Trying to tax multi-national corporations is futile and encourages huge amounts of rent-seeking. We should just go to a low flat corporate tax rate (say 10%). To offset that we should stop taxing capital gains at a lower rate and crack down on tax avoidance by high-income individual taxpayers in the US.
A corporation can run their activities from Bermuda or wherever they want, but corporate executives and shareholders aren't going to move to a shitty low-tax jurisdiction if we up their rates.
It's "futile"? Really? Is that just shorthand for saying that you oppose trying hard enough to do it successfully?
I don't think it's futile at all. I think we lack the national will to do it, largely and obviously because of the folks who are in control of the relevant decisions.
I'd be more sympathetic to your argument (and just fyi, I am not entirely unsympathetic as it is) if I had some confidence that adopting a 10% flat tax would actually result in corporations paying that amount.
Taxing capital gains at a LOWER rate? Are you serious? Reagan/Bush/Bush trashed those rates to such an extent that it seems laughable to advocate lowering them any further. They're non-existent.
With corporations, taxation is very complicated. The law is complicated because its tries to be sensitive to the question of who should be taxed where for what, and the facts are complicated because it's hard to find out exactly what revenues are being made and what they represent. You can always throw more enforcement at the problem, but that costs money, and your yield is uncertain because companies will just spend more money on tax lawyers to shift things around.
Taxing individuals is a lot simpler. You live in the US, you pay US taxes on all your income.
Also, I said we should stop taxing capital gains at a lower rate. There is no reason for it, and it just distorts the market, shifting activity from spending to saving.
> Taxing individuals is a lot simpler. You live in the US, you pay US taxes on all your income.
Not quite as simple as that, actually. As a US citizen, you have to pay US taxes on your income even if you live and work in another country. Which sounds a lot like the problem that Google and other companies successfully avoid: a jurisdiction claiming tax on income taking place entirely outside of their jurisdiction. Individuals just have fewer options to help them avoid this problem; I suppose you could call that "simpler".
(Also, I'll carefully note that you said "simpler", not "simple". The latter rather obviously does not apply to the US tax code.)
The point is that a corporation can relocate activities on paper to the Bahamas to avoid taxation. A US citizen can live and work in another country and try to avoid tax that way, but few people are actually going to do that. All of the places someone might actually want to live have higher tax rates than the US.
Your failure with the facts reveals that you are just an angry partisan.
President Clinton cut capital gains rates further in 1997 than G.W. Bush did. Also, President Carter cut capital gains, while Bush senior made no change in capital gains rates but famously raised other taxes in 1990.
Current longterm/shortterm rates range from 15/25 or 15/35, which is hardly "non-existent", especially when you consider that these rates are a double-taxation on resources that were already taxed as income.
Capital gains taxes are not "double taxation." If you buy an asset for $1,000, you've paid for it with $1,000 after-tax dollars and acquire $1,000 in basis on the asset. If you then sell it for $2,000, you're taxed on the $1,000 accretion in value as a capital gain, but you are not taxed again on the $1,000 which forms your basis in the asset.
In the case of a business, that business had to grow to justify the increase in value, and that growth typically occurred via some taxable event, such as income. Then, that growth makes the business more valuable. If you sell your interest in the business, you pay taxes again on the increased value.
So, yes, double taxation. Very similar to the double taxation experienced when taking in taxed business income and using it to pay taxed salaries. It's a repeated net drain on the economy, which occurs almost every time money changes hands.
So first of all, the concept of "double taxation" is something you have to be careful with. In general, a given dollar will be taxed more than once because it is spent more than once. However, that same dollar also counts towards the net income of the country more than once. Double taxation is when the same income is taxed more than once, which is a bit different.
Capital gains in general does not involve double taxation. Some examples:
If you buy property for $100,000, and sell it for $150,000, you'll pay capital gains taxes on the $50,000. Here, $200,000 of income is involved and $200,000 is taxed.
Say you invest $100k in a store, and build it up to $100k/year in revenue. You sell it for $1m. The business has no assets to speak of (you lease the space, etc). You're taxed on the $900k. Here $1.9m of income is involved and $1.9m of income is taxed.
Where you do run into double taxation is with corporations. $1m of corporate income is taxed once when it is earned and again when it is distributed as a dividend. But that's because the corporate income tax is double taxation, not because capital gains is double taxation.
Also, there is no double taxation when paying salaries. Say you have $1m in revenue and $400k in expenses (salaries and rent). You're taxed on the $600k of net income, not the $1m in total revenue.
So the basic point is that in any economy, a given dollar supports a multiple of one dollar in income. The US GDP is roughly $13 trillion dollars, which is roughly equivalent to the total national income (http://en.wikipedia.org/wiki/Gross_domestic_product#Income_a...), but there are a lot fewer than $13 trillion dollars in circulation.
Now, when you buy something with a post-tax dollar, that money will get taxed again, but that is not double taxation. That dollar is counting towards income again when you spend it.
So say in the first example, the buyer made $200k in salary and capital gains, on which he paid 25% in taxes and was left with $150k. He then bought the property from the seller with that $150k, and the seller paid tax on the $50k of capital gains. Say this all happened in the same tax year. So the buyer reported $200k of income, and the seller reported $50k of income. That contributes $250k to the GDP. And taxes were paid on that $250k. No income was taxed twice.
Now compare this to a corporation. Say it makes $1m in profits after expenses. It is taxed 30% on these profits, leaving $800k. It then distributes this $700k via a dividend to its shareholders, who are taxed another 15%, leaving $595k. This example does not involve $1m + $700k of income. Only $1m of income is added to GDP. But that same income is taxed twice: once as corporate taxes and again as capital gains.
But let's look at how incentives change when these "double taxes" were removed:
1. No capital gain tax: Encourages speculation because speculation is "tax-free". Prices across commodities, properties, stocks and bonds will all rise, and may result in even more speculation.
2. No dividend tax: Encourages investment into companies who pay out high dividends because dividends are no longer taxed as much. Buying goods for the sake of capital gain would become less advantageous than buying goods because it pays out passive income that is tax free.
3. No corporate tax: Companies no longer store their money overseas as repatriating money from overseas no longer costs any taxes. Encourages investment by companies rather than hiring more workers, paying more wages, or paying out taxes, because further profit from investment is not taxed, but the other three activities are. Encourage creation of more companies (at least on paper).
4. No employee tax: Companies will be able to get more employee per dollar, and encourages companies to hire more employees because they can pay $100000 and the employee will now get $100000 instead of $60000. There will also be the effect of wage inflation; Every company wants to hire more employees.
Of all the double taxation that exists I advocate getting rid of (2) first.
1) Capital gains is not double taxation. You're only taxed on the gain, not the total value of the sale.
2) Dividends are only double tax because of (3).
3) This is actually double taxation. The same income is taxed twice, once when it is earned as profit by the corporation, then again when it is distributed as dividends.
4) Salaries are not included in taxable income, so you're not taxed twice.
I would go even further: zero out corporate income tax, and raise taxes on the individual owners and lenders to make the change revenue neutral. This would do much to increase long-term economic growth by allowing managers to focus on creating value rather than playing tax arbitrage games. We would also be able to shift a lot of tax accountants to more productive work, and downsize the IRS.
"To offset that we should stop taxing capital gains at a lower rate"
I think this is not a bad idea, in fact, corporate taxes could be significantly lowered and capital gains/dividends could make up for it I believe. If not the money would usually go to reinvestment or some other sort of purpose. I think that taxing capital gains as if it was regular income would also be a fairer way to tax since a significant portion of high net worth individuals make most of their money from capital gain and pay less % taxes than upper middle class individuals.
A corporation can run their activities from Bermuda or wherever they want, but corporate executives and shareholders aren't going to move to a shitty low-tax jurisdiction if we up their rates.