Looks like it was phased out in 1986? https://www.phillipslawfirm.com/blog/2020/04/the-need-for-in...
The next two tax breaks (research and experimentation) and renewable energy seem worthwhile, and I'd guess popular on both sides of the isle.
Btw, I did make a quick examination and some information is not accurate. For example, I knew that NKE don't have huge stock-based comp. The reason they paid no tax in 2020 was tax benefit from stock-based comp AND "Foreign-derived intangible income benefit". In 2019, they took most of their income overseas. Sometime in 2020, they stopped doing this. And in 2021, they paid $500m in income tax.
Interestingly, their effective tax rate actually fell even though they are now paying more income tax in the US (the tax-benefit from non-cash comp is now the more significant contributor to income-tax deductions, they are still gaining 370bps of effective income tax from IP shenanigans though...which is interesting given that this was supposed to have stopped from 2018).
But I agree that this probably isn't a great topic for HN.
I think this is on HN because taxation and social mores are relevant to entrepreneurship, which is a very big theme on a forum ran by a venture capital fund that operates in the United States.
Edit: And carryover losses, etc
But this is ignoring a lot of stuff like tax loss carry forwards.
“Whoa whoa quit investing, we need your tax revenue!”
But of course the political class is disincentivized to admit this.
Ownership of companies, and more specifically people not getting their wealth from income but from share price appreciation.
Getting rid of corporat tax would only make this gap grown even wider and bring down the amount of tax that governments bring in.
it would be the worst of both worlds, decreased government revenue and wider wealth gap.
That's why this needs to be offset by higher individual taxes.
illustrative math:
company has $100M revenue, $50M paid in salaries+taxes, $5M "real profit", $0 paid in taxes today because they hide the $5M profit
new proposal
Company has $100M revenue, $55M paid in salaries+taxes, 0M "real profit", $0 paid in taxes
Government now gets to collect $5M in taxes. The burden is higher on salaries+taxes now. This would temporarily push wages down to offset, BUT in the long run it would either (1) the company would have to readjust wages for high performers and (2) increased profits to companies would mean more jobs. Either way, it would simply correct itself.
The company is already paying fair wages, more profits won't change that.
in your scenario government revenue goes down as no corporate taxes are now collected and no additional individual taxes will be paid.
How does this help the government?
My scenario very clearly illustrated that the government would collect $5M in taxes where they wouldn't have before.
> the rich don't pay taxes like we do so any proposal that attempts to work by increasing individual taxes just won't work:)
Which is why consumption taxes work (hence my suggestion of VAT)
This is the same concept as you owning a home and someone builds a nicer home next to you. Your home value just went up. But you don't have a cent of that money until you sell your home, and then you are taxed on the gains (unless you roll it into another home, but that's a separate discussion).
Who do you think they are buying the shares from? It literally directly puts money in the pockets of investors.
Most people selling their shares in a company do not know who is on the buying side, and that is generally the case here. This goes for retail and institutional investors. And the buy-back programs are done slowly to avoid slippage, which can make it even harder to track down in the moment.
Someone who wanted to sell was selling anyway. They don't profit any more than their gains (or losses) already covered. The people who get "value" are the ones who did NOT sell their shares, and their "value" is only realized down the road when they do eventually sell.
I’m not sure what this has to do with anything? Why does it have to be at a premium? What in gods green earth are you on about? What difference does it make if you know or don’t know who the buyer is??
Those who want to sell can sell (buybacks are programmatic) and those who don’t can benefit from appreciation.
> Who do you think they are buying the shares from? It literally directly puts money in the pockets of investors.
He's trying to explain to you why stock buybacks don't "literally directly put money in the pockets of investors". If your shares are sold back to the company as part of the buyback you are 1) no longer an investor obviously, and 2) have not realized any gains as a result of the buyback. Investors who did not sell see their shares appreciate, which is different from "putting money in their pockets"
Well for one, that presupposes that investors sell all of their shares at the same time, which they rarely do. So, I have 100 shares and I sell 10 back to the company. I receive 10 shares worth of cash directly from the company and I still have 90 left thus qualifying me as an investor under your definition.
And secondly, your entire premise is absurd. By your definition, a dividend isn’t a company returning cash to investors because by the time they issue the dividend, it’s no longer their cash, it’s the investors.
You guys just don’t understand this stuff. The real world just doesn’t work the way you imagine it.
Hint: the answer is... no one. Investors who held see the value of their holdings increase, again, different from "cash in your pocket"
The investors who sold the shares to the company. Markets aren’t some magical entity that conjure shares out of thin air.
If a company buys back 10 shares, they buy those 10 shares back from an investor who wants to sell 10 shares. That investor now has cash literally in their pocket.
How do you think this stuff works? Where do you think the money goes when companies spend on buybacks?
This also has nothing to do with returning cash to investors. They were going to sell the stock anyway. Who cares if it keeps going up? It has nothing to do with the mechanics of a buyback.
> These investors who sold did not benefit from the sale any more than they would have selling on the open market in a non-buyback situation.
What in the ever loving Christ? Why does this matter? You guys just keep moving the goal posts. This simply doesn’t matter and I’m not sure why you guys get hung up on it. Shareholders love buybacks. Why does HN think they have figured something out that millions of other people have missed. It gets so tiring going in circles.
The company may stock buy back directly from employee's RSUs, which are taxed as income.
That’s not how this works. Where is this focus on “adding value”? What the hell does that even mean?
Just take this to its logical conclusion: let’s say a company buys back 100% of its shares. In this case they have returned a ton of capital to investors very tax efficiently, and price will converge on whatever price the very last seller is willing to sell at.
Nobody has anything valuable until they transfer some cash to receive that thing. The potential to transfer X for Y is valuable. Not to mention borrowing against one's assets.
That's a bit different, as you generally reap some ongoing benefits from owning a home, such as an income stream (rent) or place to live (savings on rent, which aren't usually taxed), which you don't get from owning stocks (other dividends, which are taxed, and the benefit of voting if they're voting shares).
>"Nobody has anything valuable until they transfer some cash to receive that thing. The potential to transfer X for Y is valuable. Not to mention borrowing against one's assets."
We generally don't tax things that have the potential to increase borrowing power (because of that thing alone); we don't tax high credit scores or educational status/attainment, or changes in either.
It's not 0 tax... it's cap gains (short or long) whenever the shareholder sells.
Or they could commit to just staring at imaginary numbers in a bank account forever I guess, but then you start to ask existential questions about what inequality actually means if nobody ever spends money.
And yes, 401ks are tax-advantaged... that's the point of the account. It would be equivalently tax-advantaged if companies were paying dividends instead of running buybacks.
The value of your stock might go up. That is taxed if you sell if for cash.
We could end corporate taxes tomorrow and the treasury department would barely notice, but I can't help but imagine the efficiency gains that would ripple across the whole economy. There is so much productivity and human effort and brain power wasted that just goes into minimizing (and maximizing) the amount of tax paid by businesses. Not to mention the way it skews investment decisions.
The answer is that even if that is the case, it doesn't matter. But let me elaborate.
First - wages paid to workers are out of the equation, since they're deductible; see:
https://www.irs.gov/publications/p535
(caveat: I'm not a USer nor a tax specialist)
As for dividends for shareholders, those are sometimes/often "qualified":
https://smartasset.com/taxes/dividend-tax-rate
and there may be other loopholes I'm not aware of. And the non-qualified tax rate is not that high either.
But then, think of what remains. A business has gotten a bunch of income, untaxed. It is not simply a funnel of money to individuals: A business is a social entity, a social actor - and on a macro level, commercial enterprises are a very powerful part of society (especially the huge ones). Them not being taxed mean they control a larger fraction of society's resources.
Now, sure, when they use that money, it will often end up being taxed further along the way - but that's no different from your income being taxed when you use it. And just like with a business, the income we make eventually gets passed on to others through our purchases or gifts or what-not. So why should we pay any income tax at all? It's faulty logic both for us as individuals and for corporations.
All the discussion over corporate tax (and unrealized capital gains) seems rooted in pathos, not practical policy. It seems unfair that some corporation pays zero income tax while people pay xx%, so people write firebrand articles to argue that it's unfair.
Nevermind that pathways from corporate income to income an actual natural person can enjoy are patrolled pretty carefully by the taxman. Total receipts might be less than if corporate managers picked a suboptimal strategy, but the operating assumption of tax policymakers _must_ be that actors are rational and wealth-maximizing. We can't write tax policy that admits certain strategy then complain that receipts are lower under that strategy than they might be, just like you can't lose a game, and complain that you would've won if only your opponent was worse.
Although that may be a good thing, redistributing wealth from rich to poor, same what allowed us to climb out of the Great Depression.