Minimum 15% global corporate tax has too many loopholes
fortune.com
fortune.com
You have to tax the income at the source, at the point of sale. It’s why most of the EU shifted to VAT’s decades ago.
The US should do the same. Corporate tax is already effectively eliminated for corporations in the US, as the income is just passed through to individual owners and shareholders who pay tax on their individual income.
The only corporations who pay tax in the US are large corporations who need massive amounts of cash on hand for research and reinvestment for new products and ventures.
Apple would seemingly fit this description, but they still skirt taxes by offshoring their headquarters.
Man with money, wins.
> You have to tax the income at the source, at the point of sale. It’s why most of the EU shifted to VAT’s decades ago.
This is misleading - the EU put in place VAT as well as a minimum 15% corporation tax.
We already have a "progressive" tax system in which ~70% of Federal revenue (not including SS & Medicare which are separate line items funded separately) comes from individual income tax.
Why can't we have a corporate tax that actually works and is evenly distributed instead of "progressive"?
I spit on 16A. The US was designed not to have any direct tax, including federal income tax, unless it passed the apportionment test.
Could you please elaborate?
If NY has 10% of the total population, 10% of income taxes would need to be paid from NY. Similarly if TX only has 2% of the population, the tax would need 2% of its funding from TX.
If everyone paid the same amount, this would be easy. But if you wanted to only tax millionaires, for example, that means that the millionaires in NY would be responsible for 10% of the total tax paid while those in TX would be responsible for 2%.
Now consider that there are 1000 millionaires in NY but only 2 in TX. Each NY millionaire would be required to pay (.1)(1/1000)=.0001 of the total tax bill while each millionaire in TX would be required to pay (.02)(1/2)=.01. Obviously those in TX would never agree to such a tax.
The goal with this is debated, but I believe it was done specifically to make passing direct taxes near impossible. Indirect taxes, such as excise taxes, are preferable since people only pay them if they want to. They can always elect to not purchase a good or service to avoid the tax. Additionally, it allows a much more progressive system than income taxes, since you can impose severe luxury taxes based on consumption only.
The 16A came along and changed this by explicitly exempting income from the apportionment requirements. Likely this was one of the major catalysts in the destruction of the American experiment.
If you were a highly profitable oil drilling company, or were in the business of mineral extraction, or were an investment bank for instance, you would not be taxed at all under a 'VAT only' system.
IMO we might as well just say 'don't tax companies' - VAT isn't a substitute for a corporation tax, because it's not a tax on corporations (it's a tax on consumer purchases').
So the idea of corporation tax is to try and structure a tax which puts pressure on corporate profits on very profitable businesses, rather than putting direct pressure on prices.
I mean it depends who you call a 'consumer' as ultimately someone has to pay, but the idea is to direct that to the richer capital-owners rather than the poorer, and VAT generally hits the poorer.
Corporate tax is already flat in the US (21%). For the majority of corporations that pass-through their tax, I don't have data on it, but I'm willing to bet the individual marginal rate is higher than 21%, so as long as the VAT is lower than those rates, it's no worse than it is right now.
> B2B businesses would be fully untaxed
Depends on how you structure the VAT. I don't understand all the different possible implementations, but my understanding is that this is done by design so that value-added-production is what is actually being taxed, and not how many times a product changes hands (supplier -> manufacturer -> distributer-> wholesaler -> retailer).
All taxes are born by the consumer anyway.
> It doesn't really tax the businesses
This is true for all taxes. The end consumer is always the one that ends up paying all of the tax, because any tax in the supply chain will always get passed along through higher prices.
> Depends on how you structure the VAT. I don't understand all the different possible implementations, but my understanding is that this is done by design so that value-added-production is what is actually being taxed.
Most businesses are VAT exempt (or can reclaim the VAT) to avoid multiple levels of VAT being charged (at least this is how it works in the UK/EU), so it often effectively is only really applied at the final sale. As an example, if I own a company that mines coal in the UK and then sells it to a steel smelting company, both the coal mining company and the steel smelting company would be VAT registered and not pay VAT for these transactions.
> This is true for all taxes. The end consumer is always the one that ends up paying all of the tax, because any tax in the supply chain will always get passed along through higher prices.
This is not true for all taxes - for instance a tax on corporate profit does not get passed along in the same way as a blanket X% on all sales.
The USA already has sales tax at the state and local level. Corporate tax is a separate tax on profits.
I'm not finding anything to support this claim. VAT absolutely performs worse in many environments [0].
[0] https://en.m.wikipedia.org/wiki/Value-added_tax#VAT-free_cou...
What is the corollary to "socialize risk, privatize reward" which has to with the cost of taxes being passed along to a level at which tax avoidance costs more than the tax?
Maybe it would be "Inverse-Gulliver," where the Liliputians all live to lift Gulliver instead of tie him down.
This is a consequence of policy choices, not some inherent natural law.
Go with China’s approach? Capital controls? Appropriating companies that try and move to other countries?
Generally economies that do that don’t perform well over the long run.
I'm not going to claim I have the solution. Anyone who tells you they do is either deluded or has something to sell you. And that definitely includes those who want you to believe that modern capitalism is the end-all be-all of society.
What I want is to stop the self-imposed helplessness. What are some things that might work? How can we validate them? How can we roll them out?
Saying "Somebody should solve this problem" while simultaneously saying "I don't have a solution, but we should stop the self-imposed helplessness" isn't really saying much at all.
Incorporated entities are intangible. They are just ideas. They don't have to exist in any particular geographical area.
We should do the exact opposite of VAT taxation.
The other one you're omitting is income tax, which is likely why the Netherlands is welcoming these companies - they may miss out on billions worth of corporate tax, but if a company hires people here, that'll earn the state some in income taxes, especially high wage positions.
Is that correct? I thought anyone below the poverty line paid 0% income tax, and would just have to pay sales tax. And property tax, gas tax, social security tax, and inflation, which is a secret hidden tax. But still, 25% sounds high.
> In the United States, [the EU Tax Observatory] says, billionaires pay an effective average tax rate of 23%, including all taxes at all levels of government. The poorest 10% of Americans pay more – 25.6%.
I was unable to locate any such figure in the Tax Observatory's data atlas[2] -- I've included the relevant lines for their latest U.S. effective tax rate estimates below. As you can see, they're not broken down by income percentile and also lack the expected decimal precision:
USA 2020 0.31 Total_tax_NDP
USA 2020 0.11 Corporate_tax_rate
USA 2020 0.27 Labor_tax_rate
USA 2020 0.30 Capital_tax_rate
[1]: https://apnews.com/article/tax-corporations-global-havens-eu...
[2]: "Effective tax rates on capital and labor": https://atlas-offshore.world/download-data/
This makes it possible to be a "high corporation tax" country where shareholders still net more money than those in a "low" corporation tax country with high dividend taxes.
Unrealized wealth is exactly that, unrealized, which is why we don’t tax it. If you want to live a wealthy lifestyle and all you have is unrealized wealth, you will eventually have to realize some of it to pay for things, at which point you get taxed.
If you really want to, you could defer it till after you’re dead. Just borrow against the principal rather than realizing a capital gain. Zero annual income (as no gain) and spend as much of it as you want.
You will have to realize it at some point. Or at least your estate will. But it doesn’t have to be while you’re sipping tax deferred champagne.
Its open to question whether the more important aspect of dynastic wealth is quantity of bling consumed per annum rather than the proportion of the economy controlled. But what isn't debatable is that if corporate profits aren't taxed much of it stays out of the taxman's hands for a long time, which is a matter of interest when we're talking about governments not realising as much tax revenue as they hope for.
Share prices are typically lower when firms suspend dividend payments due to financial issues. But ceteris paribus, a firm with a $100b pile of cash has a higher share price than one that disbursed that cash to shareholders. It's now quite fashionable to not pay dividends at all (even though the company is valued based entirely on the net present value of the future dividends investors believe it could pay) and to use alternatives like buybacks if they to return money to shareholders. Why do this? Because the different tax treatment generally favours shareholders.
Yes, it seems insufficient in so many ways, but it is a huge step in the right direction.
Getting countries like Ireland, who are getting rich helping big tech legally avoid taxes, to sign on was very difficult.
I think Yellen deserves a lot of credit for this.
Note that Ireland has already implemented this, and I'd estimate the chance of it being made into US law as less than 10%.
> The Inflation Reduction Act created the CAMT, which imposes a 15% minimum tax on the adjusted financial statement income (AFSI) of large corporations for taxable years beginning after Dec. 31, 2022. The CAMT generally applies to large corporations with average annual financial statement income exceeding $1 billion.
https://www.irs.gov/newsroom/irs-clarifies-rules-for-new-cor...
That's definitely good news.
SSE has both pros and cons. It’s far more nuanced than that.
This is not helpful, except to those that benefit from a lack of controls. Pursuing the perfect law is ridiculous, conceptually. The history of the US has been predicated on eventual alignment with populist goals. Some Americans have heard of "the amendments" to a specific document, to this aim.
> The EU Tax Observatory isn’t calling for an outright ban on green-technology subsidies. But it is urging governments to consider other policies to offset the financial gains to the wealthy from such tax breaks.
"It's okay if you incentivise good behaviour, as long as you also punish it at the same time." Insane.
Governments, learn how to spend without being judged.
The wealthiest 0.01% have ways to avoid and evade taxes that others don't. It's a fairness problem.
I thought this was in reference to theiving governments.
That 10% could be a considered an economic incentive similar to giving any non billion dollar company a tax break. However this idea would add money to the countries budget instead of removing it.
Sure $10b seems like a lot to you and me, but to split Apple, Microsoft, Google to just $10b would require hundreds of different companies to form from their split. To go to $1b companies would make that thousands of companies.
You could split apple into 3000 companies and still need to split further. The CEO would be able to spend less than 1 minute a week on each company.
If you only have a subset of countries on the same page, the accounting firms will definitely exploit that and move the wealth away from them, avoiding the tax. I just don't see this working at all any time soon, period - too many corrupt states in play at the moment.
That's what these global minimum tax and things are. Governments get together and decide that to squeeze a little harder there can be no escape. But all it takes is one government somewhere that decides not to do it and they get the economic benefit. Or, they can pretend to do it and give loopholes to some corporations, like Ireland does with their tax schemes.
You're just not ever going to get the whole world to play ball the same way.
- A megacorp that pays 0% in income taxes still pays a ton of sales tax on things it buys
- Every employee pays income tax, sales taxes, income gains taxes on their investments, and eventually death taxes
- The owners pay taxes on dividends received and capital gains in rising share prices, and all the same sales et al taxes as the employees on the remaining amount.
- The economic activity generated by the 0% megacorp will create higher incomes for other corporations, all of whom are subject to the above taxes, and not all of whom manages to avoid all income taxes.
The fact is that dodging tax is at best a temporary aberration. There are many financial tricks to delay and minimize taxes, but the government will always take its pound of flesh eventually.
Also, at some point the owners of that money will spend it / gift it / die and then it gets taxed.
Even in the USA, where these corporations are supposed to rule the roost, government spending as a % of the economy has been skyrocketing for the past century.
Even if the government banned all income tax, they would stealth-tax us by issuing bonds and inflating the currency away.
To boost their careers, top bureaucrats the world over need their headcount to keep growing, so they demand blank cheques from the productive with an air of moral sanctimony that's almost impressive.
I fully support reasonable taxes to feed & educate the children of the poor and many other nice things, but the bureaucracy is a monster that never stops growing unless we make it.
Something to keep in mind next time John Oliver goes on a rant.
Not familiar with the US, is this actually true? In europe, as a company, you're allowed to subtract VAT on products bought from VAT owed from sales. That would contradict most of what you're saying.
I know Boeing gets an explicit sales tax exemption from Washington state on planes it sells. But things would be really weird otherwise.
For example, in the chain of iron ore -> steel -> pistons -> engine -> car: In USA, each of the middle steps get what is called a "reseller's exemption certificate" and the sales tax is only charged when you walk out of the dealer.
In EU, each of the steps get VAT taxed, but they can remit the taxes from the next step. Overall effect is the same, but USA's system is simpler and easier with less paperwork. American suppliers have to get a certificate only once and then its all set. No sales tax is collected by the buyer for established repeated relationships. One time paperwork.
I wonder if they can set up an entity in Delaware (where the most corps are incorporated anyway) and pay zero sales tax.
Wrong tax. Tax is there to free up people for the public purpose, so you tax firms on their use of manpower in your jurisdiction.
That encourages the use of automation, which is what we want, and we can then turn competition up to 11 (ie anti-trust/competition legislation) which is what keeps corporate profits under control and prevents hoarding and gouging.
Beardsley Ruml told us in the 1940s that taxing profits is the wrong target. http://home.hiwaay.net/~becraft/RUMLTAXES.html
Because once the government has offshored all the nation's industry and private sector jobs, the public can go and build dams for the government for freshly printed dollars, and there are absolutely no downsides to this...
The better avenue might be to inquire if really innovation of the corporate form is done - there has be strikingly little progress over the last few hundred years (and perhaps longer if we don't look to closely).
That isn't to say public utilities cannot be successful, but starting them by trying to modify something existing instead of devolved (where applicable) and bespoke entities that don't hold the power of the state as such might be a nicer way.
Republics come and go, it doesnt mean democracy in itself is a failure. All I am advocating for is the extension of our democratic norms to the economic and production apparatus.
We do have a fair amount of countries with more than just shareholder representations in boards, for example. That said, assuming that just extending democratic norms (TBD) into corporations will help - not sold, why would large and potentially uninformed decision making help?
Government spends as well, which means firms get the money in the front end as sales to the government workers.
If you use automation to create the output for the government workers with the same amount of employees, then you'll make more profit. Aka productivity, which is what we want.
You do realize what you are proposing is 100% legal today but for some reason doesn't work out well.
Ah the same old excuses
Why aren't they successful in the US today or USSR previously?
Or North Korea or China today? You do realize even China's top companies are not cooperatives.
Corporations may work well economically but there is a reason that among all of the desperate reform attempts nobody decided to incorporate an entire nation and make it publicly traded.
That's exactly what you want - otherwise there is nobody for government to hire - which is the point of taxes.
They won't lay off all their local employees, just enough. And if they lay off too many, then you reduce taxes...
Government will then hire them, and the wages paid goes to the firms in exchange for the produce they sell to government workers.
Government needs people to do the tasks it has been elected to do. It has to stop the private sector hiring them instead. It does that by taxing. The tax incidence literature shows the most efficient way to reduce the number of job offers is to tax the employers on the wages paid to employees.
Take a deep breath, forget all the rabbit holes you've been going down and go look at who governments actually hire, at what rates, and to do what. They're not recruiting civil servants or police or nurses or economists from the dole queue, or from people whose skillset is in imminent danger of being rendered obsolete by an algorithm. Just like the private sector, they have the remarkable ability to hire people that already have jobs or good job prospects by offering them more money (or more flexible work and better pensions, or a fancier title, or something that interests them more)
Government has exactly the same ability to hire people as the private sector (more actually; it has a broader revenue base, can offer more unique privileges and actually has near monopsony hiring power in many areas... and no, people don't train to become NHS healthcare practitioners because the local supermarket is replacing people with kiosks!) and does not need to create unemployment to be able to man its offices.
Quite the opposite actually, when unemployment shoots up governments in most developed countries have the obligation to pay lots of people unemployment benefits for , not working for them, and generally that's about the time it starts cutting the size of its own departments.
Yes, by paying more. What you're saying is that government should just be another market player.
Which causes inflation.
That's a fallacy of composition. Government is too big to do that.
There's nothing contrarian in what I'm saying. What I'm saying is look at it from the other point of view. If government increases the taxes on employers at a particular salary band then it will not be able to hire so many staff at that salary band. They will then take the government's shilling at the price on offer.
Which is how you solve the staffing problem in the NHS. By taxing the private healthcare providers at the relevant salary band until the NHS becomes fully staffed.
"more actually; it has a broader revenue base"
Government doesn't have a revenue base at all. Governments spend by printing money and tax by shredding money.
The little silver coins going into a big chest mental model isn't how it actually works. There are no little silver coins and there is no chest.
It's just debits and credits.
"when unemployment shoots up governments in most developed countries have the obligation to pay lots of people unemployment benefits for , not working"
Well there's a simple solution to that. Pay them to work instead. Backwards to what you are suggesting.
Which will then, remarkably, start acting as a spend-side auto stabiliser which means we can dispense with interest rate changes...
The NHS staffing problem is due to a lack of qualified staff seeking work in the country period. The government can't and doesn't attempt to solve that by levying arbitrarily high taxes on private provision. Even if the reason the government couldn't hire heart surgeons was because so many of them worked in private practice, taxing private practice out of existence wouldn't affect the demand for heart surgery being too high for the number of surgeons, it would just leave the government on the hook for providing all of it.
The reality is that government does attempt to keep tax base growth in line with spending growth where possible, and doesn't levy special employer NI contribution demands on heart surgeons. Because for all that the government attempting to broadly balance their budget over an economic cycle isn't exactly the same as coins in, coins out, it's not nearly as economically illiterate as 'the root causes of inflation is that productive employees haven't been forced into the public sector yet'. I mean, the poster child for high public sector employment on low wages and a government attitude that private enterprise is to be suppressed rather than milked as a revenue stream is Venezuela...
I also think that if you're determined to promote the kookier elements of the functional finance model, you should probably consider the possibility that people consider the idea that the true function of taxes is to force them to take government jobs at arbitrarily low wages to be evil as well as inaccurate. Apparently people don't hate interest rate changes so much they don't prefer the government abolishing the welfare state and actively targeting their jobs for elimination so they have no choice but to join a low-paid workfare programme!
Correct, which is why preventing those with money from jumping the queue is so important. Then the queue is a priority queue based upon need not ability to pay.
There is no place for a 'Fast Track Queue' in the UK health system which serves nobody but the rich.
You can't have a 'market' except where there is excess capacity to supply.
You've very kindly explained why private medicine cannot exist.
"economically illiterate as 'the root causes of inflation is that productive employees haven't been forced into the public sector yet'"
Good job that's just a straw man then isn't it. Including the obligatory reference to Venezuela, Zimbabwe or Weimar just to demonstrate the comment is emotional rhetoric and belief rather than anything considered.
But of course it is far, far better I presume to give rich people free money in higher interest payments than to ensure poor people have jobs.
Hang on a minute, you're the person who said that mass elimination of poor people's jobs was "exactly what we want"...