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Comment by swatow | Hacker News Reader

I'm not an expert in taxation, but corporate taxes are just one piece of the pie. There is no way for employees to avoid income tax, and as far as I know, no way for US based shareholders to avoid paying capital gains/dividends taxes.

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In fact, some economists argue that corporate taxes are fundamentally inefficient, because corporations are just a mechanism for producing either individual income or capital gains for their shareholders, so it would be better and fairer to tax the actual humans profiting from the business rather than the corporate straw man itself.

I'm familiar with the theory, however I've never seen a good treatment of how this works with multiple countries. The income and capital gains taxes only apply to shareholders residing in the US. Maybe some of the corporate tax could be considered a fair "rent" price for using the nations resources? But I'd have to see a real model to be sure. It's still unclear to me whether (a) nations have conflicting goals when it comes to taxation (they don't when it comes to free trade, so maybe they don't with tax either) and (b) what the optimal corporate tax rate is.

It's clearly complicated, and something that might have different equilibria. If you had a corporate tax of 0, you'd be foregoing some taxes that would otherwise not end up in the local coffers because the money would flow out of the country and be taxed elsewhere. OTOH, that kind of arrangement would be very attractive for foreign investors, who would be more likely to send their money to your country, which would likely have many positive effects.

Multiple countries is the primary reason that corporate income tax doesn't work. International corporations just report profits in the countries with the lowest taxes. Corporate profit doesn't have any physical existence, it's just numbers in a spreadsheet, you can trivially move it to any country you like.

The only way to tax an international entity is to tax them on the things that actually exist in your country: Customers, employees, property, etc. But that's not corporate income tax anymore, it's sales tax, personal income tax, property tax, etc. The closest thing you can get to corporate income tax that actually works is VAT.

The corporate strawman itself could also be resident in another country, as in the famous Double Irish with a Dutch Sandwich setup.

this is an argument that only works on an infinite time scale. Just like many other taxes on assets, taxing profits works to avoid hoarding (see Apple).

Money is meant to be spent, not hoarded.

The problem is that it does completely the opposite. As long as the money is held offshore it isn't taxed. If the company itself spends it then it becomes a deductible expense. The only way it gets taxed is if they return it to the shareholders. Which you would think the shareholders would want, if not for the fact that the cash held by the corporation is an asset which adds that amount to the stock price, which allows the shareholder to extract as much or as little as they like by selling shares. Which itself has more favorable tax treatment than receiving a dividend. The whole system is set up to encourage international corporations to hoard money in offshore accounts.

Except that in practice actual humans will avoid paying tax by incorporating themselves.

Why do that when you can double-dip by taxing both?

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