7 ms·

So you are saying that rather than taxing the middle class more that we should simply make large corporations like Apple actually follow the existing tax laws?

So you are saying that rather than taxing the middle class more that we should simply make large corporations like Apple actually follow the existing tax laws? Owing to its source it doesn't sound like this idea is going to be popular on hacker news, in spite of its blatant rationality.

osteele 9y ago
My understanding of the economics (via popular-press reporting [1,2]) is that corporate taxes are effectively paid by workers and shareholders. In the case of Apple, many employees are high-income individuals. One way to tax them is to raise Apple's effective tax rate, by closing loopholes. Another would to move these individuals to a higher bracket, and tax them directly on income. The latter would allow the tax system to target only those employees who actually are high-income individuals. I don't know how that plays on Hacker News, but it doesn't seem to be politically feasible. Apple's individual investors are probably mostly high-net-worth individuals. (Apple might have more non-rich investors than a blue chip like GE does. I know quite a few middle class individuals whose only outside of funds are in APPL or TSLA. They have brand loyalty even if [with TSLA] they don't own the product. It's like playing fantasy football.) (The individual investors with the greatest number of shares are super-high-net-worth, of course[3].) To a progressive, it seems fair to tax them more, which taxing Apple effectively does. Those individuals aren't going to pay taxes on stock appreciation unless the capital gains exemption is rolled back. Now that Apple is paying dividends instead of just appreciating, raising the income bracket could be an alternative to closing the loophole. My understanding is that institutional investors in general are largely funds, endowments, and pensions. Apple seems to be mostly funds[4]. Funds are probably held by middle and middle-upper class individuals with mutuals or indices in their portfolios. (The poor don't own stocks. The rich own them directly.) The loophole benefits them. [Big disclaimer: I'm a novice in how to interpret this, and I wouldn't be surprised to be wrong.] [1] "Who Pays the Corporate Income Tax", Bruce Bartlett, New York Times, Feb 19, 2013. https://economix.blogs.nytimes.com/2013/02/19/who-pays-the-corporate-income-tax/?_r=0 https://economix.blogs.nytimes.com/2013/02/19/who-pays-the-c... [2] "Who Ultimately Pays the Corporate Income Tax?", Uwe E. Reinhardt (Economics @ Princeton), New York Times, July 23, 2010. https://economix.blogs.nytimes.com/2010/07/23/who-ultimately-pays-the-corporate-income-tax/ https://economix.blogs.nytimes.com/2010/07/23/who-ultimately... [3] "Top Apple Shareholders for 2017", John Edwards, Investopedia, October 6, 2017. http://www.investopedia.com/articles/markets/120115/top-5-apple-shareholders.asp http://www.investopedia.com/articles/markets/120115/top-5-ap... [4] "Apple Inc. Institutional Ownership", NASDAQ. http://www.nasdaq.com/symbol/aapl/institutional-holdings http://www.nasdaq.com/symbol/aapl/institutional-holdings
deadmetheny 9y ago
>it doesn't sound like this idea is going to be popular on hacker news, in spite of its blatant rationality An hour later, this statement is proven hilariously accurate given the number of "rules as written having loopholes doesn't mean anyone's breaking the law" replies to this post.
- nautilus12 9y ago
  Right?
whatok 9y ago
Pretty sure Apple is following existing tax laws.
- PeterStuer 9y ago
  Pretty sure Apple and their 'class' is writing the existing tax laws.
  - abritinthebay 9y ago
    Apple has actually argued for better tax laws (that they'd pay more under!) but the problem here is that the US is absolutely a complete anomaly in how it handles this issue. It's literally cheaper for Apple to store the cash outside the US and then get loans for the money they can't bring into the country. That's just wacky. For a country that is incredibly pro-business and pro-corporate the USA is very strange on this front.
- mrguyorama 9y ago
  That depends if you believe tax law should be about checkboxes or about keeping to the spirit of giving back to the community that made you
  - koenigdavidmj 9y ago
    Yes, I prefer a law where I can take a possible action and judge by the text whether that action is legal or not, rather than always trying to avoid pissing off a fickle public, like trying to avoid waking a husband who drinks too much so you don't get a black eye.
    - sliverstorm 9y ago
      Except tax law is not always capable of being totally black and white. Have you ever had to work through small business or rental deductions on your taxes? Grey areas, grey areas everywhere, at least if you want to take all the deductions & credits you are entitled to. Nobody including the IRS can give you a black and white answer. (Repairs vs improvements, which are deducted differently, is a good toy example) Part of this I think may actually be intentional, to prevent the accidental creation of technically-legal-but-obviously-exploitative loophole tax strategies. If it's fuzzy, you have to weight your risk of audit, your ability to justify your choice, and so on. Anyway, in the corporate case there are also fundamentally difficult-to-define areas. For example: Company A transfers its global IP portfolio to Subsidiary B. B is incorporated in Ireland, but is controlled and managed by directors based in a low corporate tax jurisdiction such as Bermuda, the Cayman Islands or Andorra; crucially, under Irish law, this characteristic renders B tax resident in these havens and therefore subject to their relevant tax legislation. Subsequently, B grants licences to exploit the IP portfolio to Subsidiary C which is incorporated and tax resident in Ireland; it is this link between two Irish subsidiaries which yielded the name “Double Irish”. C is the actual operative unit of the Company A: it owns real estate, it employs workers, it exploits the IP portfolio, it sells advertising and collects payments, ultimately generating earnings. Nevertheless, C does not make profits, as it has to pay royalties to B for the IP licences; crucially, B pays very little corporate taxes because it is based in a tax haven. Thus this structure allows A to shift all profits emerging from its IP portfolio to a jurisdiction where they will not be subject to a significant rate of taxation. This scheme depends in part upon the ability of the company to set royalties and IP transfer costs at whatever they like, independent of the real value of the IP. Clearly this is not quite right, but what is the real value? Who determines it?
JumpCrisscross 9y ago
> we should simply make large corporations like Apple actually follow the existing tax laws Apple is in compliance with our tax laws. The laws, not Apple, are the underlying problem.
- specialist 9y ago
  Letter of the law vs the spirit. Play many board games? I have. With any sufficiently complicated ruleset, there are always cheats, exploits, holes. To have a good time together, players often agree to play in the spirit of the game, vs the literal rules.
- nautilus12 9y ago
  No, the spirit of the law is effectively being broken. Sidestepping the law does not constitute following it in my opinion. Laws are meant to be guidelines and legal precedent defines its true extent, you cannot make laws extensive enough to cover every scenario. If they make it illegal to offshore money then apple will simply find a way to establish a corporation on the moon. Its clearly demonstrable that they are going through great lengths to sidestep the law.
  - sliverstorm 9y ago
    This is like that lawsuit, I forget against whom, where the defendant was arguing he de facto didn't steal anything or commit any crimes because the server let him do it. (Nevermind he was exploiting the server) There are no bugs, only features?
  - charlesdm 9y ago
    it's hard enough to interpret the letter of the law sometimes (i.e. ambiguous situations). You might as well have random or no laws then if you have to reflect about the fact whether you're breaking the "spirit of the law". This would mean different things to different people, and things are complex enough as they are. Also, the spirit of the law argument seems more like a pass to politicians for doing crappy legislative work. If you make proper laws, this shouldn't be an issue.
  - 9y ago

osteele 9y ago

My understanding of the economics (via popular-press reporting [1,2]) is that corporate taxes are effectively paid by workers and shareholders. In the case of Apple, many employees are high-income individuals. One way to tax them is to raise Apple's effective tax rate, by closing loopholes. Another would to move these individuals to a higher bracket, and tax them directly on income. The latter would allow the tax system to target only those employees who actually are high-income individuals. I don't know how that plays on Hacker News, but it doesn't seem to be politically feasible. Apple's individual investors are probably mostly high-net-worth individuals. (Apple might have more non-rich investors than a blue chip like GE does. I know quite a few middle class individuals whose only outside of funds are in APPL or TSLA. They have brand loyalty even if [with TSLA] they don't own the product. It's like playing fantasy football.) (The individual investors with the greatest number of shares are super-high-net-worth, of course[3].) To a progressive, it seems fair to tax them more, which taxing Apple effectively does. Those individuals aren't going to pay taxes on stock appreciation unless the capital gains exemption is rolled back. Now that Apple is paying dividends instead of just appreciating, raising the income bracket could be an alternative to closing the loophole. My understanding is that institutional investors in general are largely funds, endowments, and pensions. Apple seems to be mostly funds[4]. Funds are probably held by middle and middle-upper class individuals with mutuals or indices in their portfolios. (The poor don't own stocks. The rich own them directly.) The loophole benefits them. [Big disclaimer: I'm a novice in how to interpret this, and I wouldn't be surprised to be wrong.] [1] "Who Pays the Corporate Income Tax", Bruce Bartlett, New York Times, Feb 19, 2013. https://economix.blogs.nytimes.com/2013/02/19/who-pays-the-corporate-income-tax/?_r=0 https://economix.blogs.nytimes.com/2013/02/19/who-pays-the-c... [2] "Who Ultimately Pays the Corporate Income Tax?", Uwe E. Reinhardt (Economics @ Princeton), New York Times, July 23, 2010. https://economix.blogs.nytimes.com/2010/07/23/who-ultimately-pays-the-corporate-income-tax/ https://economix.blogs.nytimes.com/2010/07/23/who-ultimately... [3] "Top Apple Shareholders for 2017", John Edwards, Investopedia, October 6, 2017. http://www.investopedia.com/articles/markets/120115/top-5-apple-shareholders.asp http://www.investopedia.com/articles/markets/120115/top-5-ap... [4] "Apple Inc. Institutional Ownership", NASDAQ. http://www.nasdaq.com/symbol/aapl/institutional-holdings http://www.nasdaq.com/symbol/aapl/institutional-holdings

deadmetheny 9y ago

>it doesn't sound like this idea is going to be popular on hacker news, in spite of its blatant rationality An hour later, this statement is proven hilariously accurate given the number of "rules as written having loopholes doesn't mean anyone's breaking the law" replies to this post.

nautilus12 9y ago
Right?

whatok 9y ago

Pretty sure Apple is following existing tax laws.

PeterStuer 9y ago
Pretty sure Apple and their 'class' is writing the existing tax laws.
- abritinthebay 9y ago
  Apple has actually argued for better tax laws (that they'd pay more under!) but the problem here is that the US is absolutely a complete anomaly in how it handles this issue. It's literally cheaper for Apple to store the cash outside the US and then get loans for the money they can't bring into the country. That's just wacky. For a country that is incredibly pro-business and pro-corporate the USA is very strange on this front.
mrguyorama 9y ago
That depends if you believe tax law should be about checkboxes or about keeping to the spirit of giving back to the community that made you
- koenigdavidmj 9y ago
  Yes, I prefer a law where I can take a possible action and judge by the text whether that action is legal or not, rather than always trying to avoid pissing off a fickle public, like trying to avoid waking a husband who drinks too much so you don't get a black eye.
  - sliverstorm 9y ago
    Except tax law is not always capable of being totally black and white. Have you ever had to work through small business or rental deductions on your taxes? Grey areas, grey areas everywhere, at least if you want to take all the deductions & credits you are entitled to. Nobody including the IRS can give you a black and white answer. (Repairs vs improvements, which are deducted differently, is a good toy example) Part of this I think may actually be intentional, to prevent the accidental creation of technically-legal-but-obviously-exploitative loophole tax strategies. If it's fuzzy, you have to weight your risk of audit, your ability to justify your choice, and so on. Anyway, in the corporate case there are also fundamentally difficult-to-define areas. For example: Company A transfers its global IP portfolio to Subsidiary B. B is incorporated in Ireland, but is controlled and managed by directors based in a low corporate tax jurisdiction such as Bermuda, the Cayman Islands or Andorra; crucially, under Irish law, this characteristic renders B tax resident in these havens and therefore subject to their relevant tax legislation. Subsequently, B grants licences to exploit the IP portfolio to Subsidiary C which is incorporated and tax resident in Ireland; it is this link between two Irish subsidiaries which yielded the name “Double Irish”. C is the actual operative unit of the Company A: it owns real estate, it employs workers, it exploits the IP portfolio, it sells advertising and collects payments, ultimately generating earnings. Nevertheless, C does not make profits, as it has to pay royalties to B for the IP licences; crucially, B pays very little corporate taxes because it is based in a tax haven. Thus this structure allows A to shift all profits emerging from its IP portfolio to a jurisdiction where they will not be subject to a significant rate of taxation. This scheme depends in part upon the ability of the company to set royalties and IP transfer costs at whatever they like, independent of the real value of the IP. Clearly this is not quite right, but what is the real value? Who determines it?

JumpCrisscross 9y ago

> we should simply make large corporations like Apple actually follow the existing tax laws Apple is in compliance with our tax laws. The laws, not Apple, are the underlying problem.

specialist 9y ago
Letter of the law vs the spirit. Play many board games? I have. With any sufficiently complicated ruleset, there are always cheats, exploits, holes. To have a good time together, players often agree to play in the spirit of the game, vs the literal rules.
nautilus12 9y ago
No, the spirit of the law is effectively being broken. Sidestepping the law does not constitute following it in my opinion. Laws are meant to be guidelines and legal precedent defines its true extent, you cannot make laws extensive enough to cover every scenario. If they make it illegal to offshore money then apple will simply find a way to establish a corporation on the moon. Its clearly demonstrable that they are going through great lengths to sidestep the law.
- sliverstorm 9y ago
  This is like that lawsuit, I forget against whom, where the defendant was arguing he de facto didn't steal anything or commit any crimes because the server let him do it. (Nevermind he was exploiting the server) There are no bugs, only features?
- charlesdm 9y ago
  it's hard enough to interpret the letter of the law sometimes (i.e. ambiguous situations). You might as well have random or no laws then if you have to reflect about the fact whether you're breaking the "spirit of the law". This would mean different things to different people, and things are complex enough as they are. Also, the spirit of the law argument seems more like a pass to politicians for doing crappy legislative work. If you make proper laws, this shouldn't be an issue.
- 9y ago