6 ms·

Maybe this is a silly question, but why don't we just lower the corporate tax rate significantly (maybe 10 or 15%), and make the use of tax havens illegal? I'l

by tcfunk 8y ago

Maybe this is a silly question, but why don't we just lower the corporate tax rate significantly (maybe 10 or 15%), and make the use of tax havens illegal? I'll bet 10% of $17bil is still quite a bit more than whatever Google paid in US taxes that same year. Is it because "making the use of tax havens illegal" is hard/impossible?

ThrustVectoring 8y ago
In the ideal world, corporate tax rates and taxes on investment income are zero. Google et al should be paying taxes on its earnings when it spends it on compensating employees, buying equipment for their offices, renting office space, etc.
- mattmanser 8y ago
  Without any explanation of why this is ideal, this just comes across as a way of rewarding the rich 'land holders' and forcing the tax burden on the poor. What the logic behind this 'ideal'?
  - ThrustVectoring 8y ago
    Investment is, broadly speaking, how individuals use current production to fund future consumption. Investment taxes are a tax on future consumption over and above taxes on current consumption, creating a distortionary effect.
  - leetcrew 8y ago
    i don't intend to argue GP's point for them, but it is important to be aware of the difference between paying a tax and actually bearing the burden of that tax. if (hypothetically) you increase some tax by 5% and all the companies raise their prices by 5%, you might end up with a situation where the companies "pay" the tax, but it entirely comes from the pockets of consumers. this is called tax incidence, and you can read more about it here: https://en.wikipedia.org/wiki/Tax_incidence https://en.wikipedia.org/wiki/Tax_incidence the corporate tax is actually very controversial among economists. it seems like a straightforward case of "making the big corps pay", but there is very little consensus as to who ultimately foots the bill for this type of tax.
    - ThrustVectoring 8y ago
      Agreed. This is one of the reasons why a land-value tax is so good, in my opinion. Pretty much all of the burden of the tax is placed on landlords - if they could raise rents, they'd have already done so, so the tax pretty much entirely comes from the unearned value generated by holding the right to use a piece of land.
      - leetcrew 8y ago
        LVT is very appealing from the theoretical perspective. i would very much like to see it play out at scale somewhere. unfortunately, while it is fairly easy to add new taxes, you rarely see a new tax substituted for an old one.
- lovich 8y ago
  Why should corporate taxes be zero but employee compensation should be taxed?
  - ThrustVectoring 8y ago
    We want corporations to use current funds to generate future positive cash flows. Stuffing a corporation full of money to get their preferential tax treatment is pretty much pointless when it gets taxed anyways when it gets used.
dbatten 8y ago
Yes, making the use of tax havens illegal is very hard. It's basically a giant game of whack-a-mole, where the corporations have more people with stronger incentives working to get around the tax laws than the government has trying to write new ones. Here's a fun explanation of the kinds of hoops corporations will jump through to dodge taxes: https://en.wikipedia.org/wiki/Double_Irish_arrangement https://en.wikipedia.org/wiki/Double_Irish_arrangement
- grasshopperpurp 8y ago
  >where the corporations have more people with stronger incentives working to get around the tax laws than the government has trying to write new ones. If the penalties were harsh enough, wouldn't it change this dynamic?
  - freeone3000 8y ago
    The problem isn't that large companies are doing illegal things with taxes and aren't getting caught for tax evasion, it's that they structure arrangements in such a way that are legal but problematic, and as soon as a problematic method of doing business outlawed, a new one is put into place.
- gaius 8y ago
  Here's a fun explanation of the kinds of hoops corporations will jump through You're missing one piece of the puzzle: the Irish government is fully complicit in all this, with a "beggar thy neighbour" strategy to cream off taxes from their supposed partners and allies.
jaredklewis 8y ago
> Is it because "making the use of tax havens illegal" is hard/impossible? It is at the very least hard. How would the law work? Will it be illegal for a company to sell/transfer their intellectual property to a company in the Caribbean? Will it be illegal for that company to license intellectual property to a company in the US? Everyone feels they can recognize tax evasion when they see it, but to come up with a set of quantitative tests that can be applied fairly is difficult. Being able to apply the law consistently is essential, as the government will picking market winners and losers if they let some companies get away with tax evasion but not others. One of my biggest criticisms of income tax is that it is such a nightmare to implement fairly as income is very fungible.
- tomp 8y ago
  > Will it be illegal for a company to sell/transfer their intellectual property to a company in the Caribbean? Why not? I'm sure the tax havens would be very quick to adopt sensible tax rates to stop the ban.
  - jaredklewis 8y ago
    The first problem with this is the same race to the bottom you have with corporate tax rates in general. If only one country, the US for example, creates such a law, that would give corporations a massive incentive to create their intellectual property outside of the US. I imagine that pretty much all global companies would gradually move to produce all of their intellectual property outside the US so as to avoid such restrictions. This would in turn be a huge windfall to other countries and a major detriment to the US economy. So you need all countries to coordinate on this front. I also don't see how the ban would encourage the Caribbean to adopt "sensible" tax rates. In the Bahamas, Bermuda, Cayman Islands, or the Virgin Islands, the corporate tax is already zero. Not sure how much leverage such a ban would actually have over these countries. The second problem is in the actual legislation. How is the law going to be written? Is it going to be a fixed list of countries that congress must update? Any country with a 0% tax rate? A new FTC style body that adjudicates which countries are "tax havens?" Because all of these can be circumvented with just a little elbow grease. The final problem is enforcement. Can intellectual property be sold to other countries in the US? Can those companies be sold to foreign companies? If a US company is a acquired by a foreign company, could that company then not license software to US companies? Are all transactions between US and foreign companies going to be individually monitored? Because that is a lot of work, and if you don't do that, it's very difficult to enforce the law. Basically, if someone was to sit down with the specific goal of designing a tax that could be easily evaded, they would come up with the income tax. Personally, I feel it's better if we adopt taxes that are more easily enforced and more progressive than the income tax. But for some reason, the corporate income tax remains relatively popular with politicians and voters around the developed world.
phkahler 8y ago
>> Maybe this is a silly question, but why don't we just lower the corporate tax rate significantly (maybe 10 or 15%), and make the use of tax havens illegal? We should do only one of those things. Every person should incorporate themselves and do what the big guys do.
- kennxfl 8y ago
  Individuals cannot register their "intellectual property" to another jurisdiction other than the one they operate in right?
  - solotronics 8y ago
    You can create an LLC pretty easily and transfer any of your IP to it.
    - mirimir 8y ago
      Maybe so. But I suspect that individuals who attempted profit shifting would quickly get nailed for tax evasion.
woodpanel 8y ago
Playing devil's advocat here: Tax havens exist because 1) Nation states are their own sovereigns. Judging from that humans usually support things like the united nations and the law of nations, that will always include their sovereignity over their tax-design. 2) international flow of money is usually desired and thus encouraged. If you can afford to limit the flow to your country, fine. But less fortunate might be hard to convince to decline the benefits of it. 3) The more money you can spend on tax-lawyers, the more likely you are to be able to design your tax burden more efficiently around your needs (needs meaning your business objective + less taxes) Also IMHO it's fair to say that the more complex a country's tax code, the higher the income-inequality in terms of access to tax-rate-optimum.
zipwitch 8y ago
That would eliminate a competitive advantage that large companies receive against their tiny bretheren.
opportune 8y ago
Tax havens are tax havens for a reason. The only way to stop the Cayman Islands from being a tax haven would be picking a fight with the UK This a solution which is easy to explain, but hard to implement.

by tcfunk 8y ago

ThrustVectoring 8y ago

In the ideal world, corporate tax rates and taxes on investment income are zero. Google et al should be paying taxes on its earnings when it spends it on compensating employees, buying equipment for their offices, renting office space, etc.

mattmanser 8y ago
Without any explanation of why this is ideal, this just comes across as a way of rewarding the rich 'land holders' and forcing the tax burden on the poor. What the logic behind this 'ideal'?
- ThrustVectoring 8y ago
  Investment is, broadly speaking, how individuals use current production to fund future consumption. Investment taxes are a tax on future consumption over and above taxes on current consumption, creating a distortionary effect.
- leetcrew 8y ago
  i don't intend to argue GP's point for them, but it is important to be aware of the difference between paying a tax and actually bearing the burden of that tax. if (hypothetically) you increase some tax by 5% and all the companies raise their prices by 5%, you might end up with a situation where the companies "pay" the tax, but it entirely comes from the pockets of consumers. this is called tax incidence, and you can read more about it here: https://en.wikipedia.org/wiki/Tax_incidence https://en.wikipedia.org/wiki/Tax_incidence the corporate tax is actually very controversial among economists. it seems like a straightforward case of "making the big corps pay", but there is very little consensus as to who ultimately foots the bill for this type of tax.
  - ThrustVectoring 8y ago
    Agreed. This is one of the reasons why a land-value tax is so good, in my opinion. Pretty much all of the burden of the tax is placed on landlords - if they could raise rents, they'd have already done so, so the tax pretty much entirely comes from the unearned value generated by holding the right to use a piece of land.
    - leetcrew 8y ago
      LVT is very appealing from the theoretical perspective. i would very much like to see it play out at scale somewhere. unfortunately, while it is fairly easy to add new taxes, you rarely see a new tax substituted for an old one.
lovich 8y ago
Why should corporate taxes be zero but employee compensation should be taxed?
- ThrustVectoring 8y ago
  We want corporations to use current funds to generate future positive cash flows. Stuffing a corporation full of money to get their preferential tax treatment is pretty much pointless when it gets taxed anyways when it gets used.

dbatten 8y ago

Yes, making the use of tax havens illegal is very hard. It's basically a giant game of whack-a-mole, where the corporations have more people with stronger incentives working to get around the tax laws than the government has trying to write new ones. Here's a fun explanation of the kinds of hoops corporations will jump through to dodge taxes: https://en.wikipedia.org/wiki/Double_Irish_arrangement https://en.wikipedia.org/wiki/Double_Irish_arrangement

grasshopperpurp 8y ago
>where the corporations have more people with stronger incentives working to get around the tax laws than the government has trying to write new ones. If the penalties were harsh enough, wouldn't it change this dynamic?
- freeone3000 8y ago
  The problem isn't that large companies are doing illegal things with taxes and aren't getting caught for tax evasion, it's that they structure arrangements in such a way that are legal but problematic, and as soon as a problematic method of doing business outlawed, a new one is put into place.
gaius 8y ago
Here's a fun explanation of the kinds of hoops corporations will jump through You're missing one piece of the puzzle: the Irish government is fully complicit in all this, with a "beggar thy neighbour" strategy to cream off taxes from their supposed partners and allies.

jaredklewis 8y ago

> Is it because "making the use of tax havens illegal" is hard/impossible? It is at the very least hard. How would the law work? Will it be illegal for a company to sell/transfer their intellectual property to a company in the Caribbean? Will it be illegal for that company to license intellectual property to a company in the US? Everyone feels they can recognize tax evasion when they see it, but to come up with a set of quantitative tests that can be applied fairly is difficult. Being able to apply the law consistently is essential, as the government will picking market winners and losers if they let some companies get away with tax evasion but not others. One of my biggest criticisms of income tax is that it is such a nightmare to implement fairly as income is very fungible.

tomp 8y ago
> Will it be illegal for a company to sell/transfer their intellectual property to a company in the Caribbean? Why not? I'm sure the tax havens would be very quick to adopt sensible tax rates to stop the ban.
- jaredklewis 8y ago
  The first problem with this is the same race to the bottom you have with corporate tax rates in general. If only one country, the US for example, creates such a law, that would give corporations a massive incentive to create their intellectual property outside of the US. I imagine that pretty much all global companies would gradually move to produce all of their intellectual property outside the US so as to avoid such restrictions. This would in turn be a huge windfall to other countries and a major detriment to the US economy. So you need all countries to coordinate on this front. I also don't see how the ban would encourage the Caribbean to adopt "sensible" tax rates. In the Bahamas, Bermuda, Cayman Islands, or the Virgin Islands, the corporate tax is already zero. Not sure how much leverage such a ban would actually have over these countries. The second problem is in the actual legislation. How is the law going to be written? Is it going to be a fixed list of countries that congress must update? Any country with a 0% tax rate? A new FTC style body that adjudicates which countries are "tax havens?" Because all of these can be circumvented with just a little elbow grease. The final problem is enforcement. Can intellectual property be sold to other countries in the US? Can those companies be sold to foreign companies? If a US company is a acquired by a foreign company, could that company then not license software to US companies? Are all transactions between US and foreign companies going to be individually monitored? Because that is a lot of work, and if you don't do that, it's very difficult to enforce the law. Basically, if someone was to sit down with the specific goal of designing a tax that could be easily evaded, they would come up with the income tax. Personally, I feel it's better if we adopt taxes that are more easily enforced and more progressive than the income tax. But for some reason, the corporate income tax remains relatively popular with politicians and voters around the developed world.

phkahler 8y ago

>> Maybe this is a silly question, but why don't we just lower the corporate tax rate significantly (maybe 10 or 15%), and make the use of tax havens illegal? We should do only one of those things. Every person should incorporate themselves and do what the big guys do.

kennxfl 8y ago
Individuals cannot register their "intellectual property" to another jurisdiction other than the one they operate in right?
- solotronics 8y ago
  You can create an LLC pretty easily and transfer any of your IP to it.
  - mirimir 8y ago
    Maybe so. But I suspect that individuals who attempted profit shifting would quickly get nailed for tax evasion.

woodpanel 8y ago

Playing devil's advocat here: Tax havens exist because 1) Nation states are their own sovereigns. Judging from that humans usually support things like the united nations and the law of nations, that will always include their sovereignity over their tax-design. 2) international flow of money is usually desired and thus encouraged. If you can afford to limit the flow to your country, fine. But less fortunate might be hard to convince to decline the benefits of it. 3) The more money you can spend on tax-lawyers, the more likely you are to be able to design your tax burden more efficiently around your needs (needs meaning your business objective + less taxes) Also IMHO it's fair to say that the more complex a country's tax code, the higher the income-inequality in terms of access to tax-rate-optimum.

zipwitch 8y ago

That would eliminate a competitive advantage that large companies receive against their tiny bretheren.

opportune 8y ago

Tax havens are tax havens for a reason. The only way to stop the Cayman Islands from being a tax haven would be picking a fight with the UK This a solution which is easy to explain, but hard to implement.