12 ms·

Or the US Congress could just change the law, close the loophole and require corporations to bring the money home anyway without any tax holidays...

charlesdm 9y ago
Or Apple could reincorporate abroad?
marcoperaza 9y ago
It seems that you're suggesting that we tax corporations on overseas income, even when reinvested overseas. That would put American companies at an extreme disadvantage compared to those from other countries, by forcing them to pay double taxes, US and foreign corporate taxes, on all income. The logical solution is to get rid of the corporate tax altogether. The only reason why it exists is to be a plank for politicians who want to tax the "greedy corporations." All corporate income is either paid as dividends, paid as salaries, or reinvested. When it is paid as dividends, it is taxed as capital gains. When it is paid as salaries, it is taxed as income. When it is reinvested, it is either lost, or eventually becomes income and capital gains. There is no need to have another layer of taxation that just makes a giant accounting mess and creates all sorts of ridiculous incentives to use tax shelters.
- jfoutz 9y ago
  That's fine, but all other things remaining equal, there's not as much revenue coming in. So, you need to raise capital gains tax and income tax in some proportion to retain the balance. Does that still seem easier? Alternatively, we could cut a bunch of spending, but that turns into its own dogfight.
  - marcoperaza 9y ago
    The corporate tax is actually a small (but not negligible) portion of tax revenue. Part of the logic for capital gains tax being lower than income tax is to account for the double taxation of the corporate tax. So I would be in favor of raising the capital gains tax to make up for eliminating the corporate tax. I also happen to think that taxes should be lower overall, but I think it’s best to divide the two issues: 1) how much we should be taxed, from 2) how we should be taxed.
valuearb 9y ago
We won’t do that because it’s terrible tax policy and would damage this country even more than our current bad corporate tax policy does.
lucio 9y ago
It depends, if you decide to tax them too much, they'll "just" change home.
ballenf 9y ago
David Mitchell makes an interesting argument regarding moral outrage against entities taking advantage of "loopholes". https://youtu.be/m2q-Csk-ktc?t=25s https://youtu.be/m2q-Csk-ktc?t=25s
seanmcdirmid 9y ago
So wait, wouldn’t that just mean an end to USA companies operating abroad as USA companies? Microsoft has to invest money in china for example, they just can repatriate profits from China willy nippy, and China would get pissed of about it. Also, might as well make SAP do it also, even if a German company, otherwise American companies can’t compete with them.
nautilus12 9y ago
You cannot close the loophole, they will just create another one. In cases like this we (meaning the judicial system and society as a whole) should be able to use judgement and just say that its clear they are creating these complex scenarios to avoid paying taxes.
snowwrestler 9y ago
How do you propose forcing a company to move money from one country to another?
joshmn 9y ago
Yeah but then they couldn't pay congress as much!
mistercow 9y ago
I'm always skeptical when someone precedes "close the loophole" with the word "just", especially when the entity searching for loopholes has hundreds of billions of dollars in cash. Closing loopholes is good, but they'll almost certainly find another one.
- solotronics 9y ago
  the company would likely relocate to bring business and money here, make the corporate tax rate very low (5%?) and have no writeoffs and no exemptions
- glenstein 9y ago
  I think once a loophole has been identified, it becomes a "just." But you are right that the trickier problem is with the more fundamental process of constantly searching for loopholes. If only we could "just" close that one, too.
  - wpietri 9y ago
    Yup. It's to some extent an adversarial process. But that's part of why we have a legislature all the time, rather than just relying on laws written decades ago. A fine example is wire fraud. Existing fraud laws didn't really cover it, and innovative criminals made extensive use of the loopholes until wire fraud was criminalized. (For those interested, the Yellow Kid's autobiography is a fun read. [1]) Same thing with any sort of security hole, really. We'll always have on-line attackers, but that's not a reason to give up. It's a reason to keep plugging holes and improving state of the art. [1] https://www.amazon.com/Yellow-Kid-Weil-Autobiography-Americas/dp/1849350213 https://www.amazon.com/Yellow-Kid-Weil-Autobiography-America...
- vidarh 9y ago
  The thing, though, is that their main "loophole" currently consists of "play chicken with the government until someone passes a tax holiday". If you make it clear there will never be a tax holiday, but that you will instead keep adjusting the rules to go after earnings withheld abroad, at some point the rational choice for them will be to bite the bullet and repatriate the income. As it is, the most rational choice for them is to keep waiting for that amnesty/tax holiday unless they badly need the cash.
slavik81 9y ago
What's your proposed rule that would close the loophole? I don't think it's actually possible.
- pjc50 9y ago
  "Any kind of business or financial transfer or ownership of assets or beneficiary interest in the Cayman Islands (Etc) is a criminal offence"?
  - 1123581321 9y ago
    The US reserves these kinds of hostile sanctions for its established enemies such as North Korea and Iran. In general, trade between nations should be encouraged, not blocked by economic nationalism.
  - slavik81 9y ago
    That's insufficient. Most of the world has a lower corporate tax rate than the United States. The Cayman Islands might be the most attractive place to park their funds, but pretty much anywhere would still be more attractive than bringing it to the US.
    - charlesdm 9y ago
      Lowering the US corporate tax rate to say 10 or 15% is the only reasonably feasible solution. Incentivize companies to book profits in the US. Then increase the dividend tax rate to compensate (depending on if this ends up being tax neutral or not -- it might very well be tax neutral given the extra profits that would be booked in the US)
      - slavik81 9y ago
        That's more or less what I would suggest. Though, I would probably put the rate at 25% and only tax domestic profits. That would bring US policy in line with the rest of the G7. Raising taxes on dividends and capital gains to make it revenue neutral is also a good idea. At the moment, tax policy basically penalizes companies bringing money earned in other countries home into the United States. It's stupid. Tax holidays are also stupid. Fix the problem at its heart.
glenstein 9y ago
Exactly. And it avoids the problem of losing tax revenue by creating an expectation of additional future tax holidays at regular intervals, incentivizing people to keep untaxed money offshore.
pjc50 9y ago
Indeed. Doing business with the tax havens is a choice in the same way that refusing to do business with Iran is a choice. The tax havens are almost all small islands that are dependent on food and fuel imports. Iran-level sanctions would collapse them in a week.
jjtheblunt 9y ago
No, they couldn't. The money belongs to foreign corporations also named Apple whatever. That little issue is purposefully glossed over for the sake of sensationalism to sell advertising, of course.
- kobeya 9y ago
  Treat income of any foreign company wholly owned or with substantially similar ownership structure of a domestic company as taxable income for that domestic company. I don't think this is a good idea; I'm just demonstrating that it's not impossible.
  - cc439 9y ago
    How do you define "domestic"? Is it a company that earns the majority of its revenues in your country? That won't work because Toyota is certainly not an American company but the US market represents the majority of their revenues. Is it a company that was founded in your country? That won't work because of companies like Airbus that are supranational in origin. Is it a company that is headquartered in your country? That won't work because a headquarters can be moved in a matter of months (look at how GE left CT for a more regional example).
    - kobeya 9y ago
      Domestic has a technical meaning: a company registered in a US state. To do business in the US you have to spin up a US company. Toyota USA would be taxed for global Toyota income. You could try to mitigate that by saying these rules only apply to companies whose ownership or control structure is more than 25% american, directly or indirectly. But yeah, these side effects are part of why I say I don’t agree with such a proposal.
- matt4077 9y ago
  Those foreign corporations named "Apple whatever" are owned, and controlled by "Apple Inc. (forever)". Such conglomerates are usually treated as one for tax purposes, which is why Apple and others can't just create 2500 shell companies each year to take advantage of various "startup" incentives across the world. That's the sort of knowledge journalists learn in journalism 101, before they advance to their seminar on "sensationalism and selling advertisement" and the group therapy session "some know-nothing on the internet thinks I have anything to do with the BBC's business side, completely ignoring that online advertisement is, like, 0.001% of the BBC's revenue and that, being one of x thousand people working for the BBC, and my articles' revenue going into one big pot with all the others', my personal future is almost completely devoid of anything resembling a link to my articles' readership numbers".
cmurf 9y ago
They could also get their thumbs out of their asses, but they won't.
notyourday 9y ago
If congress is to simplify the tax code to $rate = $rate->{calculate_bracket($amount_of_revenue)} then the members of congress would lose 99% of their net worth because there would be nothing special that is worth any money that the members of congress could do so they could reap some money for doing it. which is why this would never happen.

charlesdm 9y ago

Or Apple could reincorporate abroad?

marcoperaza 9y ago

It seems that you're suggesting that we tax corporations on overseas income, even when reinvested overseas. That would put American companies at an extreme disadvantage compared to those from other countries, by forcing them to pay double taxes, US and foreign corporate taxes, on all income. The logical solution is to get rid of the corporate tax altogether. The only reason why it exists is to be a plank for politicians who want to tax the "greedy corporations." All corporate income is either paid as dividends, paid as salaries, or reinvested. When it is paid as dividends, it is taxed as capital gains. When it is paid as salaries, it is taxed as income. When it is reinvested, it is either lost, or eventually becomes income and capital gains. There is no need to have another layer of taxation that just makes a giant accounting mess and creates all sorts of ridiculous incentives to use tax shelters.

jfoutz 9y ago
That's fine, but all other things remaining equal, there's not as much revenue coming in. So, you need to raise capital gains tax and income tax in some proportion to retain the balance. Does that still seem easier? Alternatively, we could cut a bunch of spending, but that turns into its own dogfight.
- marcoperaza 9y ago
  The corporate tax is actually a small (but not negligible) portion of tax revenue. Part of the logic for capital gains tax being lower than income tax is to account for the double taxation of the corporate tax. So I would be in favor of raising the capital gains tax to make up for eliminating the corporate tax. I also happen to think that taxes should be lower overall, but I think it’s best to divide the two issues: 1) how much we should be taxed, from 2) how we should be taxed.

valuearb 9y ago

We won’t do that because it’s terrible tax policy and would damage this country even more than our current bad corporate tax policy does.

lucio 9y ago

It depends, if you decide to tax them too much, they'll "just" change home.

ballenf 9y ago

David Mitchell makes an interesting argument regarding moral outrage against entities taking advantage of "loopholes". https://youtu.be/m2q-Csk-ktc?t=25s https://youtu.be/m2q-Csk-ktc?t=25s

seanmcdirmid 9y ago

So wait, wouldn’t that just mean an end to USA companies operating abroad as USA companies? Microsoft has to invest money in china for example, they just can repatriate profits from China willy nippy, and China would get pissed of about it. Also, might as well make SAP do it also, even if a German company, otherwise American companies can’t compete with them.

nautilus12 9y ago

You cannot close the loophole, they will just create another one. In cases like this we (meaning the judicial system and society as a whole) should be able to use judgement and just say that its clear they are creating these complex scenarios to avoid paying taxes.

snowwrestler 9y ago

How do you propose forcing a company to move money from one country to another?

joshmn 9y ago

Yeah but then they couldn't pay congress as much!

mistercow 9y ago

I'm always skeptical when someone precedes "close the loophole" with the word "just", especially when the entity searching for loopholes has hundreds of billions of dollars in cash. Closing loopholes is good, but they'll almost certainly find another one.

solotronics 9y ago
the company would likely relocate to bring business and money here, make the corporate tax rate very low (5%?) and have no writeoffs and no exemptions
glenstein 9y ago
I think once a loophole has been identified, it becomes a "just." But you are right that the trickier problem is with the more fundamental process of constantly searching for loopholes. If only we could "just" close that one, too.
- wpietri 9y ago
  Yup. It's to some extent an adversarial process. But that's part of why we have a legislature all the time, rather than just relying on laws written decades ago. A fine example is wire fraud. Existing fraud laws didn't really cover it, and innovative criminals made extensive use of the loopholes until wire fraud was criminalized. (For those interested, the Yellow Kid's autobiography is a fun read. [1]) Same thing with any sort of security hole, really. We'll always have on-line attackers, but that's not a reason to give up. It's a reason to keep plugging holes and improving state of the art. [1] https://www.amazon.com/Yellow-Kid-Weil-Autobiography-Americas/dp/1849350213 https://www.amazon.com/Yellow-Kid-Weil-Autobiography-America...
vidarh 9y ago
The thing, though, is that their main "loophole" currently consists of "play chicken with the government until someone passes a tax holiday". If you make it clear there will never be a tax holiday, but that you will instead keep adjusting the rules to go after earnings withheld abroad, at some point the rational choice for them will be to bite the bullet and repatriate the income. As it is, the most rational choice for them is to keep waiting for that amnesty/tax holiday unless they badly need the cash.

slavik81 9y ago

What's your proposed rule that would close the loophole? I don't think it's actually possible.

pjc50 9y ago
"Any kind of business or financial transfer or ownership of assets or beneficiary interest in the Cayman Islands (Etc) is a criminal offence"?
- 1123581321 9y ago
  The US reserves these kinds of hostile sanctions for its established enemies such as North Korea and Iran. In general, trade between nations should be encouraged, not blocked by economic nationalism.
- slavik81 9y ago
  That's insufficient. Most of the world has a lower corporate tax rate than the United States. The Cayman Islands might be the most attractive place to park their funds, but pretty much anywhere would still be more attractive than bringing it to the US.
  - charlesdm 9y ago
    Lowering the US corporate tax rate to say 10 or 15% is the only reasonably feasible solution. Incentivize companies to book profits in the US. Then increase the dividend tax rate to compensate (depending on if this ends up being tax neutral or not -- it might very well be tax neutral given the extra profits that would be booked in the US)
    - slavik81 9y ago
      That's more or less what I would suggest. Though, I would probably put the rate at 25% and only tax domestic profits. That would bring US policy in line with the rest of the G7. Raising taxes on dividends and capital gains to make it revenue neutral is also a good idea. At the moment, tax policy basically penalizes companies bringing money earned in other countries home into the United States. It's stupid. Tax holidays are also stupid. Fix the problem at its heart.

glenstein 9y ago

Exactly. And it avoids the problem of losing tax revenue by creating an expectation of additional future tax holidays at regular intervals, incentivizing people to keep untaxed money offshore.

pjc50 9y ago

Indeed. Doing business with the tax havens is a choice in the same way that refusing to do business with Iran is a choice. The tax havens are almost all small islands that are dependent on food and fuel imports. Iran-level sanctions would collapse them in a week.

jjtheblunt 9y ago

No, they couldn't. The money belongs to foreign corporations also named Apple whatever. That little issue is purposefully glossed over for the sake of sensationalism to sell advertising, of course.

kobeya 9y ago
Treat income of any foreign company wholly owned or with substantially similar ownership structure of a domestic company as taxable income for that domestic company. I don't think this is a good idea; I'm just demonstrating that it's not impossible.
- cc439 9y ago
  How do you define "domestic"? Is it a company that earns the majority of its revenues in your country? That won't work because Toyota is certainly not an American company but the US market represents the majority of their revenues. Is it a company that was founded in your country? That won't work because of companies like Airbus that are supranational in origin. Is it a company that is headquartered in your country? That won't work because a headquarters can be moved in a matter of months (look at how GE left CT for a more regional example).
  - kobeya 9y ago
    Domestic has a technical meaning: a company registered in a US state. To do business in the US you have to spin up a US company. Toyota USA would be taxed for global Toyota income. You could try to mitigate that by saying these rules only apply to companies whose ownership or control structure is more than 25% american, directly or indirectly. But yeah, these side effects are part of why I say I don’t agree with such a proposal.
matt4077 9y ago
Those foreign corporations named "Apple whatever" are owned, and controlled by "Apple Inc. (forever)". Such conglomerates are usually treated as one for tax purposes, which is why Apple and others can't just create 2500 shell companies each year to take advantage of various "startup" incentives across the world. That's the sort of knowledge journalists learn in journalism 101, before they advance to their seminar on "sensationalism and selling advertisement" and the group therapy session "some know-nothing on the internet thinks I have anything to do with the BBC's business side, completely ignoring that online advertisement is, like, 0.001% of the BBC's revenue and that, being one of x thousand people working for the BBC, and my articles' revenue going into one big pot with all the others', my personal future is almost completely devoid of anything resembling a link to my articles' readership numbers".

cmurf 9y ago

They could also get their thumbs out of their asses, but they won't.

notyourday 9y ago

If congress is to simplify the tax code to $rate = $rate->{calculate_bracket($amount_of_revenue)} then the members of congress would lose 99% of their net worth because there would be nothing special that is worth any money that the members of congress could do so they could reap some money for doing it. which is why this would never happen.