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How to Stop Turning U.S. Corporations into Tax Exiles
- adventured 11y agoFor reference, statutory corporate tax rates by country (PDF): https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-corporate-tax-rates-2015.pdf https://www2.deloitte.com/content/dam/Deloitte/global/Docume...
- pzone 11y agoImportant part: middle column, where the rate is basically 0% everywhere except the US, where it is 30%.
- lazyjones 11y agoWhy is this the important part? It's not 0% in Austria as listed, it varies too (in Vienna you pay tax for subway infrastructure, among other things). It's the sum that matters, including exploitable loopholes such as trusts and holdings (AFAIK, in Switzerland, a pure holding pays no corporate taxes).
- leereeves 11y ago> Congressional leaders agree that passing legislation according to [the Schumer-Portman] framework would stop inversions Until another country offers an even better tax deal to attract multi-national corporations.
- cmdkeen 11y agoNot really - there are benefits to being based in the US. If everyone just chased the lowest taxed jurisdictions then every corporation would be based in a tax haven. Corporations aren't repatriating the money they hold offshore. I can see why the US wants a piece of that pie, but they currently aren't getting any pie and are losing piemakers. Taking a smaller cut of something whilst also having that something flow back into the US is surely a good thing.
- deleted 11y ago[deleted]
- icebraining 11y ago> Corporations aren't repatriating the money they hold offshore. Indirectly, they are: "Nearly Half of So-Called “Offshore” Funds Already in the United States" Earlier this year, a survey was sent to 27 U.S. multinational corporations and found they held more than half a trillion dollars in tax-deferred foreign earnings at the end of FY2010. The survey also found that 46% of those foreign earnings – almost $250 billion – was maintained in U.S. bank accounts or invested in U.S. assets such as U.S. Treasuries, U.S. stocks other than their own, U.S. bonds, or U.S. mutual funds. https://www.hsgac.senate.gov/subcommittees/investigations/media/new-data-show-corporate-offshore-funds-not-trapped-abroad-nearly-half-of-so-called-offshore-funds-already-in-the-united-states https://www.hsgac.senate.gov/subcommittees/investigations/me...
- muzz 11y agoYes, an important but never-mentioned distinction is that "offshore" is basically an accounting designation, and that money is not somehow prevented from being put to work in the US.
- adventured 11y agoThat's not how things actually work. If it was, every nation but one would lose all of their corporations to that one country with the lowest rate. The decline in the benefit of a lower corporate tax rate accelerates as you go lower. For example, going from 35% to 25% might reduce your corporate inversions by 75%. Going from 35% to 10% might reduce your inversions by 85%. The challenge is to find the level where you gain the most as a nation overall. If you have something to offer other than just the low tax rate, it will never make sense to chase toward zero. The closer you get to that ideal level, the more other factors come into play to your nation's benefit in regards to keeping companies. The US has vast benefits for a company like Pfizer that would compensate for N% additional tax rate.
- pzone 11y agoI agree with you in general but there is another thing you're missing: the double taxation discourages investing in new businesses in the United States. If a VC is looking at two very similar businesses selling internationally, with one seated in the US where their profits will be doubly taxed, and the other running in a different country where profits are not subject to this, then ceteris paribus, they should expect investment in the non-US company to be more profitable.
- throwawayukcyb 11y agoceteris paribus i.e. unicorns and rainbows. You're essentially just responding to every response to your posts with "yeah but more assumptions make it true!"
- pzone 11y agoNo, it's not unicorns and rainbows. My argument does not rely on the existence of such ceteris paribus firms, my argument is that this will affect decisions to invest on the margin. Maybe right now, the margin is deciding between a great company in the US versus a crap company in Ireland, but the one in Ireland looks more attractive due to tax reasons. This policy change would push it back in the right direction. The point is that because there is a margin somewhere, it must be shifted by these policy decisions. I don't see myself relying on strong assumptions. I am laying out some simplified models to explain the core mechanisms of what's going on.
- pzone 11y agoCorrect. That's why 0% is preferable to 8%, and Schumer-Portman should be thought of as a medium term stop-gap measure. 0% is the only stable rate. Eventually that will happen, but for the time being 8% will work as other revenue adjustments are made.
- adventured 11y ago0% is only the stable rate in theory (and only if you ignore every other business consideration in the theory). It will never work like that in reality, where countries often have dramatic benefits to offer that compensate for paying more than 0%. All nations would have to go to zero in the category of what other benefits they have to offer (their sum value proposition outside of their tax rate). That's not going to happen. Those benefits add up to being worth a certain amount of tax depending on the nation and the corporation's specific context. If this wasn't true, every relevant corporation would have flooded out of the US (or Germany) long ago, seeking much lower rates.
- pzone 11y agoI agree to an extent, but nations are also competing on all of these other factors that make them more attractive places to do business. Some costly health care surcharge in France could be reduced as easily as the foreign profit taxation in the US. Also, it only takes one Ireland to drive the entire world toward 0%.
- brandelune 11y agoSuch a pile of crap, by Icahn, of course. Corporations do not exist in a vacuum of social irresponsibility and their first duty is certainly not to their shareholders but to the people they employ and to the societies they thrive on.
- pzone 11y agoNo, actually what you're saying is a pile of crap. The only irresponsible ones in this situation are the members of Congress. The United States is not immune to economic forces, yet for years despite all the evidence to the contrary they've been in utter denial about this. All they have to do is pass a simple bill to make the US tax code work the same way as it does in every other god damn country in the world, then no more jobs get moved overseas.
- mschuster91 11y ago> No, actually what you're saying is a pile of crap. In Germany, our constitution says in §14.2: "Eigentum verpflichtet. Sein Gebrauch soll zugleich dem Wohle der Allgemeinheit dienen.", translated roughly to "Ownership creates duties. Its use shall be for common welfare." For me, looks like the failure is in the US constitution which does not focus on the common good.
- lazyjones 11y ago> In Germany, our constitution says in §14.2: "Eigentum verpflichtet. You can tax the property of people without taxing corporations. The former can be done with reasonable effort and effectiveness because the location of someone and their home's can be determined. Taxing corporations has proven unreliable and ineffective because they're often just a mailbox in s tax haven and profits are moved to other entities easily (via licensing fees etc.). There's also no real need to tax them, as you can tax their owners.
- pzone 11y agoYes. I would even argue that advancing the common good includes a mandate not to pass unenforceable welfare-destroying tax laws.
- deciplex 11y agoIs the end to double taxation for the corporate tax only? Human Americans are also double-taxed on income earned abroad.
- seanmcdirmid 11y agoOnly if the math doesn't work out right (same for corporates also). There is a lot of ambiguity though...
- deciplex 11y agoEverything over the deduction (currently just shy of $100k) is taxed, minus a further deduction for tax paid to a foreign government on the earnings. Basically, you will pay the higher of US tax or local tax, on earnings over $100k. And you're right, most people don't pay. Really the bigger pain in the ass is that you even have to file. I've filed tax returns to the IRS for the last 10 years despite not paying a cent of tax to the US during that time, since my local tax is higher anyway. It's ridiculous. And come to think of it, even if they did end the double taxation, it's likely they'd keep making us file, the assholes, considering they also recently began to require that we make a yearly report to FinCEN in addition to the IRS.
- seanmcdirmid 11y agoSo there is ambiguity: what if your Chinese company sends you to the states on a biz trip? The Chinese and U.S. governments both feel like they have exclusive taxation rights, so you just pay tax to both (and no, even the taxes paid are not deductible). Or what a of health insurance, if it counted as taxable income in your host country, is it taxable in the U.S. also? And then there are "expenses" that I have no clue about. Once you make more than $100k, you hit a lot of difference between the two systems that cause problems; you have to be very conservative in your interpretation of the ambiguity. It is all a pain, and that's not even fun ting things like American stock grants abroad.
- geomark 11y ago
- princeb 11y agoI am trying to think of companies that should rightfully repatriate cash back to the states, and companies that should not. Why is it that it is repulsive that Google or Apple chooses to keep their cash overseas, whereas it is fine for Budweiser to do so (ignoring magnitudes for a second)? Because AB Inbev is Belgian? This is a difficult example for me to think of, because the US is one of the interesting countries where the largest companies here (or globally) are almost always American too. But let's imagine for a moment that there is a company called Apple Inc that only does business in the US and nowhere else, and there is an unrelated company in France called Pomme SA, and another unrelated company called Apfel AG in Germany that happen to sell identical iPads and iPhones. Do they have a duty to transfer cash to each other and their jurisdictions? What if the CEOs of these companies travelled and met each other and went, "oh! we did not know it but we sell the same thing, let's share resources in some way", which country has a right to collect tax on the revenue of the new global organization? The real debate is really about fairness in transfer pricing (which is difficult if not utterly boring, because typically transfer pricing are for services that are not fungible or even exchangeable in arms length markets, and so the debate within tax jurisdictions are over the nitty-gritty "economics" of the transaction in addition to consideration of foreign tax obligations yadda yadda yadda yawn), and this tax evasion through scary financial structuring like "inversion" is a really catchy thing to publicly excoriate, but it's probably not the right concern. So this is kind of a stretched example. The point I am getting at is that many American companies aren't 100% American, and it doesn't seem like there is a good reason for insist that all foreign earned cash (from Apfel and Pomme) to be brought back to the US. I do not agree that a company like (say) Royal Dutch Shell, being one of the largest oil companies here, should repatriate cash into the US, and unanimously most of us don't think so, so this is not really the problem we should be getting angry about.
- pzone 11y agoIf these tax laws incentivize productivity-destroying mergers then they are utterly moronic, immoral even. The Pfizer CEO said he wouldn't do it but for the tax savings. All these companies want to do is bring back their cash to the US and pay their US shareholders. It's fair and defensible for Pomme to want to bring cash to France to pay its French shareholders, and for Apfel to bring it to Germany to pay its German shareholders.
- blisterpeanuts 11y agoAlmost more interesting than Icahn's common sense article are the many talkback comments from the New York Times readership, most of whom appear to be bitterly opposed to corporate activity which maximizes profits. Has the NYT become a haven for left wing advocacy, Icahn's capitalistic perspective notwithstanding, whose primary readership are socialists? How much of the country do they represent? I worry about our economic prospects when a significant chunk of the intelligentsia no longer believe in free market economics.
- deleted 11y ago[deleted]