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But some of these tax avoidance schemes are only legal because tax authorities do not have the number of staff needed to investigate and prosecute all of them.

But some of these tax avoidance schemes are only legal because tax authorities do not have the number of staff needed to investigate and prosecute all of them. There is a difference between something that is legal and something that is illegal but difficult to prove. You seem to be conflating the two issues. They use weird loopholes (which get closed, and which sometimes require repayment of unpaid tax) and bizarre corporate structures which only exist to avoid tax. If tax law were not so onerous and burdensome, there would be no incentive to crease these corporate structures and to manage business in such a way. There is nothing legally or morally objectionable about using the rules, written by your adversary, to your own advantage.

joosters 11y ago
But tax laws have to become more and more onerous in order to close each loophole... it's a self-fulfilling prophecy.
- jpgvm 11y ago
  Not entirely true. Tax laws have loopholes because exceptions were made. If there were no exceptions there would be no loopholes. So the real goal should be instead of trying to patch the infinite number of loopholes created by ever increasing complexity is to throw it all out and come up with a simple ruleset that applies to everyone and everything with no exceptions.
  - derekp7 11y ago
    Let's try on an example: All revenue is taxed at 20%. Now this will work for some businesses, as the cost to make the product is low enough, and the sale price high enough, that 20% can be paid and there is still profit left over. But then there are very low margin, high volume businesses. They may have only a marginal profit per unit sold due to the nature of what they are selling, leaving no room for 20% tax. So we add in an exception that says "You can deduct from revenue the cost of goods sold" (i.e., tax on net instead of gross). Now all the business has to do is find ways of hiding profit in the cost of goods sold. Then there are products which contain materials that changed hands many times before it got to the final product. So if a raw material (lets say, cotton) is the majority expense, it has to go to one company to refine it, a second company to turn it into thread, a third to add color, a fourth to make it into fabric, and finally a fifth company to make a shirt. So that cotton gets taxed 5 times before it gets sold to the end consumer. So let's add another exception, that goods sold for use in making another product aren't taxed -- that way, large businesses that produce the entire vertical stack in-house don't have an unfair tax advantage against smaller companies. Gee, now we have another loophole that can be creatively exploited.
    - drumdance 11y ago
      This part of the reason I think there should be no corporate income tax.
      - jpgvm 11y ago
        Income tax as a whole is the problem I feel. We should tax wealth instead. By not taxing income you avoid placing the burden on those that don't have and thus avoid needing to create loopholes for them.
        LordKano 11y ago
        Taxing wealth suffers from the same problem. People who have a lot of wealth will move that wealth to places with the lowest tax burden. Basically, the truly wealthy will start living in luxury apartments while shuttling their wealth to the Costa Rican villa in which they are planning to reside during retirement.
        jpgvm 11y ago
        That relies again on making exceptions for wealth held outside of the country. Not providing these exceptions and just making it flat wealth no matter were it resides fixes this problem too.
        LordKano 11y ago
        No, it doesn't fix the problem and it creates several others. That's the biggest problem with all of these quick-fix new tax ideas, the proponents never think them through. 1. What jurisdiction does one country have to tax assets held in another country? 2. Why wouldn't the country where the assets are located be the one to tax them? 3. How would you address the possibility of double-taxation? 4. How would you prevent the wealthy from shifting ownership of these assets to corporations or family trusts that are incorporated in that foreign country. Assets located in a foreign country, owned by an entity in the country would be taxed in that country.
- LordKano 11y ago
  When the tax laws become too burdensome, people simply leave. Look at this. New York's tax burden is so great that it was economically advantageous for this man to pay someone to keep track of the number of days he spent in New York just so they couldn't claim he was a resident and force him to pay their taxes. http://www.newyorker.com/magazine/2012/03/19/tax-me-if-you-can http://www.newyorker.com/magazine/2012/03/19/tax-me-if-you-c...
jamespo 11y ago
Morally objectionable in whose view?
username223 11y ago
You're missing the fact that corporations make tax law more complicated precisely because they benefit from the complexity.
- crusso 11y ago
  How do corporations make tax law? They influence tax law, but they don't have the power to pass laws.
  - username223 11y ago
    You just answered your own question. For more, do a web search for ALEC.
  - coldtea 11y ago
    Corporations all over the world have local politicians in their pockets. Who "signs" the laws is a technicality. In the US you even see the President after his term be openly welcomed to the Board of some large corporation or another that his regime benefited...
    - crusso 11y ago
      Meh, this argument is like those pictures where you see the old lady or the young lady depending upon the part of the image that you focus on. The reality is that some corporations and most all politicians (at least at the federal level) form a blob of power sharing that many people refer to as "cronyism". If you want to refer to the corporate/political amalgamation as the problem, great. But referring to corporations as "making tax law" is technically inaccurate and seems like an effort to push a particular anti-capitalism ideology.
      - coldtea 11y ago
        >If you want to refer to the corporate/political amalgamation as the problem, great. Well, you effectively got halfway there in your description. only it goes beyond "cronyism" to direct influence on lawmaking. This is not something debatable and "subjective" like the old/young lady image -- it has been shown time and again in the courts, reporting and historical research. >and seems like an effort to push a particular anti-capitalism ideology. And that's bad because? Did anybody prove that capitalism, and especially as practiced now, with said corruption, cronyism etc, is the last and final word of politics and civilization?
id 11y ago
The state is not your adversary. Taxes weren't invented to harass and punish you. This exact type of thinking is why we have this problem.
- LordKano 11y ago
  The state is occasionally my adversary and occasionally my ally. When it comes to the question of how much of the money that I earn must be surrendered to prevent me from going to jail, the state is my adversary. Taxes are routinely used to punish and influence people. Alcohol taxes, tobacco taxes, fuel taxes, they all have the dual purpose of raising revenue and discouraging behavior that the state wishes to limit.
  - TeMPOraL 11y ago
    > When it comes to the question of how much of the money that I earn must be surrendered to prevent me from going to jail, the state is my adversary. That's your choice. You could also see it as paying your dues, or even as doing your part in maintaining your society. The optimal attitude is probably somewhere between those views. > Taxes are routinely used to punish and influence people. Alcohol taxes, tobacco taxes, fuel taxes, they all have the dual purpose of raising revenue and discouraging behavior that the state wishes to limit. Well, that's the point of having a state. It's often a good thing, especially in the examples you mentioned. One of the most important function of a state is to serve as a coordination enforcer - in situations when people, out of their self-interest, would predictably chose something that aggregated over the entire population leads to bad outcomes for everyone, the state is there to alter the incentive landscape and make sure they chose the better thing.
    - Karunamon 11y ago
      The reason it's seen as adversarial is probably the same reason that Congress has an approval around 20% or so. It's not the fact that you're giving up money per se, it's the fact that you're giving up money to people you can't stand to do things you're morally opposed to and have no recourse to redress. I'd like it if taxes were earmarked by the people filing their returns. Say that there's a number of categories that you can assign percentages to.. defense, education, etc. An unpopular war? The people withhold defense funding. You get the idea - a lot more representative of the will of the people.
anon1385 11y ago
>There is a difference between something that is legal and something that is illegal but difficult to prove. You seem to be conflating the two issues. Isn't that what he said? That many of the schemes are clearly illegal but the authorities just lack the resources to investigate and prosecute them (from what I've heard from people who work at HMRC it's not that at lot of them are "difficult to prove", it's more like shooting fish in a barrel and more convictions would be trivially achieved by hiring more staff and the higher ups having the political will to do it). The rest of your post is irrelevant given the above.
- tertius 11y ago
  The quote was as follows: > But some of these tax avoidance schemes are only legal because tax authorities do not have the number of staff needed to investigate and prosecute all of them. I.e. claiming legality by saying that they are not prosecuted. Legal = white. Illegal = black. If you stray from legal, you should suffer consequences. Not suffering consequences because of lack of staff does not automatically make your action illegal.
ThomPete 11y ago
Most would say that there need to be a balance between what you are getting out of society and what you are putting back in. For instance deducting your purchase of a computer because you need it for your company is seen as beneficial for both society and for you. Deducting large investments is also seen as in balance with what you get out of the society you conduct your business in. Channeling money out of the country purely to avoid paying them in taxes is not. The difference between what I would consider "morally just" tax planning and suspicious tax avoidance is trying to take money out of the ecosystem that you benefitting from to make those money. It's not black and white but it's not entirely fuzzy either.
DanBC 11y ago
> There is a difference between something that is legal and something that is illegal but difficult to prove. You seem to be conflating the two issues. Law is a mix of legislation and case law. If there isn't case law something might be considered to be not valid by tax authorities, but valid by the people doing it. This is the grey area between normal tax planning and illegal tax evasion.

joosters 11y ago

But tax laws have to become more and more onerous in order to close each loophole... it's a self-fulfilling prophecy.

jpgvm 11y ago
Not entirely true. Tax laws have loopholes because exceptions were made. If there were no exceptions there would be no loopholes. So the real goal should be instead of trying to patch the infinite number of loopholes created by ever increasing complexity is to throw it all out and come up with a simple ruleset that applies to everyone and everything with no exceptions.
- derekp7 11y ago
  Let's try on an example: All revenue is taxed at 20%. Now this will work for some businesses, as the cost to make the product is low enough, and the sale price high enough, that 20% can be paid and there is still profit left over. But then there are very low margin, high volume businesses. They may have only a marginal profit per unit sold due to the nature of what they are selling, leaving no room for 20% tax. So we add in an exception that says "You can deduct from revenue the cost of goods sold" (i.e., tax on net instead of gross). Now all the business has to do is find ways of hiding profit in the cost of goods sold. Then there are products which contain materials that changed hands many times before it got to the final product. So if a raw material (lets say, cotton) is the majority expense, it has to go to one company to refine it, a second company to turn it into thread, a third to add color, a fourth to make it into fabric, and finally a fifth company to make a shirt. So that cotton gets taxed 5 times before it gets sold to the end consumer. So let's add another exception, that goods sold for use in making another product aren't taxed -- that way, large businesses that produce the entire vertical stack in-house don't have an unfair tax advantage against smaller companies. Gee, now we have another loophole that can be creatively exploited.
  - drumdance 11y ago
    This part of the reason I think there should be no corporate income tax.
    - jpgvm 11y ago
      Income tax as a whole is the problem I feel. We should tax wealth instead. By not taxing income you avoid placing the burden on those that don't have and thus avoid needing to create loopholes for them.
      - LordKano 11y ago
        Taxing wealth suffers from the same problem. People who have a lot of wealth will move that wealth to places with the lowest tax burden. Basically, the truly wealthy will start living in luxury apartments while shuttling their wealth to the Costa Rican villa in which they are planning to reside during retirement.
        jpgvm 11y ago
        That relies again on making exceptions for wealth held outside of the country. Not providing these exceptions and just making it flat wealth no matter were it resides fixes this problem too.
        LordKano 11y ago
        No, it doesn't fix the problem and it creates several others. That's the biggest problem with all of these quick-fix new tax ideas, the proponents never think them through. 1. What jurisdiction does one country have to tax assets held in another country? 2. Why wouldn't the country where the assets are located be the one to tax them? 3. How would you address the possibility of double-taxation? 4. How would you prevent the wealthy from shifting ownership of these assets to corporations or family trusts that are incorporated in that foreign country. Assets located in a foreign country, owned by an entity in the country would be taxed in that country.
LordKano 11y ago
When the tax laws become too burdensome, people simply leave. Look at this. New York's tax burden is so great that it was economically advantageous for this man to pay someone to keep track of the number of days he spent in New York just so they couldn't claim he was a resident and force him to pay their taxes. http://www.newyorker.com/magazine/2012/03/19/tax-me-if-you-can http://www.newyorker.com/magazine/2012/03/19/tax-me-if-you-c...

jamespo 11y ago

Morally objectionable in whose view?

username223 11y ago

You're missing the fact that corporations make tax law more complicated precisely because they benefit from the complexity.

crusso 11y ago
How do corporations make tax law? They influence tax law, but they don't have the power to pass laws.
- username223 11y ago
  You just answered your own question. For more, do a web search for ALEC.
- coldtea 11y ago
  Corporations all over the world have local politicians in their pockets. Who "signs" the laws is a technicality. In the US you even see the President after his term be openly welcomed to the Board of some large corporation or another that his regime benefited...
  - crusso 11y ago
    Meh, this argument is like those pictures where you see the old lady or the young lady depending upon the part of the image that you focus on. The reality is that some corporations and most all politicians (at least at the federal level) form a blob of power sharing that many people refer to as "cronyism". If you want to refer to the corporate/political amalgamation as the problem, great. But referring to corporations as "making tax law" is technically inaccurate and seems like an effort to push a particular anti-capitalism ideology.
    - coldtea 11y ago
      >If you want to refer to the corporate/political amalgamation as the problem, great. Well, you effectively got halfway there in your description. only it goes beyond "cronyism" to direct influence on lawmaking. This is not something debatable and "subjective" like the old/young lady image -- it has been shown time and again in the courts, reporting and historical research. >and seems like an effort to push a particular anti-capitalism ideology. And that's bad because? Did anybody prove that capitalism, and especially as practiced now, with said corruption, cronyism etc, is the last and final word of politics and civilization?

id 11y ago

The state is not your adversary. Taxes weren't invented to harass and punish you. This exact type of thinking is why we have this problem.

LordKano 11y ago
The state is occasionally my adversary and occasionally my ally. When it comes to the question of how much of the money that I earn must be surrendered to prevent me from going to jail, the state is my adversary. Taxes are routinely used to punish and influence people. Alcohol taxes, tobacco taxes, fuel taxes, they all have the dual purpose of raising revenue and discouraging behavior that the state wishes to limit.
- TeMPOraL 11y ago
  > When it comes to the question of how much of the money that I earn must be surrendered to prevent me from going to jail, the state is my adversary. That's your choice. You could also see it as paying your dues, or even as doing your part in maintaining your society. The optimal attitude is probably somewhere between those views. > Taxes are routinely used to punish and influence people. Alcohol taxes, tobacco taxes, fuel taxes, they all have the dual purpose of raising revenue and discouraging behavior that the state wishes to limit. Well, that's the point of having a state. It's often a good thing, especially in the examples you mentioned. One of the most important function of a state is to serve as a coordination enforcer - in situations when people, out of their self-interest, would predictably chose something that aggregated over the entire population leads to bad outcomes for everyone, the state is there to alter the incentive landscape and make sure they chose the better thing.
  - Karunamon 11y ago
    The reason it's seen as adversarial is probably the same reason that Congress has an approval around 20% or so. It's not the fact that you're giving up money per se, it's the fact that you're giving up money to people you can't stand to do things you're morally opposed to and have no recourse to redress. I'd like it if taxes were earmarked by the people filing their returns. Say that there's a number of categories that you can assign percentages to.. defense, education, etc. An unpopular war? The people withhold defense funding. You get the idea - a lot more representative of the will of the people.

anon1385 11y ago

>There is a difference between something that is legal and something that is illegal but difficult to prove. You seem to be conflating the two issues. Isn't that what he said? That many of the schemes are clearly illegal but the authorities just lack the resources to investigate and prosecute them (from what I've heard from people who work at HMRC it's not that at lot of them are "difficult to prove", it's more like shooting fish in a barrel and more convictions would be trivially achieved by hiring more staff and the higher ups having the political will to do it). The rest of your post is irrelevant given the above.

tertius 11y ago
The quote was as follows: > But some of these tax avoidance schemes are only legal because tax authorities do not have the number of staff needed to investigate and prosecute all of them. I.e. claiming legality by saying that they are not prosecuted. Legal = white. Illegal = black. If you stray from legal, you should suffer consequences. Not suffering consequences because of lack of staff does not automatically make your action illegal.

ThomPete 11y ago

Most would say that there need to be a balance between what you are getting out of society and what you are putting back in. For instance deducting your purchase of a computer because you need it for your company is seen as beneficial for both society and for you. Deducting large investments is also seen as in balance with what you get out of the society you conduct your business in. Channeling money out of the country purely to avoid paying them in taxes is not. The difference between what I would consider "morally just" tax planning and suspicious tax avoidance is trying to take money out of the ecosystem that you benefitting from to make those money. It's not black and white but it's not entirely fuzzy either.

DanBC 11y ago

> There is a difference between something that is legal and something that is illegal but difficult to prove. You seem to be conflating the two issues. Law is a mix of legislation and case law. If there isn't case law something might be considered to be not valid by tax authorities, but valid by the people doing it. This is the grey area between normal tax planning and illegal tax evasion.