7 ms·

American big business faces the G20 in a fight for $2.1T in unpaid tax

68 points by kevindeasis 11y ago

mschuster91 11y ago
I don't care much about the US, more about the EU region - and I take a wild guess here that the amount of unpaid/tricked-away taxes exceeds the amount of taxes due to the US. Still, the situation has to be tackled, and better fast. Many countries in the EU suffer because Big Capital doesn't fulfil the tax obligations.
- such_a_casual 11y ago
  You should care about the U.S. We live in a global economy (this isn't new). What's good for your neighbor is good for you (and vice versa).
molecule 11y ago
This is certainly an issue to be discussed and addressed, but the headline, directly from the article, is incorrect, re: "$2.1T in unpaid tax": > In total, US multinationals are sitting on an estimated $2.1tn in untaxed offshore profit... US corporate taxes on $2.1T are @ least 65% less than the $2.1T profit, itself. The correct title would phrase it as "unpaid taxes on $2.1T".
- danieltillett 11y ago
  This is graudian sub-editor's mistake - we should be happy that the headline is even close to the article content.
ars 11y ago
> “For too long, powerful corporations have exploited loopholes that allow them to hide earnings abroad to lower their taxes,” said Democratic presidential candidate Hillary Clinton. “Now Pfizer is trying to reduce its tax bill even further.” You don't like the loopholes? Close them. Do not blame people for using every single option they are given. The right thing to do is lower the tax rate and remove the loopholes. The total tax paid could stay the same, but the distribution would be different. The current system is unfair, you need to pay a lot of money to work out these complicated scenarios, this hurts smaller businesses, and costs a lot of money to implement. "Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes." - Gregory v. Helvering, 69 F.2d 809, 810 (2d Cir. 1934) "Over and over again courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant." - Commissioner v. Newman, 159 F.2d 848, 851 (2d Cir. 1947) - dissenting opinion
- jacobolus 11y ago
  One problem, which the article discusses just after the parts you quoted, is that there’s a huge amount of lobbying of and money flowing to politicians willing to thwart reform efforts. Closing tax loopholes would be easier if we also had publicly financed elections or stricter limits on campaign contributions, and if the media wasn’t a consolidated corporate cartel. > “[...] Many influential Republicans, already uncomfortable about the Peru reforms, are expected to use committee hearings to launch an attack on the European commission’s ongoing state aid investigations into suspected sweetheart tax deals granted by Ireland, the Netherlands and Luxembourg to, respectively, Apple, Starbucks and Amazon. ¶Well-resourced rightwing lobbyists are agitating in Washington for a final push against the G20 tax reforms. [...]” There’s a feedback loop involved between corporations saving billions in taxes -> donations of some portion of that to politicians willing to play along (and offer to give them board seats and high-paid speaking gigs after they leave office, etc. Just look e.g. Bill Clinton’s post-officeholding career.). Same story with industries that receive large government contracts, or which are under heavy regulation. In every case, there’s big money to be made in helping corporate interests at the public’s expense. Candidates running for public office have great incentive to talk about how they want to close tax loopholes, etc., but once they are elected, the only thing holding them to those promises is personal integrity, and none of the US presidents since Jimmy Carter have been able to face down that kind of temptation. The pressure might be even greater for Congress, as smaller amounts of money directed at unseating particular troublesome Reps goes further, and there’s less direct public attention on each one.
  - danieltillett 11y ago
    The root cause here is the amount of money required to be elected. Get rid of the need for money and you get rid of the corruption. I personally like the idea of increasing the number of members of congress so each member only represents around 25,000 people like they did 200 years ago. If your electorate only had 25,000 voters you would not need much money (nor staff) to get elected.
    - desdiv 11y ago
sjtgraham 11y ago
Corporate domicile is essentially a market and corporations have a choice where to domicile themselves. So instead of governments making futile attempts to legislate their way to a solution why don't they do as participants in any other market do and actually be competitive? This means reducing costs and finding savings to compete on price, i.e. lower rates of taxation. If government was a private enterprise, it would go out of business.
- danieltillett 11y ago
  Government isn't a private business so it makes little sense to make such a comparison. Tax should be paid in the jurisdiction the profit is earned.
  - DVassallo 11y ago
    > Tax should be paid in the jurisdiction the profit is earned. Why should it be that way? One problem with these loopholes seems to be that it is not easy to determine where the profit is earned.
    - danieltillett 11y ago
      The reason why is you will end up with every country in the world taxing each company on their worldwide income. Any company operating in more than one country will be taxed out of existence. It is not that hard to determine where the income is earned provided countries share data.
      - gabbo 11y ago
        It is hard, though: not least because determining where income is earned depends on defining "income". Revenue is maybe easy enough, but what about expenses? Depending on the industry, there's plenty of opportunity for chicanery which makes it far from "not that hard". Example: you're a large tech company who can afford good accountants and complicated legal structures. Your high-tax jurisdiction European subsidiaries can "license" a whole bunch of "intellectual property" from their counterparts in Ireland/Luxembourg which significantly beef up their costs to the point that net income in the high-tax jurisdiction is minimal and it all gets booked somewhere which will charge you less. Kind of like how Apple manages its assets via a Nevada subsidiary to avoid paying tax in California, and how Microsoft does something similar with software licensing. Except at least in the US case there's still tax revenue going to the federal government.
kondro 11y ago
Wouldn't moving taxes from income to sales-based resolve many of these issues?
- danieltillett 11y ago
  The problem with basing company tax on sales is some industries have higher margins than others. If you introduce a flat turnover tax on business then you effectively tax low margin businesses more than high margin businesses. It also creates an incentive for businesses to vertically integrate even if this is not the optimal economic structure.
  - analog31 11y ago
    Out of curiosity, does value-added tax solve this problem?
    - danieltillett 11y ago
      Value added tax is a consumption tax, not an income tax. The tax is paid by the consumers and is highly regressive (i.e. the poor are taxed more than the rich). There have been some attempts to tax companies based on gross income, but it tends to only be applied to a limited range of companies like utilities [1]. Personally I like Land Value Taxes [2] since they are impossible to avoid, but this makes them very unpopular with the rich and powerful who own most of the land. 1. https://en.wikipedia.org/wiki/Gross_receipts_tax https://en.wikipedia.org/wiki/Gross_receipts_tax 2. https://en.wikipedia.org/wiki/Land_value_tax https://en.wikipedia.org/wiki/Land_value_tax
boreas 11y ago
What needs to be done is change the unique incentives for American companies to participate in such byzantine international tax avoidance schemes in the first place. The US is practically the only country that taxes profits internationally regardless of origin. It should remove all taxes on bringing foreign profits into the US and lower the overall corporate tax rate while closing the loopholes that render the 'headline rate' so ineffectual in the first place.
forrestthewoods 11y ago
Paying the minimum amount of taxes you are legally obligated to pay is the most noble of endeavors. Good luck and God bless.
dools 11y ago
And yet, this doesn't "cost" governments anything, because governments don't need tax to fund spending. In fact, corporate taxes are stupid, they should be 0%, so should income tax. I like Randall Wray's model of a broad based consumption tax offset by transfer payments to low income earners, a job guarantee and a tax on the volume of your house. Genius. It's a pity no-one understands how the economy actually works, though!
- andrewjf 11y ago
  But doesn't a consumption tax just dis-incentivize consumption? Is that bad? (willing to accept LMGTFY link!)
  - themartorana 11y ago
    Minus what seems to be a bizarre loss of website data this weekend, I've always been a fan of a national sales tax, with all associated exceptions where it makes taxation less regressive. http://fairtax.org http://fairtax.org
  - bendykstra 11y ago
    Another way to put that is that it would encourage saving and investing. In the long term, that's better than encouraging spending, since the money would go towards growing the economy. (Assuming it isn't invested in beanie babies and lottery tickets.)
  - dools 11y ago
    Everyone has to consume. Consumption is a necessity, and is unavoidable (and therefore unevadable). Some level of taxation is required since it determines the level to which government can spend without devaluing the currency, and it's also a tool that can be used to drain money out of the economy. But it's not required to "fund" anything -- what you want out of a tax is one that allows you to apply policy effectively. Putting tax legislation in place and enforcing it are two very different beasts. Having a consumption tax with sufficient offsets for low income earners is far less likely to result in evasion because everyone must consume, and no-one will refuse being GIVEN money (income tax is sort of the opposite: we don't tax consumption, but we tax income and try to tax high income earners more, which they do their best to evade; low income earners would never "evade" their transfer payments). Prices and spending habits will adjust accordingly -- you're giving people a huge tax break in one area and adding a burden in another. There wouldn't be any impact on aggregate demand, but fiscal policy would be much easier to implement. Video on how this works: https://www.youtube.com/watch?v=i35uBVeNp6c https://www.youtube.com/watch?v=i35uBVeNp6c Book on how this works: http://www.amazon.com/Modern-Money-Theory-Macroeconomics-Sovereign/dp/0230368891 http://www.amazon.com/Modern-Money-Theory-Macroeconomics-Sov...
pcurve 11y ago
It is so infuriating to read articles on this topic over and over again, year after year.
- hwstar 11y ago
  That probably indicates it's a festering problem which needs to be solved.

68 points by kevindeasis 11y ago

I don't care much about the US, more about the EU region - and I take a wild guess here that the amount of unpaid/tricked-away taxes exceeds the amount of taxes due to the US. Still, the situation has to be tackled, and better fast. Many countries in the EU suffer because Big Capital doesn't fulfil the tax obligations.

such_a_casual 11y ago
You should care about the U.S. We live in a global economy (this isn't new). What's good for your neighbor is good for you (and vice versa).

molecule 11y ago

This is certainly an issue to be discussed and addressed, but the headline, directly from the article, is incorrect, re: "$2.1T in unpaid tax": > In total, US multinationals are sitting on an estimated $2.1tn in untaxed offshore profit... US corporate taxes on $2.1T are @ least 65% less than the $2.1T profit, itself. The correct title would phrase it as "unpaid taxes on $2.1T".

danieltillett 11y ago
This is graudian sub-editor's mistake - we should be happy that the headline is even close to the article content.

ars 11y ago

> “For too long, powerful corporations have exploited loopholes that allow them to hide earnings abroad to lower their taxes,” said Democratic presidential candidate Hillary Clinton. “Now Pfizer is trying to reduce its tax bill even further.” You don't like the loopholes? Close them. Do not blame people for using every single option they are given. The right thing to do is lower the tax rate and remove the loopholes. The total tax paid could stay the same, but the distribution would be different. The current system is unfair, you need to pay a lot of money to work out these complicated scenarios, this hurts smaller businesses, and costs a lot of money to implement. "Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes." - Gregory v. Helvering, 69 F.2d 809, 810 (2d Cir. 1934) "Over and over again courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant." - Commissioner v. Newman, 159 F.2d 848, 851 (2d Cir. 1947) - dissenting opinion

jacobolus 11y ago
One problem, which the article discusses just after the parts you quoted, is that there’s a huge amount of lobbying of and money flowing to politicians willing to thwart reform efforts. Closing tax loopholes would be easier if we also had publicly financed elections or stricter limits on campaign contributions, and if the media wasn’t a consolidated corporate cartel. > “[...] Many influential Republicans, already uncomfortable about the Peru reforms, are expected to use committee hearings to launch an attack on the European commission’s ongoing state aid investigations into suspected sweetheart tax deals granted by Ireland, the Netherlands and Luxembourg to, respectively, Apple, Starbucks and Amazon. ¶Well-resourced rightwing lobbyists are agitating in Washington for a final push against the G20 tax reforms. [...]” There’s a feedback loop involved between corporations saving billions in taxes -> donations of some portion of that to politicians willing to play along (and offer to give them board seats and high-paid speaking gigs after they leave office, etc. Just look e.g. Bill Clinton’s post-officeholding career.). Same story with industries that receive large government contracts, or which are under heavy regulation. In every case, there’s big money to be made in helping corporate interests at the public’s expense. Candidates running for public office have great incentive to talk about how they want to close tax loopholes, etc., but once they are elected, the only thing holding them to those promises is personal integrity, and none of the US presidents since Jimmy Carter have been able to face down that kind of temptation. The pressure might be even greater for Congress, as smaller amounts of money directed at unseating particular troublesome Reps goes further, and there’s less direct public attention on each one.
- danieltillett 11y ago
  The root cause here is the amount of money required to be elected. Get rid of the need for money and you get rid of the corruption. I personally like the idea of increasing the number of members of congress so each member only represents around 25,000 people like they did 200 years ago. If your electorate only had 25,000 voters you would not need much money (nor staff) to get elected.
  - desdiv 11y ago

sjtgraham 11y ago

Corporate domicile is essentially a market and corporations have a choice where to domicile themselves. So instead of governments making futile attempts to legislate their way to a solution why don't they do as participants in any other market do and actually be competitive? This means reducing costs and finding savings to compete on price, i.e. lower rates of taxation. If government was a private enterprise, it would go out of business.

danieltillett 11y ago
Government isn't a private business so it makes little sense to make such a comparison. Tax should be paid in the jurisdiction the profit is earned.
- DVassallo 11y ago
  > Tax should be paid in the jurisdiction the profit is earned. Why should it be that way? One problem with these loopholes seems to be that it is not easy to determine where the profit is earned.
  - danieltillett 11y ago
    The reason why is you will end up with every country in the world taxing each company on their worldwide income. Any company operating in more than one country will be taxed out of existence. It is not that hard to determine where the income is earned provided countries share data.
    - gabbo 11y ago
      It is hard, though: not least because determining where income is earned depends on defining "income". Revenue is maybe easy enough, but what about expenses? Depending on the industry, there's plenty of opportunity for chicanery which makes it far from "not that hard". Example: you're a large tech company who can afford good accountants and complicated legal structures. Your high-tax jurisdiction European subsidiaries can "license" a whole bunch of "intellectual property" from their counterparts in Ireland/Luxembourg which significantly beef up their costs to the point that net income in the high-tax jurisdiction is minimal and it all gets booked somewhere which will charge you less. Kind of like how Apple manages its assets via a Nevada subsidiary to avoid paying tax in California, and how Microsoft does something similar with software licensing. Except at least in the US case there's still tax revenue going to the federal government.

kondro 11y ago

Wouldn't moving taxes from income to sales-based resolve many of these issues?

danieltillett 11y ago
The problem with basing company tax on sales is some industries have higher margins than others. If you introduce a flat turnover tax on business then you effectively tax low margin businesses more than high margin businesses. It also creates an incentive for businesses to vertically integrate even if this is not the optimal economic structure.
- analog31 11y ago
  Out of curiosity, does value-added tax solve this problem?
  - danieltillett 11y ago
    Value added tax is a consumption tax, not an income tax. The tax is paid by the consumers and is highly regressive (i.e. the poor are taxed more than the rich). There have been some attempts to tax companies based on gross income, but it tends to only be applied to a limited range of companies like utilities [1]. Personally I like Land Value Taxes [2] since they are impossible to avoid, but this makes them very unpopular with the rich and powerful who own most of the land. 1. https://en.wikipedia.org/wiki/Gross_receipts_tax https://en.wikipedia.org/wiki/Gross_receipts_tax 2. https://en.wikipedia.org/wiki/Land_value_tax https://en.wikipedia.org/wiki/Land_value_tax

boreas 11y ago

What needs to be done is change the unique incentives for American companies to participate in such byzantine international tax avoidance schemes in the first place. The US is practically the only country that taxes profits internationally regardless of origin. It should remove all taxes on bringing foreign profits into the US and lower the overall corporate tax rate while closing the loopholes that render the 'headline rate' so ineffectual in the first place.

forrestthewoods 11y ago

Paying the minimum amount of taxes you are legally obligated to pay is the most noble of endeavors. Good luck and God bless.

dools 11y ago

And yet, this doesn't "cost" governments anything, because governments don't need tax to fund spending. In fact, corporate taxes are stupid, they should be 0%, so should income tax. I like Randall Wray's model of a broad based consumption tax offset by transfer payments to low income earners, a job guarantee and a tax on the volume of your house. Genius. It's a pity no-one understands how the economy actually works, though!

andrewjf 11y ago
But doesn't a consumption tax just dis-incentivize consumption? Is that bad? (willing to accept LMGTFY link!)
- themartorana 11y ago
  Minus what seems to be a bizarre loss of website data this weekend, I've always been a fan of a national sales tax, with all associated exceptions where it makes taxation less regressive. http://fairtax.org http://fairtax.org
- bendykstra 11y ago
  Another way to put that is that it would encourage saving and investing. In the long term, that's better than encouraging spending, since the money would go towards growing the economy. (Assuming it isn't invested in beanie babies and lottery tickets.)
- dools 11y ago
  Everyone has to consume. Consumption is a necessity, and is unavoidable (and therefore unevadable). Some level of taxation is required since it determines the level to which government can spend without devaluing the currency, and it's also a tool that can be used to drain money out of the economy. But it's not required to "fund" anything -- what you want out of a tax is one that allows you to apply policy effectively. Putting tax legislation in place and enforcing it are two very different beasts. Having a consumption tax with sufficient offsets for low income earners is far less likely to result in evasion because everyone must consume, and no-one will refuse being GIVEN money (income tax is sort of the opposite: we don't tax consumption, but we tax income and try to tax high income earners more, which they do their best to evade; low income earners would never "evade" their transfer payments). Prices and spending habits will adjust accordingly -- you're giving people a huge tax break in one area and adding a burden in another. There wouldn't be any impact on aggregate demand, but fiscal policy would be much easier to implement. Video on how this works: https://www.youtube.com/watch?v=i35uBVeNp6c https://www.youtube.com/watch?v=i35uBVeNp6c Book on how this works: http://www.amazon.com/Modern-Money-Theory-Macroeconomics-Sovereign/dp/0230368891 http://www.amazon.com/Modern-Money-Theory-Macroeconomics-Sov...

pcurve 11y ago

It is so infuriating to read articles on this topic over and over again, year after year.

hwstar 11y ago
That probably indicates it's a festering problem which needs to be solved.