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"while tax laws have failed to keep pace with tax-avoidance strategies made possible by a complex mix of corporate offshore accounts and global capital flows"

• abawany 11y ago
  Extremely naive question (not asking rhetorically - I really want to know): what is the point of taxing corporations? Some thoughts on why I ask: * given that they must disburse their income eventually in the form of dividends, salaries, payments to vendors, etc. this adds pointless complexity to the tax code * if one eliminated corporate taxation, one could also eliminate the special (lower) tax rate on dividends and a whole rat's nest of loopholes * it might help deflate the (IMO) dangerous idea of corporate personhood
  • jandrese 11y ago
    > Given that they must disburse their income eventually in the form of dividends, salaries, payments to vendors, etc. Apple is just sitting on $300 billion (with a b!) dollars currently, and they are just one company. If anything we should be taxing those war chests higher because sequestering that much money is bad for the economy as a whole. Also, eliminating the corporate income tax would open up a gigantic loophole in tax law. People could simply incorporate into a single person corporation, then make sure the corporation makes all of their money and just happens to provide services that help the person (like buying food and shelter).
    • abawany 11y ago
      That is a fair point. I guess since one can't count on a corporation to spend a significant portion of its income every year, the corporate tax provides a mechanism to pull some money out of their income instead of waiting for their expenses to trickle down to the economy.
    • whatok 11y ago
      Apple or any other company is going to sit on that much cash if they don't have anything productive to do with it. I don't know how you would come up with a non-arbitrary threshold for taxing "war chests" and punishing companies (in the form of increased taxes) seems very perverse for what could be the most rational decision for a company to make. If the US had a sane repatriation system and rates were not so low, Apple would have used overseas cash instead of issuing debt for recent buybacks and dividends. They will also likely use some of the cash to eventually buy back debt if it makes sense for them to repatriate.
      • ksdale 11y ago
        There actually are laws that impose much higher tax rates on cash in "holding companies" but convincing the government that you might need that much cash is pretty easy.
    • bpodgursky 11y ago
      > Also, eliminating the corporate income tax would open up a gigantic loophole in tax law. People could simply incorporate into a single person corporation, then make sure the corporation makes all of their money and just happens to provide services that help the person (like buying food and shelter). Given that corporate income tax is basically completely ineffective right now, I don't know why you think this would possibly be any harder to enforce against. > If anything we should be taxing those war chests higher because sequestering that much money is bad for the economy as a whole. If you eliminated the corporate income tax, this money would instantly be some combination of (a) disbursed in dividends (b) brought back into the US and spent on expansions or acquisitions or (c) spent on stock buybacks, which would then be captured as capital gains tax. There's no need to make this more complicated.
      • abawany 11y ago
        Thank you - that was sort of the source of my question as well. It seems that since the current complicated scheme has perversed incentives to make the corporate tax ineffectual, why not try to simplify.
      • seanmcdirmid 11y ago
        I think (a) and (b) only lead to taxes if the stock holders are American. I have a lot of non resident alien friends who hold the same stock as I do and their tax rules for dividends and capital gains are very different, it isn't clear to me that they have to pay anything. Much of corporate war chests are spent on R&D abroad, which is necessary to garner favor in some countries. The money wouldn't necessarily flow back to the US even if it could unhindered.
    • privong 11y ago
      > Apple is just sitting on $300 billion (with a b!) dollars currently, and they are just one company. > If anything we should be taxing those war chests higher because sequestering that much money is bad for the economy as a whole. Just to play devil's advocate, is there a chance they're sitting on it because they'd be taxed for using it to finance R&D, acquisitions, or for other uses? And I think you really mean "beginning to tax those war chests", because I don't think corporate holdings continue to be taxed, post income-tax. Am I right that you're essentially advocating negative interest rates for corporate-held cash?
      • jandrese 11y ago
        I think it's more because they just don't know what to do with it. Tax avoidance is an additional incentive, but probably not the main one. I wasn't entirely serious about taxing corporate cash holdings, but as I think about this more may not be the worst idea in the world. Obviously you would set the bar high enough that the tax wouldn't kick in until the corporation went beyond reasonable (maybe at a billion dollars? Not too many corporations make capital investments larger than this do they? And even those would probably be financed for tax reasons.) Make it more expensive to sit on excess cash than to actually use it. Punish complacency.
        • abawany 11y ago
          I would argue that activist stockholders are already on this case for their own self-interest: witness Icahn et al compelling Apple to give back some of their cash as additional dividends.
          • kspaans 11y ago
            Wouldn't Apple have to repatriate the cash to the US in order to pay it out as dividends? (And thus pay both corporate income tax and dividend tax on it.)
            • abawany 11y ago
              In the current scheme of things, I believe Apple was able to pay the extra dividends using its income. The activist shareholders agitated for a bigger return to shareholders and Apple complied, as I understand it. I don't believe cash repatriation was required in this scenario. It seems that Apple was also "encouraged" to perform stock buybacks by these investors. ref: http://learnbonds.com/124673/apple-inc-aapl-is-preparing-to-give-carl-icahn-27-5-million/ http://learnbonds.com/124673/apple-inc-aapl-is-preparing-to-...
    • maxerickson 11y ago
      In kind personal income is already taxable.
    • lg 11y ago
      i'm guessing it's invested or deposited in a bank, and banks loan money out against their deposits, so still productively used.
    • refurb 11y ago
      People could simply incorporate into a single person corporation, then make sure the corporation makes all of their money and just happens to provide services that help the person (like buying food and shelter). What's stopping people from doing that now? I'd love to incorporate and call my salary "revenue" and deduct all of my expenses from it. But I can't due to tax laws. I don't think anything would change.
    • ikeboy 11y ago
      >If anything we should be taxing those war chests higher because sequestering that much money is bad for the economy as a whole. That's what inflation is for. If you think saving is bad, make inflation go up and saving will decrease.
    • zo1 11y ago
      >"because sequestering that much money is bad for the economy as a whole." What exactly do you mean they're 'sequestering' the money? Short of them keeping it hidden away in a locked vault somewhere, surely that money is being circulated through the economy in one form or another.
  • Goronmon 11y ago
    given that they must disburse their income eventually Must they?
    • abawany 11y ago
      EDIT: snipped confusing comment mixing expenses with income - by disbursements, I meant dividends. They don't all disburse all of their income every year, it is true. I guess it is a pretty strong reason to tax their incomes perhaps, i.e. to get a share of their income instead of waiting for the trickle down?
      • kspaans 11y ago
        Idea: everyone gets free meals at work (not a taxable benefit!), use of company cars, generous travel budgets (not a taxable benefit!), etc. So suddenly your compensation has increased quite a bit, but your personal income tax bill is the same. Now instead of the IRS chasing tax-inverters and shell corporations, now they have to go through every worker's books to try and guess what kind of benefits are taxable or not. (OK sure, the corporation will still pay goods and services taxes on those benefits it provides for its employees... hopefully.) That's one possible argument against not taxing corporations. It could be even more expensive to enforce taxable benefits rules if there were no corporation taxes. I think I read somewhere that C-level managers in South Korean corporations have _very_ modest salaries but get many benefits like these that aren't (currently) taxable.
        • jandrese 11y ago
          Eh, if a company is abusing the tax code to provide a ton of perks for its employees I would have a harder time complaining about it, at least when compared to the company abusing the tax code to keep billions of dollars locked up in vaults overseas doing nothing.
        • walshemj 11y ago
          so switch to the simpler paye system as used in the UK employers have to say how much benefit in kind they give to emploeeys every year in the p60 form makes taxing it simple
  • nxzero 11y ago
    Most obvious reason is that corporations are taxed to fund the government. Beyond that, if they weren't tax, you could just build a massive corporation, never take any cash out, and use it to make smaller businesses more profitable.
  • lutorm 11y ago
    What is the point of taxing an individual, given that they must also disburse their income eventually?
  • Pitarou 11y ago
    Surprisingly, corporation tax prevents tax offshoring! It's easy for a stockholder to avoid income tax by placing his stocks in a holding company registered overseas. By moving closer to the money's source -- i.e. corporate profits -- Uncle Sam has a better chance of getting his share. Things didn't work out that way, of course, but the idea was a good one.
  • jandrese 11y ago
    Another thought, if you eliminated corporate income tax, then those payments to vendors wouldn't be subject to tax either. The B2B market would be basically untaxed. This is a huge win for the 1%, but would really suck for regular people who would have to take over their tax burden.
    • abawany 11y ago
      That's an interesting point. I wasn't thinking of the elimination of sales tax - would that cover it?
  • ubernostrum 11y ago
    what is the point of taxing corporations? Well, then just tax the income of the employees and shareholders! But what is the point of taxing income? After all, they have to spend that money sooner or later to buy things. So instead just have a sales tax! And away we go: you can chase down a bunch of rabbit holes of "why tax this when sooner later people have to do that, you could just tax that instead!" and end up with cycles of taxing corporate profits, taxing incomes, taxing sales, taxing land... The real issue is that the only reliable way we know of to maintain civilization is to have some sort of government. Whether you want it to be ultra-minimal or not actually makes no difference, since even a "contract and property-rights enforcement and nothing else" minimal government still needs some money to run, and can't just rely on random charitable donations. So it will sooner or later have to capture some percentage of the value generated by its presence in order to fund itself, and that means tax. But the instant you tax one thing, people find a way to avoid it and do some other thing instead. So you tax the other thing, and then the thing they go to after that, and sooner or later you have to have at least a nominal tax on everything just to cover all the bases and make it impossible to (legally) completely avoid taxation. Which in turn means the question is not "why do we tax this", but "what is the correct balance of how much to tax this vs. how much to tax that vs. how much to tax that other thing, in order to achieve the revenue necessary to support the government we've decided to have".
    • yummyfajitas 11y ago
      But what is the point of taxing income? After all, they have to spend that money sooner or later to buy things. So instead just have a sales tax! Economists agree that a VAT is, indeed, the most efficient form of taxation (besides pigouvian taxes and maybe a land value tax). The reason we don't do that is that a sales tax obviously hits people in proportion to the benefits they receive from society rather than in proportion to the value they create. If you tax corporations you can hide this fact from voters. "Don't blame we the politicians, blame the evil corporations for raising prices!"
      • sokoloff 11y ago
        > The reason we don't do that is that a sales tax obviously hits people in proportion to the benefits they receive from society Really? I buy perhaps 2x what the average American and maybe 4x what the poorest Americans who are not on government support buy. I'm pretty sure that I get more than that ratio of benefit from a stable society. Warren Buffett gets some massive multiple of the benefit than I get, but I doubt he pays more than 10x in sales tax what pay.
  • marrs 11y ago
    I've always presumed that the point is to encourage the company to spend money and get cash recirculating through the economy, which of course you can further tax through the VAT system, PAYE system, etc.
• joering2 11y ago
  It would be more accurate to say that tax laws have NOT failed, because mostly designed by lobbyist, they had loopholes built in by design. Easiest examples are lobbyist from TurboTax team making sure taxes are complicated so you actually pay for TT services. https://www.propublica.org/article/how-the-maker-of-turbotax-fought-free-simple-tax-filing https://www.propublica.org/article/how-the-maker-of-turbotax...
• briandear 11y ago
  Tax rates should be higher? Higher tax rates are what incentivize avoidance. Look at Apple $200 billion in offshore cash. The US wants to tax that at 35%. Lower the rate to 10% and the government collects $20 billion. Keep it at 35% and the government collects zero. If the world taxes consumption instead of income, tax avoidance would disappear. I am tired of people who didn't earn the money thinking that the government has a right to it. Government is too big, taxes are too high, entitlements are ridiculous. When did it become the role of government to provide pensions and health care? Why shouldn't that be solely private sector? Should the government give us food and clothing as well? It's ridiculous. Helping the truly poor is one thing, but becoming a cradle-to-grave nanny goes against the very concept of freedom. Americans work from Jan 1 to April 24 just to pay for government. We spend more on taxes than food, clothing and housing -- combined. And people want higher taxes? How about controlling spending first, then we can talk about a credit limit increase.
  • fomojola 11y ago
    Moderately curious: do you really believe that there is a tax rate greater than 0% that would prevent corporate tax avoidance? I mean, at 10% why wouldn't someone just make the argument that it should be 5% instead?
    • benjohnson 11y ago
      For me as a very small business owner the threshold is at about 15%.
• makomk 11y ago
  It's not that simple. Corporation tax is levied based on profits, and for good reason - taxing corporations based on pure income would penalize low-margin, non-vertically-integrated businesses for no good reason. But there's all kinds of tricks that multinational businesses can play with their expenses to make it seem like they haven't made a profit in the US and it's difficult to outlaw and disentangle all of them.
  • hippich 11y ago
    No one really responded on why corporation should be taxed on profits at all. In the end if profits are distributed, these will be taxes as ordinary or capital income anyway. And "stashing" is not a problem, if anything, "stashing" makes everybody a bit richer, since chunk of money is essentially temporarily destroyed.
• cloudjacker 11y ago
  look up IRS APA tl;dr most tax avoidance schemes get the blessing of the IRS (and the other foreign tax authorities) before they are attempted. It also costs money. lol.
• Shivetya 11y ago
  No, the US has not kept pace with the rest of the world with regards to setting reasonable tax rates and how profits made it other markets are treated. That is why companies move to incorporate elsewhere and laws be damned many will do so. The US is in danger because other economies are growing in s size and it won't be long before being based elsewhere just makes sense not only because of taxation but because of local sales. Instead we have vindictive politicians who wonder why they are reviled many times over. Here's a hint, what they are willing to do to punish a company is a clear indication they respect nothing and no one and will and do use the law to punish those they don't like