7 ms·
How Corporations and the Wealthy Avoid Taxes (and How to Stop Them)
- deleted 9y ago[deleted]
- xupybd 9y agoI wish these sorts of things would come into focus more often in politics. This should get bipartisan support, this should bring equality in a way that every side should agree on. I'm on the far right economically but really think tax law is not working, now that companies can distribute operations internationally. As such many of the benefits markets bring to the world are offset by global corporations skating the tax system and get advantages that are only due to their scale and do not add any efficiency. A country should have the ability to lower corporate rates so they attract more business. But they gain nothing if they're just attracting shell companies that simply stash money. They need business to move in that offer jobs and wealth creation. I doubt those on the left would agree with me on the finer points, but I'm sure they want to see these companies paying their fair share. So why is this not being dealt with?
- jjoonathan 9y agoWe fund our political campaigns by selling policy concessions. The result is an unintended but highly effective "mandatory bribery policy." Campaign finance reform is a prerequisite for any policy that goes against the interest of any concentrated pool of wealth.
- Judgmentality 9y ago> So why is this not being dealt with? I assume because people with money do not want to pay more taxes, and people with money find lobbying has an excellent ROI.
- AstralStorm 9y agoNot to mention actual politicians take advantage of these loopholes at time. In a bipartisan way.
- IncRnd 9y ago> So why is this not being dealt with? It's talked about and being dealt with constantly! President Bush had a repatriation holiday for lowered taxes of repatriated capital. President Obama tried to get assets repatriated. President Trump's tax plan has a lower corporate tax rate in order to stop the movement of capital to lower tax jurisdictions. Also, this plan attempts to close this offshoring move, for multinationals, by requiring the repatriation of assets. There are valid reasons that so many companies decide to offshore profits to a lower tax jurisdiction from what is onerous taxation by the US.
- AstralStorm 9y agoNone of the above attempts to wage war (militarily if need be) on the actual tax havens. These only attempt to provide incentives that are not even close to comparable to 0 tax rate you can get.
- IncRnd 9y ago> None of the above attempts to wage war (militarily if need be) on the actual tax havens. Wage a military war against tax havens? Is that in an attempt to obtain other people's money? I don't think you really understand the issue. Tax avoidance is, by definition, legal in the US. Tax evasion is the problem. If you don't know today who is engaging in tax evasion, how will military strikes on Ireland and Bermuda ferret those people out and make them pay? Do you have the particular law offices and bank locations mapped out on GPS to strike with tomahawks?
- marcoperaza 9y agoI posted this in another thread recently, but I think it’s worth repeating here: We’re really better off eliminating the corporate tax altogether. It’s a pretty small portion of tax revenue and the only reason 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.
- elango 9y agoIndividuals also create corporates to spend money, i can create a single owner entity and spend money like i am from my personal bank account
- marcoperaza 9y agoPeople do it, but it’s not legal. The corporate funds are for the corporation’s purposes. If you need the money for personal purposes, you’re supposed to take a distribution or pay yourself a salary. If you get caught doing otherwise, you’ll owe the IRS all of the back taxes and some hefty penalties.
- AstralStorm 9y agoWhat if you pay yourself a salary in Caimans? Here is the problem.
- hkmurakami 9y agoexpensing items that aren't actually for your business activities is tax fraud.
- AstralStorm 9y agoWhich you cannot prosecute easily thanks to some of the loopholes mentioned in the post itself.
- aliasxneo 9y agoHow do we know the money gained by these fixes is going to be used any better than had the government not gained them?
- cheez 9y agoGood question. I assume it would be proportionally spent as documented here: https://usafacts.org/ https://usafacts.org/
- _red 9y agoAre you against having TSA at train stations and mall entrances? Also against more bailouts for ultra-rich financial companies? tsk tsk. /s
- aliasxneo 9y agoYou can believe in good uses of tax money and still question whether the government has too much money or routinely mishandles it. Am I missing your point?
- eli_gottlieb 9y agoWho cares? Criminals should be made to stop dodging their taxes.
- _red 9y agoThe funny thing is, if the tax rate was much lower - say 15% - there would be no incentive for "tax planning" described in article (which is legal, of course). The expense for all those accountants, lawyers, lobbyist, and inefficiencies caused by artificially shuffling money around would outweigh just paying the 10-15% tax bill. Semi-relatedly: Why do you think religions for eons have set the tithe rate to be approx 10%? Seems like history has worked out a rate that most people are comfortable paying.
- robert_foss 9y ago15% is still more than 0%+overhead depending on the total amount we're talking about. Should only the very biggest player, to whom the overhead is inconsequential, be allowed to avoid taxes?
- _red 9y agoYour assumption is that the overhead is only a "one-time cost", but its never going to be that simple. Most of the time there are a multiplicity of overlapping cost; Opportunity cost (you have your money safely in a tax-haven, but now to move it out for legitimate production use has another cost and associated accountant / lawyer overhead). Or simply ongoing inefficiencies - You've opened an office in Country Z because doing so allows you to save on taxes in your main area of Country A, but the truth is you have no real need for an office in Country Z - its simply an ongoing and perhaps ever growing cost subject to a whole new need for budget forecasting, currency fluctuations, etc. I have no idea what the number is, but currency fluctuations alone could make a corporation decide to simply pay their 15% and escape headaches and split brainpower, trim staff of lawyers, consolidate offices, etc. Now, if the corporate tax rate is 36+% well, thats a different story.
- sheeshkebab 9y agoI have no simpathy for these ultrarich dipshits and their companies that think that they are better than the rest of us. They'll probably get what they deserve eventually.
- limeblack 9y ago
- u801e 9y agoIf we were to move away from an income based tax system to a sales or VAT based tax system, would it address some of the issues noted in the article? Edit: s/\./?/
- hamandcheese 9y agoSales tax results in the poor and middle class paying vastly higher tax rates as a percentage of their income compared to the rich.
- u801e 9y agoIf we were to exempt things like food and rent from the tax, then that may address that issue to some extent. Regardless, the rich do tend to spend a lot more money compared to the middle class or poor.
- hamandcheese 9y agoIf you’re going to make arguments like that though it’d be easier to just keep things the same. Yes, the rich pay way more taxes in absolute terms but equal or less in relative terms.
- u801e 9y ago> If you’re going to make arguments like that though it’d be easier to just keep things the same. For the government and businesses, that may be true, but if taxes were sales/VAT based instead of income based, then it would remove a significant burden from individuals (since they would no longer have to file taxes every year).
- hamandcheese 9y agoTrue, never thought of that!
- EddieRingle 9y ago
- seibelj 9y agoI work with and know a lot of left-wing people, and cutting the corporate tax rate is anathema to them. But the only people who pay 35% corporate tax are small and medium sized businesses! Once you get big enough, you can afford professionals to optimize your business for tax planning. The smaller guys don't have the time or the funds to do so. So in reality, the 35% tax rate is yet another moat that keeps large companies entrenched. By lowering to (say) 15%, the playing field would be drastically more equal.
- xupybd 9y agoWhile agree that lower rates would help and are fundamentally a better idea. I also think that it should not be legal to avoid these taxes in the current way. In order for the system to work these loopholes need to be closed. The market is based on the survival of the fittest and taxes can really distort things if not applied consistently. I think this is the key reason we need to solve this problem. Not to collect more from the rich but to make sure large international companies do not have an advantage based on their ability to hide funds offshore.
- Veratyr 9y ago> make sure large international companies do not have an advantage based on their ability to hide funds offshore The problem with this is that most international companies I've seen with funds offshore made that money offshore and ultimately, the cost of paying US taxes is unlikely to be worth the negligible benefit of being a US company. If the loopholes are closed I think it likely that companies will move. There are plenty of places with free trade and low tax. The US should limit taxation to US-sourced income. If there's no penalty for a company to bring its revenues to the US, it will likely do so and use it to drive local investment.
- lz400 9y agoYes but that's like "losing the war". Who's telling you the next goal isn't going to be 5%? now they'll know the government caves in if you do enough financial/fiscal engineering. I don't know that it won't be ultimately the only way but I think we can do better and hold those companies accountable. But its a global problem that needs a global solution.
- elango 9y agoAre publicly traded companies not obligated to disclose profits and expenses, doesn't auditing help cover theses irregularities
- dogruck 9y agoThis op-ed conveniently ignores several important aspects of reality. 1. Agency of sovereign nations. Ireland, and other countries, set low tax rates to attract businesses. That’s their prerogative. 2. Revisionist history. After a company moves to capitalize on the offered low tax rates, people start screaming, “hey, look at all the taxes being avoided because the company did exactly what the country wanted them to do!” 3. Obligation to shareholders. Corporations are not philanthropic charities. They are required, by law, to try to maximize returns. It would be illegal, for example, for Apple’s executives to charitably repatriate their money and pay taxes — they would get sued by the shareholders, and they’d lose. 4. Side-effects of complicated tax laws. Every time a politician proposes a new tax increase, other politicians scream, and they all seek a compromise. They successfully compromise by inserting loopholes into the new tax. Then, predictably, people take advantage of those loopholes.
- karmajunkie 9y ago> 3. Obligation to shareholders. Corporations are not philanthropic charities. They are required, by law, to try to maximize returns. It would be illegal, for example, for Apple’s executives to charitably repatriate their money and pay taxes — they would get sued by the shareholders, and they’d lose. No, they wouldn't, because contrary to popular belief, that's not actually a law. Please cite which US statute you're referring to if you'd like to refute me.
- dogruck 9y agoYou’re correct that my language is too loose there. Here’s what would happen: 1. Apple would declare that they are repatriating the money. 2. The shareholders would disagree. They would sue, claiming that the company’s directors are obligated to do what’s best for the corporation. The shareholders would vote to replace the board, and the newly elected board would replace management. The threat of #2 prevents #1.
- karmajunkie 9y agoYou're making some pretty ridiculous presumptions there. All Apple would have to do is pay a sizable dividend as one of the purposes of repatriation and any shareholder angst would evaporate.
- md224 9y ago> A potential fix would be to allocate the taxable profits made by multinationals proportionally to the amount of sales they make in each country. > A system similar to this already governs state corporate taxes in America. Really? I thought Delaware was still a tax haven...
- thisisit 9y agoAs much as the morality of tax avoidance has to be discussed, this article is confusing at best. The 2nd paragraph says (emphasis mine): > Meanwhile, an estimated $8.7 trillion, 11.5 percent of the entire world’s G.D.P., is held offshore by ultrawealthy households in a handful of tax shelters, and most of it isn’t being reported to the relevant tax authorities. This is… not so legal. Then later after the Google example: > In doing this, Google didn’t break the law.
- discoursism 9y agoPresumably the "this is not so legal" refers to the "most of it isn't being reported to the relevant tax authorities," not the "is held offshore."
- IncRnd 9y agoThe law isn't that offshore corporations are illegal but that offshore corporations controlled by US citizens are required to be reported to the IRS.
- topmonk 9y agoI'm surprised the article didn't mention CRUTs (Charitable Remainder UniTrusts). The idea here is that you "donate" an asset that has immense unrealized capital gains taxes attached to it. The donation sits in a trust, that pays you back a certain percentage every year until you die. Once that happens the remainder goes to a charity of your choosing. The benefit of it is the following: 1. You aren't taxed on any of the unrealized gains the asset had when you donated it. 2. The trust receives tax free growth. 3. You are taxed on the percentage you get back using something called the four tier rules of CRUT taxation (explained further here: http://floridadomicilehandbook.com/2009/12/11/the-four-tier-rules-of-crut-taxation/ http://floridadomicilehandbook.com/2009/12/11/the-four-tier-...). Basically, any money you take from the interest is taxable, but the principle is not. 4. You get a tax deduction for the full amount (which can be spread over 5 years. For each year, up to 30% or 50% of your AGI can be deducted, depending on whether the original investment was long term or not) It sounds fair, but in reality it's easily gamed. You just take out the highest percentage you are allowed each year, and invest in the safest low-earning investments possible. In this way, most of what you pull out is principle, which isn't taxed at all. Given that and the fact that you can deduct the donation from your other income, you can, in effect, pay negative taxes on it. More info can be found here: https://en.wikipedia.org/wiki/Charitable_trust#United_States https://en.wikipedia.org/wiki/Charitable_trust#United_States It's a lot better than it used to be. In 1997, congress cracked down on it, (http://www.mclaughlinstern.com/docs/publications/pub_kosakow_16_new_proposed_regulations_challenge_accerlerated_charitable_remainder_trusts.pdf http://www.mclaughlinstern.com/docs/publications/pub_kosakow...) but it's still a mighty windfall if you're looking to store some of your wealth in safe investments.
- ivan_ah 9y agoInteresting picture showing corporate tax income relative to other sources in federal budget: https://upload.wikimedia.org/wikipedia/commons/f/fa/Share_of_Federal_Revenue_from_Different_Tax_Sources_%28Individual%2C_Payroll%2C_and_Corporate%29_1950_-_2010.gif https://upload.wikimedia.org/wikipedia/commons/f/fa/Share_of...
- cletus 9y agoI've given this a lot of thought and I'm increasingly concerned that this is an existential threat to society as we know it. Being able to legally avoid tax by allocating it to zero or low tax states is obviously one problem. The fact that US politics is bought and paid for by a small number of very rich interests is actually a bigger problem (since that diminishes the chance of the first problem being fixed). But the biggest problem is the increasingly ultra-wealthy who feel no obligation to pay any tax whatsoever to contribute to maintaining the infrastructure, stability and government services that made their wealth possible. Extreme wealth simply isn't possibly in anarchy. I favour a number of reforms here: 1. Allocates profits by sales in each country. Now this isn't as easy as it sounds as the obvious next step is to create holding companies to mark up sales (ie transfer pricing). 2. Every $1 borrowed in the US repatriates $1 of profit held overseas. This should include borrowing money overseas and repatriating it to the US. 3. Companies that are substantially present in the US should be treated the same as citizens: you report worldwide income and pay US taxes on it all with credits for any taxes paid overseas. Such things like a "substantial presence test" are common and well-travelled ground in the law. 4. Charge withholding taxes on any money being transferred to any entity in any jurisdiction that doesn't report or disclose ownership. Being able to hide ownership behind CAyman Islands corporations, Panama foundations, Panama bearer corporations, Swiss holding companies and the like is a cancer. Make the entity transferring to such an entity responsible for the withholding tax. This can be simplified by creating what's essentially a Schengen area for money. Create a zone of countries that all abide by rules on ownership disclosure and reporting that you can transfer easily between. Leaving that incurs a cost. As the article notes, banks can and do violate their reporting responsibilities here. Fine. Just remove that country from the zone and suddenly all transactions to that country incur a withholding tax. I personally applaud the leakers and whistleblowers who have brought much of this information to light.
- gbacon 9y agoPerhaps you should consider that you are not paying your fair share. You need to make more money so more can be taken from you in order to meet what is in your own words an existential threat.
- CryptoPunk 9y agoEventually high income producers are going to have to emigrate to countries that are more respectful of their privacy and private property rights. Western democracies are going to get increasingly authoritarian, as voters, the majority of whom favour social democratic policies, call for increasingly harsher laws against privacy and tax avoidance, in reaction to the inevitable stories of individuals and corporations attempting to avoid the tax burden placed on them. We've gone from a tax rate of less than 10% on the top income tax bracket, with the first income tax passed in 1799 to support Great Britain's war against France, to today, where in many countries 50% of people's income is taxed during peacetime.