5 ms·

Why not do away with the farce that is corporate taxes, open an annual tax holiday to repatriate the obscene overseas funds, and close the gaps on source of hig

by ihsw 11y ago

Why not do away with the farce that is corporate taxes, open an annual tax holiday to repatriate the obscene overseas funds, and close the gaps on source of high income (yes this is cat and mouse but let's be real, it can be better)? Honestly, we're better off bringing the money home rather than letting it fester abroad.

mdorazio 11y ago
To what end, though? Is there a good argument that shifting that money from a tax haven abroad to a de facto tax haven in the US will actually do something productive? It seems as though even companies that have massive amounts of domestic cash on their balance sheets are just sitting on it right now.
- ori_b 11y ago
  > To what end, though? Is there a good argument that shifting that money from a tax haven abroad to a de facto tax haven in the US will actually do something productive? The question is whether you can couple it with incentives to either grow operations in the USA, or somehow reinvest in American companies. Potentially, this could be one of the conditions of the tax holiday, somehow.
- exclusiv 11y ago
  I agree. Carl Icahn, activist investor, is trying to change the rules with a show of force but companies only keep it overseas because they believe they'll get their way soon. If you make it so it isn't an option, then they're forced to reinvest or lose to competitors and/or piss off shareholders with no growth. I'm all for low corporate taxes but small businesses get hosed and they create jobs and innovation despite their disadvantages. Want to start an LLC in California? You'll have to pay UPFRONT sales tax and an annual $800/yr license. People on this board complain about SaaS products that are $20/mo. What do you get from the state? Nothing. The upfront sales tax is completely ridiculous. While it's a credit - you start your company with thousands of dollars in the hole when cash is king. Then you have compliance costs and the state income & sales tax is not competitive. At least other states like Nevada and Texas can capitalize and steal talent to try and keep other states honest. That's refreshing. I have 2 successful LLCs in California but the current situation irks me. I'm closing another startup because the costs and time involved with keeping it lukewarm until I can free up time from the other 2 is prohibitive. And the cost to start it back up after I close it is prohibitive too (business tax, new sales license, distributor, etc.). Eventually I'll probably sell the 2, move to Costa Rica and start a new New-Co up. :)
  - cft 11y ago
    If you have say an LLC as a disregarded tax entity, or an S corp that earns honest buck, say $1m/yr in 2015, prepare to pay $500,000 tax, even if you intend to store money in the corporation to re-invest all of it in 2016. At the end of the calendar/fiscal year, the income will be taxed, regardless of your intent to use it for business development in the later years. Note, it is not taxed when you take it out of the corporation, it is taxed before that. If you create a C Corp, it will be taxed about $300,000, but then taxed again at about 40% if/when you take it out. Contast this not even with Pfizer, but simply with say a smallish public company with 1bn market cap that has gross $200m/yr and expenses of say $201m/yr (often deliberately in red, like AMZN, to pay 0 tax). Every several years they would issue $100m worth of new shares to remain cash flow positive (zero tax rate on $100m by the way), and use a large portion of these proceeds towards the executive compensation in options that is taxed at 20% as long term capital gains. I observed this up close, my ex was a corporate lawyer in such a typical company. But this was not all. In the end they split the company into two, (paying hiring bonuses in the shares of the spinoff to all execs), and incorporated the spinoff in Cayman islands, to make it an inversion target! I felt almost nauseus writing my own large tax checks for my domestic LLC!!
    - encoderer 11y ago
      My cpa gave me the advice that a c Corp is the best option if you have retained earnings for exactly that reason.
      - deleted 11y ago
        [deleted]
    - mahyarm 11y ago
      When they give you those options and if you exercise right away they are taxed at whatever the current market value of the stock is, as income. It's only once you exercise and hold that you get the LTCG tax rate on the rise of price of the stock when you sell. If they are structured as ISO options, then you will hit the AMT tax rate very very quickly and at the minimum pay %28 tax. If you live in CA, there is another %8 CA AMT tax that will apply on top of that I think. And if you start hitting the AMT tax rate, the 'tax credit' you get from paying state taxes starts going away too! So I guess if you play a lot of AMT shenanigans with ISO stock options, you can reduce the tax load to %28-36, which is an improvement I guess. But ISO stock options are golden handcuffs and pretty bad when your in a private company. If I'm wrong, me and whole bunch of stock compensated engineers would be very interested to learn how we are wrong.
InclinedPlane 11y ago
I agree. The system we have right now is ridiculous. We should harmonize our corporate tax rates and rules with the rest of the G-8 and then tax capital gains more like income.
deleted 11y ago
[deleted]

by ihsw 11y ago

mdorazio 11y ago

To what end, though? Is there a good argument that shifting that money from a tax haven abroad to a de facto tax haven in the US will actually do something productive? It seems as though even companies that have massive amounts of domestic cash on their balance sheets are just sitting on it right now.

ori_b 11y ago
> To what end, though? Is there a good argument that shifting that money from a tax haven abroad to a de facto tax haven in the US will actually do something productive? The question is whether you can couple it with incentives to either grow operations in the USA, or somehow reinvest in American companies. Potentially, this could be one of the conditions of the tax holiday, somehow.
exclusiv 11y ago
I agree. Carl Icahn, activist investor, is trying to change the rules with a show of force but companies only keep it overseas because they believe they'll get their way soon. If you make it so it isn't an option, then they're forced to reinvest or lose to competitors and/or piss off shareholders with no growth. I'm all for low corporate taxes but small businesses get hosed and they create jobs and innovation despite their disadvantages. Want to start an LLC in California? You'll have to pay UPFRONT sales tax and an annual $800/yr license. People on this board complain about SaaS products that are $20/mo. What do you get from the state? Nothing. The upfront sales tax is completely ridiculous. While it's a credit - you start your company with thousands of dollars in the hole when cash is king. Then you have compliance costs and the state income & sales tax is not competitive. At least other states like Nevada and Texas can capitalize and steal talent to try and keep other states honest. That's refreshing. I have 2 successful LLCs in California but the current situation irks me. I'm closing another startup because the costs and time involved with keeping it lukewarm until I can free up time from the other 2 is prohibitive. And the cost to start it back up after I close it is prohibitive too (business tax, new sales license, distributor, etc.). Eventually I'll probably sell the 2, move to Costa Rica and start a new New-Co up. :)
- cft 11y ago
  If you have say an LLC as a disregarded tax entity, or an S corp that earns honest buck, say $1m/yr in 2015, prepare to pay $500,000 tax, even if you intend to store money in the corporation to re-invest all of it in 2016. At the end of the calendar/fiscal year, the income will be taxed, regardless of your intent to use it for business development in the later years. Note, it is not taxed when you take it out of the corporation, it is taxed before that. If you create a C Corp, it will be taxed about $300,000, but then taxed again at about 40% if/when you take it out. Contast this not even with Pfizer, but simply with say a smallish public company with 1bn market cap that has gross $200m/yr and expenses of say $201m/yr (often deliberately in red, like AMZN, to pay 0 tax). Every several years they would issue $100m worth of new shares to remain cash flow positive (zero tax rate on $100m by the way), and use a large portion of these proceeds towards the executive compensation in options that is taxed at 20% as long term capital gains. I observed this up close, my ex was a corporate lawyer in such a typical company. But this was not all. In the end they split the company into two, (paying hiring bonuses in the shares of the spinoff to all execs), and incorporated the spinoff in Cayman islands, to make it an inversion target! I felt almost nauseus writing my own large tax checks for my domestic LLC!!
  - encoderer 11y ago
    My cpa gave me the advice that a c Corp is the best option if you have retained earnings for exactly that reason.
    - deleted 11y ago
      [deleted]
  - mahyarm 11y ago
    When they give you those options and if you exercise right away they are taxed at whatever the current market value of the stock is, as income. It's only once you exercise and hold that you get the LTCG tax rate on the rise of price of the stock when you sell. If they are structured as ISO options, then you will hit the AMT tax rate very very quickly and at the minimum pay %28 tax. If you live in CA, there is another %8 CA AMT tax that will apply on top of that I think. And if you start hitting the AMT tax rate, the 'tax credit' you get from paying state taxes starts going away too! So I guess if you play a lot of AMT shenanigans with ISO stock options, you can reduce the tax load to %28-36, which is an improvement I guess. But ISO stock options are golden handcuffs and pretty bad when your in a private company. If I'm wrong, me and whole bunch of stock compensated engineers would be very interested to learn how we are wrong.

InclinedPlane 11y ago

I agree. The system we have right now is ridiculous. We should harmonize our corporate tax rates and rules with the rest of the G-8 and then tax capital gains more like income.

deleted 11y ago

[deleted]