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Stories like this make me question if corporate tax even makes sense. However well designed, a tax code with today's complexities is going to have holes. If a s

by phlo 11y ago

Stories like this make me question if corporate tax even makes sense. However well designed, a tax code with today's complexities is going to have holes. If a savings of even one per mill may mean millions, corporations are going to spend insane amounts of money to hire the best experts to use every last loophole. Why don't we cut down everything to a couple of manageable groups that can be tightened down? I think the following set of taxes should capture mostly everything: - Personal income including gifts, inheritances, capital gains, all on a set of progressive scales. This should include work benefits (like company cars) and probably include loans taken out. - Use of public resources (property tax, vehicle registration tax, RF use...), taxed based on the specific usage (e.g. vehicle weight, or even kilometers driven). - A consumption tax (VAT) could be added, although this doesn't seem necessary to me. Thinking about this for a couple of minutes, I don't see any obvious problems. Applicability of the personal income tax would be a crucial point, and care would need to be taken to avoid loopholes. Why aren't tax systems as simple as that?

jos3000 11y ago
The big problem with this is that, under a simple tax system, if a government wants to increase it's tax revenue it is extremely easy for voters to understand what is happening. Governments prefer to make complicated tax laws because they are easier to spin.
- rootlocus 11y ago
  Security through obscurity? xD
- mike_hearn 11y ago
  Governments make complicated tax laws because of constant attempts to make the tax system 'fair', where fairness is a pretty vague concept and can be interpreted many ways by different people and parties. There are lots of economic arguments for very simple tax systems that prioritise revenue collection over other things. But a lot of people would see them as "unfair" and therefore unjust.
- vtlynch 11y ago
  Ah yes governments always trying to make things too complicated!! Argh! Why cant we replace the govt with the private sector! They never do anything that would obscure or needlessly complicate things.
- wereHamster 11y ago
  Not only govt, but private companies as well. Remember when the company behind the most widespread US tax software (can't remember its name) lobbied against simpler tax code? Why? It's simple, because it would cut into their sales! Everybody who has something to lose will vote against a simpler system, doesn't matter whether its a private company or government.
- yuliyp 11y ago
  Oh come on. The taxes that 90% of people pay are perfectly clear. The exceptions only affect a very small minority of people (namely those with enough income to make it worth their while to care about exploiting the exceptions).
brandonmenc 11y ago
> Why aren't tax systems as simple as that? cruft + tax payers writing law + tax collectors writing law
kuschku 11y ago
So, in your system, how would a corporations profits be taxed? You have shown nothing like that, really. And a direct property tax is also not a good idea, as then you tax people for having property, not for using their property.
- phlo 11y ago
  Sorry, I might not have made that point clear: they wouldn't be taxed at all. Not at the corporate level, that is. As far as I can tell, money will exit corporations in three ways: 1) salary, 2) shares and 3) payments for goods/services, mostly to other corporations. Income and capital gains taxes will take care of 1 and 2. The company won't owe taxes, but whichever natural person receives the money will. As for 3, my proposed system would be captive: because it doesn't charge corporate taxes, corporations won't have any motivation to try and move their earnings to other corporations (as they couldn't be taxed any lower).
  - kuschku 11y ago
    And how do I tax a shareholder living in US if I’m the UK government? I have no ability to do so.
    - phlo 11y ago
      One possibility might be to charge capital gains whenever shares are traded. Then require shares to only be traded at exchanges with an agreement to report trades (or anonymously collect capital gains and send them your way, for privacy). Another (probably worse) alternative might be not to tax them. The US will, and in exchange you get to tax UK shareholders of US companies.
    - mike_hearn 11y ago
      You don't. But then again why would you - that shareholder gets no services from the UK government so there's no moral case for them to pay tax to a foreign country.
      - 11y ago
legitster 11y ago
Someone put it best when they said "corporations may not have a heart, but they don't have a stomach either". Unlike people, corporations do not consume for the sake of consumption, instead they invest in assets. A tax on corporations is directly passed through to employees, customers, investors etc. From what I understand, the actual proposed replacement for the corporate income tax is much simpler: eliminate it and replace it with a much more comprehensive capital gains tax. Then require companies to be much more forward with paying dividends.
- bduerst 11y ago
  What about the majority of companies that don't pay dividends? I agree that tax codes are complex and the international theater makes them hard to enforce, but most of the proposed replacements for corporate income tax are typically half-baked.
  - phlo 11y ago
    Either (as the parent comment proposes) force them to pay dividends. Or don't: in order to profit from the higher share price, investors either have to sell some of their shares (realizing their capital gains) or use them as collateral for a loan (which should be treated as a capital gains realization event).
    - bduerst 11y ago
      There are entire industries with thin margins (e.g. grocery, airline, blue collar services) that would be destroyed if you forced them to pay the same dividends as others. Why are you fixating on share price? Now how are you going to tax LLC, LLP, etc.? Privately traded corps that don't have a market price?
      - phlo 11y ago
        As I said, forcing companies to pay dividends was the parent poster's idea. If anything like that were to be entertained, I'm sure the forced dividends would be in relation to the corporation's profit. As for privately traded corps and partnerships: My proposal was to tax capital gains. This could be done at each realization event, and at that point your transaction will usually have a market price. If you are exchanging stock in two privately traded corps, some way to determine fair market value will have to be found, but that seems to be an edge case to me.
Cookingboy 11y ago
This doesn't solve the globalization problem. Say..an American company such as Walmart goes to a country, kill all their local competition with lower price, and make a ton of profit and then distribute them amongst Walmart shareholders in the U.S. Sure those shareholders will pay cap gain or personal income, but now since you eliminated corporate tax completely, the net tax revenue of the country wal-mart operates in is no diminished. This is a great idea to increase the wealth gap between U.S. and the rest of the world, for good or bad. Considering how many international conglomerates are U.S. based.
Cookingboy 11y ago
This doesn't solve the globalization problem. Say..an American company such as Walmart goes to a country, kill all their local competition with lower price, and make a ton of profit and then distribute them amongst Walmart shareholders in the U.S. Sure those shareholders will pay cap gain or personal income, but now since you eliminated corporate tax completely, the net tax revenue of the country wal-mart operates in is no diminished. This is a great idea to increase the wealth gap between developed countries and the rest of the world, for good or bad. Considering how many international conglomerates are American, European or Japanese. Developing countries wouldn't stand a chance this way.
Tsagadai 11y ago
A much simpler tax system would be to tax everyone like hedge fund fees. You pay 2% tax on all assets and 20% on profits those assets generate. Regardless of asset type (if it is worth money and can be traded, it gets taxed). Ditch everything else (especially regressive taxes like VATs) and keep a progressive income tax. This 'everyone' is individuals because someone, somewhere owns the assets. Note that those are the pre-2008 hedge fund fees and the fees are presently less than that.

by phlo 11y ago

jos3000 11y ago

The big problem with this is that, under a simple tax system, if a government wants to increase it's tax revenue it is extremely easy for voters to understand what is happening. Governments prefer to make complicated tax laws because they are easier to spin.

rootlocus 11y ago
Security through obscurity? xD
mike_hearn 11y ago
Governments make complicated tax laws because of constant attempts to make the tax system 'fair', where fairness is a pretty vague concept and can be interpreted many ways by different people and parties. There are lots of economic arguments for very simple tax systems that prioritise revenue collection over other things. But a lot of people would see them as "unfair" and therefore unjust.
vtlynch 11y ago
Ah yes governments always trying to make things too complicated!! Argh! Why cant we replace the govt with the private sector! They never do anything that would obscure or needlessly complicate things.
wereHamster 11y ago
Not only govt, but private companies as well. Remember when the company behind the most widespread US tax software (can't remember its name) lobbied against simpler tax code? Why? It's simple, because it would cut into their sales! Everybody who has something to lose will vote against a simpler system, doesn't matter whether its a private company or government.
yuliyp 11y ago
Oh come on. The taxes that 90% of people pay are perfectly clear. The exceptions only affect a very small minority of people (namely those with enough income to make it worth their while to care about exploiting the exceptions).

brandonmenc 11y ago

> Why aren't tax systems as simple as that? cruft + tax payers writing law + tax collectors writing law

kuschku 11y ago

So, in your system, how would a corporations profits be taxed? You have shown nothing like that, really. And a direct property tax is also not a good idea, as then you tax people for having property, not for using their property.

phlo 11y ago
Sorry, I might not have made that point clear: they wouldn't be taxed at all. Not at the corporate level, that is. As far as I can tell, money will exit corporations in three ways: 1) salary, 2) shares and 3) payments for goods/services, mostly to other corporations. Income and capital gains taxes will take care of 1 and 2. The company won't owe taxes, but whichever natural person receives the money will. As for 3, my proposed system would be captive: because it doesn't charge corporate taxes, corporations won't have any motivation to try and move their earnings to other corporations (as they couldn't be taxed any lower).
- kuschku 11y ago
  And how do I tax a shareholder living in US if I’m the UK government? I have no ability to do so.
  - phlo 11y ago
    One possibility might be to charge capital gains whenever shares are traded. Then require shares to only be traded at exchanges with an agreement to report trades (or anonymously collect capital gains and send them your way, for privacy). Another (probably worse) alternative might be not to tax them. The US will, and in exchange you get to tax UK shareholders of US companies.
  - mike_hearn 11y ago
    You don't. But then again why would you - that shareholder gets no services from the UK government so there's no moral case for them to pay tax to a foreign country.
    - 11y ago

legitster 11y ago

Someone put it best when they said "corporations may not have a heart, but they don't have a stomach either". Unlike people, corporations do not consume for the sake of consumption, instead they invest in assets. A tax on corporations is directly passed through to employees, customers, investors etc. From what I understand, the actual proposed replacement for the corporate income tax is much simpler: eliminate it and replace it with a much more comprehensive capital gains tax. Then require companies to be much more forward with paying dividends.

bduerst 11y ago
What about the majority of companies that don't pay dividends? I agree that tax codes are complex and the international theater makes them hard to enforce, but most of the proposed replacements for corporate income tax are typically half-baked.
- phlo 11y ago
  Either (as the parent comment proposes) force them to pay dividends. Or don't: in order to profit from the higher share price, investors either have to sell some of their shares (realizing their capital gains) or use them as collateral for a loan (which should be treated as a capital gains realization event).
  - bduerst 11y ago
    There are entire industries with thin margins (e.g. grocery, airline, blue collar services) that would be destroyed if you forced them to pay the same dividends as others. Why are you fixating on share price? Now how are you going to tax LLC, LLP, etc.? Privately traded corps that don't have a market price?
    - phlo 11y ago
      As I said, forcing companies to pay dividends was the parent poster's idea. If anything like that were to be entertained, I'm sure the forced dividends would be in relation to the corporation's profit. As for privately traded corps and partnerships: My proposal was to tax capital gains. This could be done at each realization event, and at that point your transaction will usually have a market price. If you are exchanging stock in two privately traded corps, some way to determine fair market value will have to be found, but that seems to be an edge case to me.

Cookingboy 11y ago

This doesn't solve the globalization problem. Say..an American company such as Walmart goes to a country, kill all their local competition with lower price, and make a ton of profit and then distribute them amongst Walmart shareholders in the U.S. Sure those shareholders will pay cap gain or personal income, but now since you eliminated corporate tax completely, the net tax revenue of the country wal-mart operates in is no diminished. This is a great idea to increase the wealth gap between U.S. and the rest of the world, for good or bad. Considering how many international conglomerates are U.S. based.

Cookingboy 11y ago

This doesn't solve the globalization problem. Say..an American company such as Walmart goes to a country, kill all their local competition with lower price, and make a ton of profit and then distribute them amongst Walmart shareholders in the U.S. Sure those shareholders will pay cap gain or personal income, but now since you eliminated corporate tax completely, the net tax revenue of the country wal-mart operates in is no diminished. This is a great idea to increase the wealth gap between developed countries and the rest of the world, for good or bad. Considering how many international conglomerates are American, European or Japanese. Developing countries wouldn't stand a chance this way.

Tsagadai 11y ago

A much simpler tax system would be to tax everyone like hedge fund fees. You pay 2% tax on all assets and 20% on profits those assets generate. Regardless of asset type (if it is worth money and can be traded, it gets taxed). Ditch everything else (especially regressive taxes like VATs) and keep a progressive income tax. This 'everyone' is individuals because someone, somewhere owns the assets. Note that those are the pre-2008 hedge fund fees and the fees are presently less than that.