The best way to think of the tax code is as an enormous legacy codebase whose authors were largely unaware of one another, often working at cross purposes, and subject to an ever changing set of requirements -- which requirements, importantly, are at least as much about social engineering as they are about raising money.
There is a constant tension between:
- backward compatibility ("we built our business around [tax provision]! you can't remove it now!"),
- expansion of the codebase to accommodate new requirements ("we must get more $activity; let's add a tax credit to incentivize it!")
- refactoring to better serve existing organizational goals ("we are leaking billions of dollars because of [loophole]! we have to close it now!")
This is why things like the "flat tax" or other simplification schemes are perennially floated, and also why they continue to get shot down: desires to simplify and refactor run into desires to support existing worfklows as well as current and anticipated future social goals, and they just can't get off the ground.
This is also why I end up posting basically the same thing in every tax thread, from the late great Martin Ginsburg, from whom I was lucky enough to take corporate tax: "Everything in the tax code is simultaneously a trap for the unwary, and an opportunity for the well-advised."
So your own interactions with the tax code should be considered similar to, say, an SAP deployment or something. Theoretically it's all documented and you can figure it out on your own, but in real life an expensive consultant will pay for herself over and over.
Another thing that has always bothered me about tax code (and criminal code but that's another story) is the explicit use of constant dollar amounts. For instance, how the child tax credit should be $1,000, the minimum wage should be $9.15, and the penalty for illegally parking your car should be $52.13. All of these numbers are completely arbitrary, and if they had any justification when they were decided, they lose their relationship to reality quickly over time as the money supply and other economic factors shift over time.
We have computers now. Why can't we write a code where the incentives and disincentives stay where we intend them to relative to the state of the economy?
In Swedish law these numbers are often specified as some multiple of the "price base amount" (prisbasbelopp), so there is a single constant that can be updated from time to time, which indirectly adjust all these other amounts in various laws.
Couldn't agree more, but it's more complicated than that. Usually if something isn't pegged to inflation via CPI some politician(s) had a reason for that.
As an example, say Party A wants to raise the minimum wage but party B wants it lowered or the same. They agree to raise the wage, but don't adjust it annually for inflation. Party A "wins" but every year party B "wins" more and more, as long as it isn't adjusted upward further.
An interesting recent example is in the House Republican's tax cut bill. The thresholds for which tax bracket you would fit in are adjusted annually, as they are now, but would be done via chained CPI[1]. Chained CPI grows more slowly, thus meaning that over time, people get pushed toward higher brackets, subtly increasing tax revenues.
Because politicians (in the aggregate) are stupid lawyers who barely passed math, at least in the US.
They come up with ideas, and when special interests and other actors end up completely breaking the intent by changing certain pieces, they still proceed with implementing the broken legislation for public perception reasons of "doing something".
See the Affordable Care Act for example. Obama wanted a public option to keep insurance companies in check and help drive down the price-gouging from the providers. Joe Lieberman, as the 60th Democrat in the Senate, was able to block that by pulling his vote, allowing for a fillibuster. He wanted the public option removed, and he got his wish.
Obama pushed the law through anyway, despite the fact that this change completely broke the design of the law. Insurance companies now saw it as a subsidy for new customers, which is what it was. The broken design failed to reign in costs, which made the subsidy provided by the government inadequate to make it affordable to the working-class, resulting in the law effectively being a Medicaid expansion and nothing more. The prices charged by insurance companies through the exchange were too high to ease the pain of people too rich for Medicaid but too
Obama originally treated it as a huge victory. It wasn't. It was broken on delivery. But hey, they "pushed something through" and "won."
Now we are getting honest assessment of it as it implodes, and the Democrats are talking about single-payer again.
> but in real life an expensive consultant will pay for herself over and over.
Not available to middle class and below, or small companies. This is the entire problem.. in the EU at least if you start adding up VAT and normal taxes you end up at something like ~40% tax pressure for the average citizen. Wealthy people can dodge this with all kinds of fancy constructions. Similarly, big companies can either negotiate special individual rates or, again, use fancy constructions to lower their tax burden. Apple's effective global tax rate is 0,005%[0]...
Most tax deductions can be explained as rewards to various voting blocs for support. In his "Rules for Rulers" video (https://www.youtube.com/watch?v=rStL7niR7gs) CGP Grey draws an analogy from dictators needing to pay their generals to ensure continued support, to democratic politicians giving out tax deductions to businesses to ensure their support.
What a bunch of propaganda. The central theme of the article is that if Apple could repatriate its $200 Billion, it would have more money to invest and create more jobs. But this assumes that Apple is not investing as much as it would like.
There is no reason to believe that Apple feels it needs to invest more. And, if it did, it could borrow the money from its foreign subsidiaries and spend it without paying any taxes (and charge itself whatever it wanted in interest since it's borrowing from itself).
As the past 9 years since the Great Recession have shown, companies do not make investments just because they have more money. They invest for business reasons. It is true that Apple investors will be worth more if the money is repatriated, but more jobs?? not so much.
Companies make investments in response to consumer demand.
In the case of Apple, I’m sure they have all the robots and workers they need in order to accomplish their goals (since they are sitting on billions already). A few billion more in the bank isn’t going make them go out and hire someone.
You know what makes a company invest more? More customers. Customers are the real driver of growth.
I disagree with your propaganda take on this because after i read this i finally understood the tax shelter piece (but maybe i'm naive). I do agree with everything else you said though.
If I couple this with Warren Buffet recently advising that the Dow will go to 1 million in 100 yrs [0], I can read between the lines (as you always need to with Warren) that big money already knows it can keep its big money for a very long time. Getting value consolidated into a) a few really large companies; in b) preferably the US; c) quickly; seems to be the bet.
I also agree that jobs is the target here. Special dividends and buybacks will be the way to extract this money back to the US economy (unless your a foreign rich investor who already sees this and starts pulling money out of oil and into the US - still a win for the US?). And then we get some more case studies in whether trickle-down works or not. If it does, we've created a (more?) solid small business climate, where theoretically more innovation and growth comes in. (?) If it doesn't, well, we'll continue to see the middle class disappear.
At least that's what i think i see, but who knows on timeline and i'm not a finance guy. All I know is that this current tax plan puts about $60/month back in my pocket using my 2016 numbers, so if i invest that $60 into AAPL i'm most likely going to have more than $60*12 at the end of the year.
So if repatriated, the money disappears? It’s not reinvested in Apple or other companies, put in the bank to be loaned out to other businesses, nor spent on goods and services?
I think OP's point is that its not "guaranteed" to do any of the things you listed. If the FED raises rates, the companies may want to hold it, as an example. Or if the best business application is to do a buyback or dividend, you're bypassing the jobs part.
We're also talking two buckets of money. The money coming back in to the US, and the taxes the govt collects. I think this one-time tax money in this case is already spent with these tax cuts?
both buybacks and dividends create jobs. in fact without buybacks and dividends no one would ever start a business and no jobs whatever be created, Other than sole proprietors.
Problem with worker co-ops is access to capital. In a world where dividends and buybacks were banned, where would they get capital? Not from investors, because few sole proprietors would be wealthy enough to invest. Not from banks, because they would be hugely capital starved without investors to fund them.
I'd like to imagine Ford Motor company could have been a worker co-op, but truth is it couldn't until later in life. Henry Ford raised $28,000 to start it in 1902, nominally that's around $1M today, but it's actually far more than that. Average income was around $450 a year, so he raised about 60 times the average worker's annual salary. Without wealthy investors, there was no shot at starting Ford. Once it was churning out Model Ts by the millions the workers co-op could have succeeded, but they could never get there.
So if you're a US citizen or permanent resident or even just a tax resident (which includes working here on a temporary visa), the US taxes you on worldwide income. Any income from overseas needs to be reported (up to 3 times!) and taxed. With most countries you get credit for any taxes you paid in those countries. State taxes work the same in that you may have to file in more than one state and credit is given from taxes in one state to the others. This is actually all pretty sensible albeit tedious (particularly the part about reporting foreign assets and income).
Where it starts to go bonkers is for US citizens and PRs who live overseas. They still have to file taxes with the IRS for all worldwide income and report foreign assets and income as if they were present in the US. They get a certain amount of income (<$100k) each yeah exempted from US income taxes. Most countries do not do this.
My first problem is this: why exactly can't we treat companies the same way? I would be all for a 20% corporate tax rate if it meant a tax on worldwide income with credits for any taxes paid to foreign governments... exactly like individuals are treated. Why isn't this on the table? Is it that hard?
Second problem: in this world of multinationals and particularly when dealing with IP, companies seem to have free reign to book income in any country they like. Like any sales in the UK (and probably the EU as a whole) are reported to Irish subsidiaries.
To me this is fundamentally wrong. In other instances this is called transfer pricing and is illegal. For completeness, the classic case of transfer pricing is this:
Acme Inc buys a sofa from China for $200 in China and sells it in the US for $1000. That's $800 taxable profit right? Not so fast. Acme Inc instead forms a subsidiary in the Cayman Islands who buys that sofa from China for $200 and then sells it to the parent company for $990. Now only $10 is taxable in the US and $790 is taxed in the Cayman Islands at a zero or near-zero rate.
Now if that money is ever repatriated it's taxed. Thing is, it never is. Not until an ill-advised tax holiday and then the whole cycle repeats.
This brings me to the third problem: to get around the fact that all their money is offshore, companies borrow money in the US, which up until 1-2 years ago was at zero or near-zero levels. This debt covers their expenses and saves them from repatriating foreign profits and paying tax on them.
So why exactly don't we treat ever $1 borrow as repatriating $1 in foreign profits and tax it?
Now that would be true tax reform. Well, if we also got rid of the noticeably absent carried interest tax credit.
Why won’t the US tax unrepatriated foreign income of corporations like they do for people? One answer is that the only reason they can get away with citizens is that they are a captive audience. Renouncing your US citizenship is painful. Corporate re-headquatering isn’t so hard. Since a corporation can pick a home country, why would they pick the only country in the world that taxes money made both overseas and domestically?
>One answer is that the only reason they can get away with citizens is that they are a captive audience.
In addition to this, there's little citizens abroad can do to affect change in the US. Sure, we can vote; your "residence" for voting purposes is presumed to be where you last lived in the US. But say I write my Congressman about an issue that matters to me as one of his constituents who lives abroad? I'd probably safely guess I'm the only person who'd have done so within his district. I'd guess there are dozens of people in my situation in his district.
From across the US, there are estimated to be 3 to 6 million non-military American citizens living abroad. That's more than a number of states. Yet any hope of responsive representation is a fantasy.
Part of the hardship of deciding to live abroad, I suppose.
edit: State Dept. estimated 9 million abroad in 2016.
Interesting! I hadn't heard of that system before.
We still don't even have representation for the 680k people living in Washington DC, also more populous than a number of states. So sadly I'm not optimistic.
The 580k people of Wyoming have two senators and a house representative, while DC gets one non-voting representative. It's somewhat absurd.
It's not a question of picking a home country. If you operate in the US, you're subject to US laws. Give companies the choice of not operating here in the US at all or paying (at least) the US corporate tax rate on all profits either by paying the US or by paying some foreign government (which with double taxation would be credited towards US taxes owed).
Imagine if the EU also did this. It would go a damn long way to ending this absurd practice of offshoring profits.
Oh wow, if we did that, then the EU and much of Asia would follow in retaliation. So companies operating in the USA would have to pay taxes to the USA, China, the EU, on all their worldwide income, insane.
Let’s not forget the problem that not all tax systems are very compatible, they all define income differently, some of them rely more on taxes that aren’t income based.
There's already an established principle of double taxation treaties between countries so worst case the company would pay max((country.tax_rate for country in company.operating_countries)).
It's also worth noting that there has been and is a strong effort to harmonize accounting across countries (eg GAAP). Countries might tax differently but that really doesn't matter since you're just slicing up the same pie differently.
Don't get me wrong: this isn't simple. For one thing, once a company likes Apple gets into a position of choosing how to divide up $20B in taxes between countries, this gives them a lot of power. Countries will try and incentivize them to pay taxes to them instead of someone else.
Again there is precedent for this sort of thing and arrangements can be treated by the like of the EU or even the WTO as unfair tax subsidies. But it could get complicated. Like what if Ireland decides to exempt Apple from sales taxes and the UK decides to exempt Apple from payroll taxes to incentivize them to pay taxes their instead of somewhere else?
This is one reason why it'd be important to, at the same time, establish a minimum baseline for what taxes a multinational owes in each jurisdiction. The fact that a company can do billions of pounds in business in the UK and report all that income Ireland thus paying a few million pounds in taxes each year is ridiculous.
How about this for an idea: establish how much revenue comes from each country based on the source so if someone in UK hands you money then that money is attributed to the UK. Divide that by total global revenue and then at least that percentage of profit has to be taxed in that counry.
> Divide that by total global revenue and then at least that percentage of profit has to be taxed in that counry.
So companies like Amazon which are profitable domestically but are losing money overseas would pay taxes on profits from US sales to countries where they're losing money?
Presumably companies would just find ways to have high revenue and little to no profit in low tax countries.
Double taxation in practice is unavoidable for every tax jurisdiction, which is why the USA tilts towards exemptions, exclusions rather than outright credits. It isn’t just the EU, it’s cambodia, Indonesia, India, etc...how are you going to manage 200 different taxation regimes in this new world order?
This is why the USA introduced the housing exemption for individuals that lived in low tax but high cost of living places like Singapore and Switzerland. The max still doesn’t work out in the personal space, I can imagine it doesn’t work in the corporate space either.
So if you’re legitimately based in a country with low or no corporate income tax and you make $1 of profit in the US and $1b overseas, you pay the US tax on your entire income? Who would agree to that? It would also be a flagrant violation of world trade rules.
This is an example of where the perfect is the enemy of the good. The point here is to capture the (now) trillions of multinationals that are made almost exclusively in the developed world but aren't taxed anywhere near reasonably anywhere in the developed world.
Laws can be written to say things like "substantial operations" in the US. Software engineers tend to have a problem with the discretionary and subjective language that is common in the law. But such language would allow the likes of the IRS to capture most of the squirrelled trillions. And if some of it isn't who cares?
In case you're not from or familiar with the US system, there are countless examples of this. Take sales tax. By the US constitution, the Federal government has the right to tax interstate commerce. The states don't. This led to a problem in the Internet era where people were shopping online and Internet retailers were under no obligation to collect state sales taxes. Technically consumers were liable for them anyway (so-called "use taxes") but many never reported them.
Companies with a presence in the state however were obligated to collect those sales taxes as their presence made them subject to state laws. This is why if you shop from B&H or Adorama you only pay taxes if you live in the state of New York (NJ too for Adorama IIRC).
But some years ago the state of New York went after the likes of Amazon with a so-called "Amazon tax". Such a move by the states was inevitable and I believe now Amazon collects sales taxes everywhere. This puts them on the same footing as the likes of Walmart.
So there are still retailers around that are small enough they don't merit the Amazon treatment but who cares? The point was to get to a "good enough" solution rather than a perfect solution.
Perfect isn’t enemy of the good. There is a perfectly good solution, don’t tax profits st the corporate level, tax them at the individual level.
If you eliminate corporate income tax and compensate by making captital gains and dividends ordinary income so you paid regular income tax rates on them, you’d encourage more US investment. There would be no repatriation or tax loophole issues. Hundreds of thousands of tax accountant accountants would be freed to work on actual value creating activities.
Apple shareholders lose 50-70% of dividend payouts to 5 layers of taxes. That’s true of the wealthy as well as the poor retirees on fixed incomes. Eliminating corporate taxes means the retirees pay very little tax while the wealthy still pay over 40% state and federal. That’s what progressivity should look like.
This isn't an issue of poor enforcement. Unlike the state sales tax problem, it's not that taxes that are legally owed not being paid. To go with your metaphor, you're proposing New York ask for some new tax for sales made in Oregon (which has no sales tax) if you have an office in New York because they think it's unfair that Oregon has no sales tax.
That some companies are getting low effective tax rates largely comes down to incompetent tax regulation in the EU and a few of its member states. If they really want that money so bad, they can change their laws. The US shouldn't try to take it until they do. If nothing else, when the EU does get around to fixing its laws it would be a nasty shock to the department of the treasury as that money stops flowing in.
No, it’s virtuslly impossible. And even if you could and eliminated foreign tax deferral, you’d be giving Samsung a hammer to crush Apple with. Can you imagine if Samsung keeping 80% of its profits while Apple shareholders lose 70% to Foreign, State, Federal and State & Federal Dividend taxes?
Samsung could invest more in more opportunities, while Apple would get eaten away.
Your Acme example is similar to a Dutch Sandwich[1]. Dutch Sandwich, the Double Irish, a Bermuda Black hole... if my accountant started using such slang I'd start referring to him as my consigliere.
They don’t have free reign to report income where they want, everything has to be justifiable to accountants and tax auditors.
The US already taxes corporate worldwide income. Eliminating the deferral would cause every US multinational corporation to move its parent company overseas. The tax advantages would be humongous.
The US already has the worst corporate income tax structure, not only one of the highest rates, but also taxing worldwide income. We should be making it better to attract more capital/jobs, not worse.
I'm totally for the spirit of your comment. However, taxing borrowing in general seems like an odd move to make, no? Wouldn't that put an undue burden on people who are just borrowing funds legitimately? What's particularly pernicious about the tax avoidance structure you described is that it doesn't seem like there's an easy way to create a rule that captures that case and doesn't ensnare ordinary businesses. Maybe i'm not understanding your point fully though.
My point was that each $1 borrowed could be treated as repatriating $1 of foreign profits. Companies already report foreign profits and the IRS can discriminate between foreign and domestic profits.
So this wouldn't be taxing borrowing. If you had no foreign profits then you pay no taxes. The point here is that companies borrow are near-zero interest rates because it's MUCH cheaper than repatriating profits and paying 35% tax on them. I can't blame them for that either.
What I'm saying is that borrowing in lieu of repatriating profits basically is repatriating profits and should be taxed as such.
Repatriation is the only thing preventing us from losing every large multinational corporation. Other countries corporate income tax systems are so much more attractive to companies and investors already.
Just stop taxing corporate income, it’s a corrosive tax that makes us poorer by driving off investment.
Ya, but I guess what i'm wondering is how you distinguish between a company who has 'legitimate' foreign profits and a US subsidiary that's taking out a legitimate loan vs. taking out a loan to avoid repatriating profits.
Why should any multinational base itself in the US under your proposal. Apple could shift HQ to Ireland or China or France or even Germany and net tens of billions a year more.
Apple doesn’t need to manufacture in the US. It doesn’t need to base most marketing/sales/finance in the US. It could leave just software and design in CA, and honestly report far lower US profits, and it wouldn’t owe the US another dime on foreign profits.
In fact, given 2/3s of their profits are international, they should do this now. Why pay the US an additional $10B a year in taxes on computers and phones made in China and shipped everywhere but the US?
Well, if you don't distinguish...then you're just taxing a company who has a foreign subsidiary and takes out a loan. Which seems sort of arbitrary, no? You wouldn't want to tax that across the board for the same reason that you don't tax loans generally.
We get not only an foreign earned income e exemption on income up to $100k, but also a foreign tax credit. If you live in a country with higher taxes than the USA, you won’t owe USA income taxes. If you live somewhere like Switzerland, it can be a problem, but that is where you get to start using your housing deduction.
> My first problem is this: why exactly can't we treat companies the same way?
Under current tax law, US corporations pay taxes on any income generated in another country. There is of course a loophole with regards to re-investing profits, but in general, companies have a tax liability on any profit they make anywhere in the world.
In the article it talks about 3 different classifications of foreign income. Interest/Passive Income (has to have tax paid on it), non-reinvested income and re-invested (or promised to be) income. The 3rd category is the biggest loop hole, but the first 2 make a company pay taxes on that income to the US Treasury (after foreign tax credits). The third category basically is where all the deferred money sits - as long as the company promises it will be using that profit to invest in foreign parts of the company.
>...My first problem is this: why exactly can't we treat companies the same way? I would be all for a 20% corporate tax rate if it meant a tax on worldwide income with credits for any taxes paid to foreign governments... exactly like individuals are treated. Why isn't this on the table? Is it that hard?
Would you then also force Samsung to pay US taxes on all profits it made in Korea and elsewhere? The same for Huawei and the profits it makes in China? There are some obvious reasons why no other developed country in the world has a corporate tax system like the US. We should try to reform it, not actually make it worse.
> no other developed country in the world has a corporate tax system like the US.
Are you sure ? Most of the developed world tax resident individuals and corporates on worldwide income. US is only unique in taxing non-resident individuals. Very few developed nations have territorial taxation such as HK, SGP and Panama.
>...Most of the developed world tax resident individuals and corporates on worldwide income.
Yes, citizens are taxes on worldwide income, but not corporations.
>...US is only unique in taxing non-resident individuals.
The US and Eritrea.
>...Very few developed nations have territorial taxation such as HK, SGP and Panama.
I don't think that is correct:
>...As of 2012, 28 of the 34 current OECD member countries (82 percent) have adopted
territorial tax systems that exempt 95-100 percent of qualifying dividends received
from foreign affiliates resident in some or all countries. Twenty countries exempt
100 percent and eight exempt between 95 and 100 percent of qualifying foreign
dividends.
>The number of current OECD member countries with territorial tax systems has
doubled since 2000.
The ones who do tax worldwide income also have lower rates than the US.
>...Research by Reed College economist Kimberly Clausing [PDF] and others has found that high rates in the United States have had a measurable effect on encouraging firms to invest more in low-tax countries than they otherwise would have.
Multinationals could often put foreign cash to more profitable use in the U.S. by making acquisitions, building plants, paying special dividends or repurchasing stock.
But that quickly falls apart: First, Apple is in no way constrained by cash in its investments. And even financially weaker companies could still use foreign cash reserves as collateral to get credit at almost insignificantly low interest rates.
More importantly: investments can be expensed. If you hire employees, their wages reduce your profit, and therefore your tax burden. The corporate tax only applies to profit, not revenue. Apple could repatriate those $200 billion, hire ten million employees, and wouldn't pay a dime in taxes.
Other than that, it almost seems like an effort to use these corporations' tax-avoidance schemes as an argument to reward them. The logic in that is the same as striking murder from the criminal code to reduce crime
Investments can’t be expensed for tax purposes. If they repatriate $200B, they owe the state of CA roughly $20B and the US $63B in income taxes, no matter what they invest it in.
They could invest in hiring tons of employees and their salaries would be expenses (mostly future expenses) l. But that’s no free ride, those employees need to increase sales to cover their costs or the money is wasted. If my business makes $1M this year and i pay a contractor $1M so I don’t owe taxes this year, that contractor better build something worth more than a million or it was s huge waste. Losing $1M to save $350K is really bad business.
Imagine if the contractors project sold for $900k next year. Great, you deferred taxes a year, but still owe $315K on the contractor sale next year, and you lost $100k. Net loss $65,000. Dumb, dumb dumb.
What Apple would actually do if it repatriated the $200B is
a) pay the $80B in state/federal taxes,
b) pay $117B in dividends, so its shareholders would have to pay at least $20B in state/federal dividend taxes, for a total tax of around $100B. But it’s worse than that.
Remember, the $200B is only what’s left after paying about $25B in income taxes to foreign governments. Your company earns $225B, and can only pay about 45% to you, and 55% ends up going to various taxes (note we ignored VAT/Excise/Payroll taxes too).
Now do you understand why Apple doesn’t repatriate?
Many of the same people who get angry about the complex tax acrobatics used by big corporations also deride people like Rand Paul who have suggested a one page tax code.
But what about my deduction for this? What about the deduction for that? Hundreds of thousands of pages later, that's how you end up with loopholes that only the savvy/wealthy are able to find.
That's the kind of thinking that led to this mess. Like good developers, we should abstract the tax code to simply define the acceptable conditions for something to be deducted. Then, the Treasury can provide a list of 'standard' deductions somewhere that won't attract any extra scrutiny, and which will suffice for most purposes. Things like a minimum rent amount, minimum food expenses, etc.
I see nothing wrong with only agreeing with a subset of a person's politics. I support some of his tax reform ideas (especially the common theme of simplifying the current system) not because they are perfect, but because they would be a large non-incremental improvement on the current system.
> Many of the same people who get angry about the complex tax acrobatics used by big corporations also deride people like Rand Paul who have suggested a one page tax code.
FTA:
> But the U.S. code provides ample room for sheltering and avoiding taxes on foreign income, a major reason it needs an overhaul. The rules essentially divide foreign profits into three categories. One bucket of profits is more or less taxed at the full rate of 35%. On a second bucket, the multinational can defer paying the U.S. tax due. And a third category is excluded from all U.S. taxation, amounting to corporate America’s biggest loophole.
> Apple generates more foreign income that any other U.S. company. In FY’16, it booked $41.1 billion pre-tax profits outside the U.S., or 67% of the $61.4 billion total.
> It’s the third category that amounts to a big tax break, and explains why Apple’s effective rate is well below the statutory 35%.
> Once again, if Apple had faced the full 35% rate, it would have paid $21.46 billion in federal taxes (as well as another $990 million to the states). Instead, it paid $10.444 billion in cash, and accrued $5.241 billion in U.S. tax owed on foreign profits, but deferred to be paid later. That’s the total of $15.685 billion that it booked in tax expense on its income statement. The difference between that number and the approximately $21.5 billion it would have paid at the 35% rate is the almost $5.6 billion attributed “indefinitely invested foreign earnings under the GAAP rules.”
Agreed. I'm being serious, I can't understand why corporations are taxed at all. The money going to US citizens already gets taxed as income (although at capital gains rates). Even if the money funnels through a few corporations before it gets to the individual.
Money that would go to foreign shareholders (or foreign corporations) should be taxed at the same rate.
If we didn't tax businesses, they'd be more incentivized to stay in the US or even move here.
What would we lose from not taxing corporations (and adjusting capital gains tax to make up for that)?
You could also argue that income tax makes no sense, because the people are going to pay sales tax or property tax with it anyway.
The more you concentrate the tax in one area of the economy, the more you incentiveize people to try to find a way around that specific tax. Spreading it out reduces the risk of making people behave otherwise irrationally just to avoid paying tax.
While we may all be free marketeers and capitalists here, I think we do have to recognize that large corporations have very different interests than workers, managers and small business owners. We should also recognize that Fortune is not going to print anything that's not in a large corporation's very best interests. I didn't read this article, but it would seem that by recognizing the source, and reading the title, we can decide not to bother with large corporation propaganda.
There's a difference between pro-business and pro-market. There's nothing inconsistent with believing in free markets/rule of law and at the same time believing that a tax system should be fair. Scandinavian countries that people refer to as socialist are actually free market economies (in that they score just as well as the U.S. in the Heritage Index of Economic Freedom), but have more extensive tax and redistribution programs than the U.S.
You are probably right but I think it's good form to at least skim an article before commenting on it. Without that we just reinforce our preconceived notions.
There is a constant tension between:
- backward compatibility ("we built our business around [tax provision]! you can't remove it now!"),
- expansion of the codebase to accommodate new requirements ("we must get more $activity; let's add a tax credit to incentivize it!")
- refactoring to better serve existing organizational goals ("we are leaking billions of dollars because of [loophole]! we have to close it now!")
This is why things like the "flat tax" or other simplification schemes are perennially floated, and also why they continue to get shot down: desires to simplify and refactor run into desires to support existing worfklows as well as current and anticipated future social goals, and they just can't get off the ground.
This is also why I end up posting basically the same thing in every tax thread, from the late great Martin Ginsburg, from whom I was lucky enough to take corporate tax: "Everything in the tax code is simultaneously a trap for the unwary, and an opportunity for the well-advised."
So your own interactions with the tax code should be considered similar to, say, an SAP deployment or something. Theoretically it's all documented and you can figure it out on your own, but in real life an expensive consultant will pay for herself over and over.