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Simple. The way Google gets away by paying little corporate tax in USA is by loading up their US entity with tax-deductible expenses. What is stopping IRS to

by lubos 11y ago

Simple. The way Google gets away by paying little corporate tax in USA is by loading up their US entity with tax-deductible expenses. What is stopping IRS to say.... "Hold on. These tax-deductible expenses are bullshit, we don't accept them. Here is new tax assessment the way we see it" IRS does this to small businesses all the time.

jeffdavis 11y ago
Except that you can't write a law that says "no bullshit". You have to actually specify what is bullshit and what isn't. The alternative is arbitrary power, and that doesn't have a good history.
- newjersey 11y ago
  We could say there are no deductions, ever. Every dollar earned is taxable. Every dollar spent is taxable. Nothing and no one is exempt from taxes. No expenditure is deductible. General Electrics pays the same income tax (hopefully a progressive tax so as to be realistic) as Podunk College. This would be ideal. Side rant: The government shall keep public policy and tax policy separate. While we are at it, we shall prohibit state and local governments from doing these things as well. No, Maryland may not give a tax break to House of Cards. No, AnyTown USA may not give tax break to Walmart. If there is a reduction in tax, it should apply to everyone. Oh and yes, no special excise or stamp taxes either. Yes, our tools in public policy will get blunt and there will be a very rough transition period. However, I think the end result will be worth it. It is definitely better than having these neo-cons in power while bitching and moaning about not being in power.
  - aianus 11y ago
    > No expenditure is deductible. So if Walmart buys $1B worth of groceries and sells them for $1.05B they should pay $350 million in taxes on their $50 million profit???
    - newjersey 11y ago
      I don't see any other way to simplify the tax code. If it isn't this way, we are further patching our tax codes as we go. Perhaps trying to simplify the tax code is fools gold just like rewriting production software from scratch. Sure it looks enticing but the devil is in the details. What if we scale back my ambitions and limit the idea of no incentives, no deductions to individual income tax? Surely people would welcome a simplification that gets rid of all deductions and exclusions?
      - mike_hearn 11y ago
        There are ways to simplify tax systems, although "tax only revenues" is too simple. You can look at the Hong Kong tax system to see what simple looks like in this context (it's still not all that simple). The basic problem here is not actually the details of the tax codes in different countries. The root problem is entirely political. Companies like Google, Facebook and Apple have lots of money and their products are sold in every country. Lots of governments very much want to spend more money without raising taxes on their own citizens, which means they need to raise taxes on foreigners instead. Thus it turns into a game where countries try to either find creative readings of their own tax laws, or try to publicly shame big companies into giving up more money. But played to its conclusion this game is zero sum: for one country to win, another must lose by an equal amount (once all the profits are being taxed).
  - morgante 11y ago
    > We could say there are no deductions, ever. Every dollar earned is taxable. That's a brilliant way to create a recession and also to destroy competition. It would create a giant, massive subsidy to large corporations and heavily incentivize vertical integration. By taxing revenue at every stage, every company would scramble to move transactions out of the market (via mergers and acquisitions). You'd also likely drive every small business in America out of business. It also doesn't make any sense. Why should they local grocery store which made $10k profit on $10M in gross revenue pay way more taxes than a software company which made $450k profit on $1m in revenue?
  - Ironchefpython 11y ago
    What you're flailing around trying to reinvent is the VAT (value added tax).
    - newjersey 11y ago
      Forgive me. It was definitely not my intention. I especially do not want it to somehow replace income tax. I think we need a very progressive income tax to the point where it is essentially an income cap (my proposal is a 90% tax on income that is over 2000 * 100 x the minimum wage per hour or 100x the basic income payment per year in case we get there). My idea for no deductions and no exclusions was mostly directed at individuals.
    - ptaipale 11y ago
      And not even Value Added Tax, but Value Tax. If a shop buys something for $10 and sells it for $15, the value added is $5 and you pay a percentage of that as VAT. What the parent proposes is that you pay a percentage of $15 as tax, and cannot deduct the cost of sales (no deductions, ever).
      - newjersey 11y ago
        Forgive my ignorance but what happens in the case that a vendor buys something for $10 and sells for $5? Do they get a rebate from the vat office?
        ptaipale 11y ago
        Well, effectively, yes. Each seller charges VAT rate on his output and passes the buyer a special invoice that indicates the amount of tax charged. Buyers who are subject to VAT on their own sales (output tax), consider the tax on the purchase invoices as input tax and can deduct the sum from their own VAT liability. The difference between output tax and input tax is paid to the government (or a refund is claimed, in the case of negative liability). https://en.wikipedia.org/wiki/Value-added_tax https://en.wikipedia.org/wiki/Value-added_tax
  - petercooper 11y ago
    I think the poor would suffer the most under a revenue tax regime, unless the increased tax take were thrown into welfare or basic income. The compound effect of a revenue tax along a supply chain would result in huge inflation in products with long supply chains (food and consumer goods) and relatively little effect on things like services and high margin businesses.
  - jrockway 11y ago
    > No expenditure is deductible. So what about taxes themselves? My largest federal tax deduction is my state taxes.
  - ptaipale 11y ago
    >We could say there are no deductions, ever. Every dollar earned is taxable. No, you couldn't. The very point of deductions is that deducted costs are not earned dollars. If you can't deduct cost of doing business, all taxation reverts to taxing sales, and the economy is really very, very different from now. No one has ever got that to work, anywhere.

by lubos 11y ago

jeffdavis 11y ago

Except that you can't write a law that says "no bullshit". You have to actually specify what is bullshit and what isn't. The alternative is arbitrary power, and that doesn't have a good history.

newjersey 11y ago
We could say there are no deductions, ever. Every dollar earned is taxable. Every dollar spent is taxable. Nothing and no one is exempt from taxes. No expenditure is deductible. General Electrics pays the same income tax (hopefully a progressive tax so as to be realistic) as Podunk College. This would be ideal. Side rant: The government shall keep public policy and tax policy separate. While we are at it, we shall prohibit state and local governments from doing these things as well. No, Maryland may not give a tax break to House of Cards. No, AnyTown USA may not give tax break to Walmart. If there is a reduction in tax, it should apply to everyone. Oh and yes, no special excise or stamp taxes either. Yes, our tools in public policy will get blunt and there will be a very rough transition period. However, I think the end result will be worth it. It is definitely better than having these neo-cons in power while bitching and moaning about not being in power.
- aianus 11y ago
  > No expenditure is deductible. So if Walmart buys $1B worth of groceries and sells them for $1.05B they should pay $350 million in taxes on their $50 million profit???
  - newjersey 11y ago
    I don't see any other way to simplify the tax code. If it isn't this way, we are further patching our tax codes as we go. Perhaps trying to simplify the tax code is fools gold just like rewriting production software from scratch. Sure it looks enticing but the devil is in the details. What if we scale back my ambitions and limit the idea of no incentives, no deductions to individual income tax? Surely people would welcome a simplification that gets rid of all deductions and exclusions?
    - mike_hearn 11y ago
      There are ways to simplify tax systems, although "tax only revenues" is too simple. You can look at the Hong Kong tax system to see what simple looks like in this context (it's still not all that simple). The basic problem here is not actually the details of the tax codes in different countries. The root problem is entirely political. Companies like Google, Facebook and Apple have lots of money and their products are sold in every country. Lots of governments very much want to spend more money without raising taxes on their own citizens, which means they need to raise taxes on foreigners instead. Thus it turns into a game where countries try to either find creative readings of their own tax laws, or try to publicly shame big companies into giving up more money. But played to its conclusion this game is zero sum: for one country to win, another must lose by an equal amount (once all the profits are being taxed).
- morgante 11y ago
  > We could say there are no deductions, ever. Every dollar earned is taxable. That's a brilliant way to create a recession and also to destroy competition. It would create a giant, massive subsidy to large corporations and heavily incentivize vertical integration. By taxing revenue at every stage, every company would scramble to move transactions out of the market (via mergers and acquisitions). You'd also likely drive every small business in America out of business. It also doesn't make any sense. Why should they local grocery store which made $10k profit on $10M in gross revenue pay way more taxes than a software company which made $450k profit on $1m in revenue?
- Ironchefpython 11y ago
  What you're flailing around trying to reinvent is the VAT (value added tax).
  - newjersey 11y ago
    Forgive me. It was definitely not my intention. I especially do not want it to somehow replace income tax. I think we need a very progressive income tax to the point where it is essentially an income cap (my proposal is a 90% tax on income that is over 2000 * 100 x the minimum wage per hour or 100x the basic income payment per year in case we get there). My idea for no deductions and no exclusions was mostly directed at individuals.
  - ptaipale 11y ago
    And not even Value Added Tax, but Value Tax. If a shop buys something for $10 and sells it for $15, the value added is $5 and you pay a percentage of that as VAT. What the parent proposes is that you pay a percentage of $15 as tax, and cannot deduct the cost of sales (no deductions, ever).
    - newjersey 11y ago
      Forgive my ignorance but what happens in the case that a vendor buys something for $10 and sells for $5? Do they get a rebate from the vat office?
      - ptaipale 11y ago
        Well, effectively, yes. Each seller charges VAT rate on his output and passes the buyer a special invoice that indicates the amount of tax charged. Buyers who are subject to VAT on their own sales (output tax), consider the tax on the purchase invoices as input tax and can deduct the sum from their own VAT liability. The difference between output tax and input tax is paid to the government (or a refund is claimed, in the case of negative liability). https://en.wikipedia.org/wiki/Value-added_tax https://en.wikipedia.org/wiki/Value-added_tax
- petercooper 11y ago
  I think the poor would suffer the most under a revenue tax regime, unless the increased tax take were thrown into welfare or basic income. The compound effect of a revenue tax along a supply chain would result in huge inflation in products with long supply chains (food and consumer goods) and relatively little effect on things like services and high margin businesses.
- jrockway 11y ago
  > No expenditure is deductible. So what about taxes themselves? My largest federal tax deduction is my state taxes.
- ptaipale 11y ago
  >We could say there are no deductions, ever. Every dollar earned is taxable. No, you couldn't. The very point of deductions is that deducted costs are not earned dollars. If you can't deduct cost of doing business, all taxation reverts to taxing sales, and the economy is really very, very different from now. No one has ever got that to work, anywhere.