19 ms·

The Golden Age of Hollywood Tax Avoidance

75 points by graeme 8y ago

WalterBright 8y ago
Left unsaid by the article is that the tax shelters the wealthy invested their money in, were less productive investments. When Reagan lowered the tax rates in exchange for eliminating the tax shelters, the wealthy then moved their investments to more economically productive endeavors. This makes for a more productive economy overall. I.e. the higher the tax rates, the more contortions people will engage in to avoid those taxes, and economic prosperity will correspondingly suffer.
- CPLX 8y ago
  > When Reagan lowered the tax rates in exchange for eliminating the tax shelters... We got skyrocketing wealth inequality leading to a near breakdown of the political and social order 30 years later.
  - whatshisface 8y ago
    What's the argument for how inequality skyrocketed as a result of the reduced tax rate, and how inequality caused a "near breakdown of political and social order?"
    - CPLX 8y ago
      Rising income inequality is essentially defined as rich people getting more money. Lowering taxes on the rich gives them more money. That’s a pretty direct mechanism of action, not sure what else you need. However if you’re genuinely seeking answers there’s plenty of data on how regressive policies have led to increased inequality, it’s not a secret. As for validating the second part I recommend turning on your television.
      - WalterBright 8y ago
        Asserting there is a breakdown of the social order is quite different from asserting what caused the breakdown. There was an awful lot of social strife in the 1960s, for example, which had those high tax rates.
      - antidesitter 8y ago
        > Lowering taxes on the rich gives them more money. > Therefore, lowering taxes on the rich causes “skyrocketing inequality”. Did I get your argument right? Seems to be missing a premise or two.
        lucas_membrane 8y ago
        Here are two premises: (1) Extraordinary money confers extraordinary power. (2) It is a proper role of government to put reasonable limits on the power of wealth. Sadly, the American government now works on a revised version of (2), i.e.: It is a proper role of wealth to put unreasonable limits on the power of government.
        WalterBright 8y ago
        The federal government is more powerful than at any time in history. I'm curious what you consider unreasonable limits imposed by rich people.
        jakelazaroff 8y ago
        More powerful than the time during which it allowed people to legally own other human beings? Or when it forcibly relocated people to reservations across the country? Or when it put people into concentration camps because of a war we were fighting at the time?
        nec4b 8y ago
        Immensely more powerful than at any of those points you have written. Today at a push of a button it can eliminate most of the world as we know it. Remember, it had to fight civil war to prevent people owning other people.
    - dragonwriter 8y ago
      > What's the argument for how inequality skyrocketed as a result of the reduced tax rate You need a map to figure out how rich people keeping more of their income and and paying less into shared services reinforces inequality?
  - cryptonector 8y ago
    https://www.youtube.com/watch?v=pdR7WW3XR9c https://www.youtube.com/watch?v=pdR7WW3XR9c EDIT: I would make my comment more substantial, but Margaret Thatcher made my comment better than I could.
    - BLKNSLVR 8y ago
      Saying that the incomes have improved in 11 years is hardly an argument worth repeating outside the ultra-short-term pithy-insult points scoring arena that is parliament. In 1979 the average house cost 18,785 GBP and the average wage was 4,198, whilst in 1990 the average house price was 56,365 and the average wage was 11,820.[0] The average house price increased 300% whilst the average wage increased 282%. It's a grossly poor resolution comparison, but it shows that, using this metric alone, just looking at averages alone (somewhat problematic in itself), wages increased more slowly than housing. [0]: http://thedesignlab.co.uk/costofliving2015/ukupdate.php?uid=36 http://thedesignlab.co.uk/costofliving2015/ukupdate.php?uid=...
  - adventured 8y ago
    We got skyrocketing wealth inequality solely due to the breakdown in the value of the dollar after it became unlinked in 1971 and with the Fed system becoming an asset inflation device for people with capital. Take a look at any commodity priced in dollars after 1971, as though wages were going to keep up with that dramatic real inflation. Just try keeping up with even 3% inflation if you're a median wage worker. Meanwhile, the rich can easily beat that inflation and move their capital around pursuing higher returns. Inflation massacres workers over time. If you have 0% inflation, and your wages go up 3% per year, you can make some real progress in a society over 20 years. If you've got even just 2% inflation, and 1% net real wage gains, you're going to struggle to get anywhere once recessionary set-backs are accounted for. While that 2%-3% inflation is eating your wage growth and pushing up consumer prices, it's also rapidly destroying the real value of your primary middle class asset: your house. The Fed loves persistent inflation because it debases the national debt, which is drowning the US Government. It's terrible for the average person.
    - pjc50 8y ago
      There's a good point in here about wage inflation, but if you get a graph of CPI inflation then 1971 hardly jumps out and there were a number of much higher periods before that.
- xenadu02 8y ago
  Unfortunately we're in the opposite of a capital-constrained environment. There is far more capital chasing yield than there are worthwhile investments to make. That plus financialization of everything has short-circuited part of the money treadmill. Too much is circulating at the top with too little at the bottom, where most spending is done. Businesses need more customers with more money in their pockets, not more tax cuts.
  - devoply 8y ago
    In Capitalism 2.0 the fed interest rate is always negative probably like -10% and the wealthy are forced to always circulate their money to avoid simply losing it all in like 10 years. And that's globally a thing. You use it or lose it... even if it's barely making a return. Why? Because the market is now efficient and the wealthy will simply sit on their money or earn a marginal interest on it rather than spend it.
    - analyst74 8y ago
      That's an interest point, all the articles have been discussing negative rate as an extreme measure that's meant to be temporary without justifying why. Maybe negative rate is a better solution than wealth tax.
      - andrenth 8y ago
        It’s extreme because it reverses a basic economic principle (money is more valuable now than later). You lend me $100 today and I pay you $90 in one year. The idea is to force people to let go of their long term saving goals and spend now, because saving will make you lose money, thus making the economy grow. It doesn’t seem to work as predicted though (countries doing that aren’t growing). Furthermore, people with access to other types of investment will just switch instead of spending their money. In the end I believe this works as a sort of stealth taxation that affects poor people the most, because they don’t have access/knowledge/risk tolerance to more sophisticated forms of investment.
    - salawat 8y ago
- rbg246 8y ago
  This argument relies on that it is impossible to stop rich people from successfully evading tax. I find it hard to believe in the age of tracking that we live in now that banks and consumer transactions that it wouldn't be hard to implement proper tax evasion tracking across borders. This is purely an issue of there being no political will to do this. It would be even easier to just cut off the tax havens from the global economy - make it illegal for banks to conduct transactions with those banks / branches located in those havens, strand those assets from the global economy destroying the value of those bank accounts.
  - WalterBright 8y ago
    I was talking about avoiding taxes, which is legal, as opposed to evading taxes, which is illegal. Though as C. Northcote Parkinson wrote, the higher the tax rates, the more people will engage in tax evasion. If it's high enough, it'll become the national sport.
  - e3b0c 8y ago
    Imagine that we are designing an MMORPG world. We know that individual player would seek to maximize their "gains" and to advance their ranking in the game as a part of the gaming experience. Meanwhile, as the game operator, we don't want the inequality to be too extreme between the top players and the casual players so that no hopes for the newcomers to advance their ranking, which hurts their gaming experience and they would quit for other games. But is it a wise idea to brute-forcibly transfer the 'wealth' of the most hardcore, talented, or just luckiest players to the others to make the game more enjoyable for the bottom players? If we were thinking about it in a way that "you're not one of the players, but the designer of the game," and you want the game to be sustainable and reputable, I believe the answer would not just that simple.
    - JauntyHatAngle 8y ago
      I'm not sure that makes for a good analogy. That is a game, I enjoy flaunting wealth over people and using my ungodly strong power I've worked hard for to stomp on people in a game. But I don't want to live on a monopoly board, or squash people into oblivion in real life. Games are quite often about direct competition. While there is some argument for making sure not to kill the motivation of hard workers due to equalising society too far, I don't think the US is close to that level, and the scale is far, far in the other direction. Also, forcibly taking isn't correct, it's a progressive tax on income not a raid. I don't think this analogy works for a meaningful conversation.
- fulafel 8y ago
  Economic prosperity will only suffer if the difference in investment productivity overshadows the benefits of getting the taxes in the first place. Which seems highly doubtful! (and maybe not even then - from the decreasing marginal utility of money, the "suffering" per dollar is much lower for the rich vs receivers of tax funded social benefits)
- clanrebornwow 8y ago
  We should replace state tax collection with income sharing where if you make more than X threshold via any means, you need to share your income with low income household. Then all projects like roads etc...can be built if the project finds enough backers who are willing to subscribe to road building subscription in their area
- gzzzerble 8y ago
  Except that it stopped working that way about 30 years ago. People will not move their money back if you halve the taxes on them because zero will always be 100% lower than whatever tax is currently in the US. Some poor country will always suck that up for a one time charge in order to get foreign money. The money which has left the US will never return, because it will never make financial sense. These aren't complicated transactions anymore, your investment firm will do it for you as a service. They've already found all the legal "loopholes" and have back ups in place for when they're shut down, because that's another way to increase their profits. The simplistic "if you cut taxes it will happen less" concept just breaks when it's effortless, cheap, and will be more profitable the moment you have over X dollars (where X is constantly going down).
  - BLKNSLVR 8y ago
    Exactly right. How many billion dollars is Apple keeping out of the US for the sole reason of avoiding paying tax on it?
    - Ntrails 8y ago
      > How many billion dollars is Apple keeping out of the US for the sole reason of avoiding paying tax on it? There is no point in paying tax on offshore money if they will immediately then spend it outside the US. There is no benefit to bringing the money onshore so why on earth would they do so?
      - Arnt 8y ago
        Right. Some people seem to assume that it's natural to build a phone in China, sell it in Italy, and then move the profit to the US and pay tax there. That assumption isn't good. There has to be a point to moving the money to the US.
        BLKNSLVR 8y ago
        The problem is that they move the money to the lowest taxing area. They redirect profits earned in the US through various carefully constructed loopholes (so it's not illegal, it's just questionably immoral) so that it looks as if it's earned in the Canary Islands or something totally bullshit like that. It's not an exclusively US problem, it's a problem for any country in which Apple sells goods and services that has higher taxation rates than the lowest in the world. I'm picking on Apple singularly here, but they're just a high-profile example of the many globe-spanning companies performing these tax 'minimization' (let's not get all slandery) acrobatics. Designed in California. (4% tax paid in Ireland)
- BLKNSLVR 8y ago
  My understanding is that Reaganomics / trickle-down economics has been fairly widely proven to be ineffective. I understand that the idea is to grease the wheels of the economy by making more capital available for a company to spend on wages, R&D, recruiting; basically plowing it back into the company for reasons of growth. It's a valid theory, in a vacuum, and maybe the reality of it was more valid in the 80's than it is now, in the times of uber-capitalism, double-digit growth requirements quarter by quarter and "shareholder value at all costs". But these are the times we're in, and tax breaks will improve the bottom line which will be reflected in the quarterly results and compared to the previous quarter and the previous financial year, and the current quarter will be declared a success and justify bonuses to executive management out of whatever is left over once the shareholder dividend has been determined - reflective, of course, of the improved bottom line. It's unlikely to reach anywhere near the low end of the hierarchy; it doesn't trickle very far down due to the very nature of how large businesses operate. In terms of creating jobs, well, that will only happen when there's enough work to justify it, and in an economy that requires some form of stimulation, well, it's unlikely to occur until a number of cycles of stimulation have been in place. And if my opinion / experience of trickle-down economics, as described above, is close to "real world", then there's minimal bottom-end stimulation going to occur at all. You're not wrong in your statement: the higher the tax rates, the more contortions people will engage in to avoid those taxes But how can that possibly be considered as justification or "the right way of looking at it"? It's a fucking disgrace and a dereliction of responsibility to the community in which they operate.
- gadders 8y ago
  Agreed. This is the argument behind the Laffer Curve [1]. As has been shown again and again, when you lower tax rates the total tax take by the state increases. [1] https://www.investopedia.com/terms/l/laffercurve.asp https://www.investopedia.com/terms/l/laffercurve.asp
  - CPLX 8y ago
    There is absolutely no factual support for the Laffer curve and never has been, it’s always been a tool of right wing propaganda. When you raise marginal tax rates revenue goes up. Same as it ever was.
    - gadders 8y ago
      The original article proves the Laffer curve, no? People take action to avoid paying less tax when tax rates become extortionate.
      - CPLX 8y ago
        The Laffer curve is a numerical relationship between tax rates and revenue. It suggests that lowering tax rates will lead to increases in revenue. That’s a factual prediction and it isn’t true.
        gadders 8y ago
        I disagree. It's a prediction that has been true many times.
        pcstl 8y ago
        It is not unconditionally true. Your characterization of the Laffer curve is an unfortunate misunderstanding which was widely propagated by Reagan’s political opponents. (Which was not helped by the fact that the Reagan administration, either due to incompetence or malice, propagated incorrect interpretations itself) What the Laffer Curve expresses is that there is a certain amount of taxation where, if taxation is further increased, the actual government revenue will decrease rather than increase, due to growth in tax avoidance and evasion. It does not mean that lowering taxes will necessarily increase government revenue (which is obviously false). It means that, past a certain point, increasing taxation is futile. However, determining where the point beyond which increases in taxation lead to diminishing returns lies is hard and there is no reliable way to do it.
- mlthoughts2018 8y ago
  The problem is that labor productivity has grown tremendously while real wage has barely grown. So putting the money into “more economically productive investments” did not result in workers getting anything close to a fair share of the returns (for which their labor productivity is the primary creator, and the percentage of which they are responsible for is growing rapidly).
- lmm 8y ago
  > i.e. the higher the tax rates, the more contortions people will engage in to avoid those taxes Citation needed. E.g. Ireland has only a 10% corporate tax rate, but we still see corporations headquartered there engaging in contortions to avoid paying even that much. I would rather suspect the kind of person who avoids a 70% tax also avoids a 50% tax or a 30% tax, and vice versa.
  - tjbiddle 8y ago
    While yes, your last point is correct. And I think everyone should do everything in their power to lower their taxable income (Anything else, in my opinion, is irresponsible.) - So I absolutely think that people would continue to avoid a tax regardless. But you're comparing corporate and individual income tax.
    - lmm 8y ago
      Well the article talks about "collapsible corporations", so the corporate tax rate can be relevant to individual income. I'm not aware of anywhere with a 10% rate on individual income, but I'd bet on seeing the same kind of behaviour from rich individuals in such a place.
      - ljf 8y ago
        Monaco has 0% income tax: https://www.telegraph.co.uk/finance/globalbusiness/7243401/Monaco-might-not-charge-residents-income-tax-but-its-no-tax-haven.html https://www.telegraph.co.uk/finance/globalbusiness/7243401/M...
        chosenbreed37 8y ago
        Here are few others.... https://www.worldatlas.com/articles/countries-without-income-tax.html https://www.worldatlas.com/articles/countries-without-income...
        lmm 8y ago
        Sure; that's not really any good for comparing rates of tax avoidance though.
thefourthchime 8y ago
Ah tax avoidance. Richer you are, the better you get at it.
- gadders 8y ago
  The richer you are, the more you stand to gain from it, so the more worthwhile it is to do. And the more worthwhile to get expert advice.
CPLX 8y ago
So what. There’s tax avoidance and loopholes now too. Whatever. The premise still holds fine, we could drastically increase marginal tax rates at the top end and the world wouldn’t blow up. And to the extent we used that money to make the social contract more stable via health care and education or similar, there would almost certainly be net gains to national efficiency and income.
- darawk 8y ago
  > Whatever. The premise still holds fine, we could drastically increase marginal tax rates at the top end and the world wouldn’t blow up. No, the world would not blow up. But you'd generate basically zero revenue. People that make $10 million a year are mostly not making that in the form of cash compensation. And those that are have the leverage to demand different forms of compensation. Which they will immediately do. The person that person that makes that kind of money that also doesn't have the power to say "pay me in equity now, thanks" is extremely rare indeed.
  - tedsanders 8y ago
    Doesn't income tax apply to equity grants too? (Genuine question.)
    - darawk 8y ago
      For options, not really: https://www.investopedia.com/articles/active-trading/061615/how-stock-options-are-taxed-reported.asp https://www.investopedia.com/articles/active-trading/061615/... In some cases yes, but often no.
      - tedsanders 8y ago
        I receive non-tradeable options from my employer. My understanding is that the value of the option is taxed as income upon exercise (or sale of stock, for statutory options). There are games to play about which tax year to exercise in, but no getting around the income tax. Can you explain how income tax is avoided with options? The only potential tax avoidance I see is: (1) avoided income tax by flexibility in timing of the exercise/sale (2) potentially avoided capital gains tax if the value of the option grows before exercise/sale In neither case do I see a way to get around income tax on options given as compensation for work.
pmoriarty 8y ago
It's probably unthinkable for a lot of people these days, but the US once had an income tax for those in the highest tax bracket of over 90%.
- Kaveren 8y ago
  This gets parroted out frequently by people who think it's a cute quip. This article, however, explains why the situation was much more complicated than can be explained in a one-liner.
  - SeanBoocock 8y ago
    In what way was it more complicated? The top marginal tax rate was ~90% and high earners used a number of means to structure their income to avoid paying that, just as they do today with a far lower rate. I don't think anyone who makes this observation thinks that people were less motivated to lower their tax burden when it was substantially larger.
    - WalterBright 8y ago
      What the article meant was that the 90% tax rate was on paper, but people didn't pay it because they structured their income into tax shelters to avoid paying it. Those tax shelters were removed by Reagan in 1986 as part of the deal to lower the marginal rates. Another tax shelter not mentioned in the article was the "3 martini lunch" where people charged their lunches off to the business, so it was taxed at the lower business rate. This tax shelter was removed as part of that deal. In England, with their high tax rates, it was common to have the businesses provide cars for the employees for the same reason - tax avoidance. Tax avoidance is also why in America today people prefer to pay for their health insurance as a business expense rather than a personal one.
      - dragonwriter 8y ago
        > What the article meant was that the 90% tax rate was on paper, but people didn't pay it because they structured their income into tax shelters to avoid paying it. This is also true with a 39.6% top marginal rate. The specific structuring methods have changed with tax policy (which has not all been closing loopholes; new favorable tax options available primarily to the rich have been opened up, as well), but “people, especially rich people, structure income for tax avoidance” didn't go away as maximum marginal rates dropped.
crb002 8y ago
Curious. Regan got burned as an actor with the obscene rates. Never viewed him as having a personal beef before, now it makes sense.
ableal 8y ago
In case someone else goes after "[William] Holden insisted that Columbia pay him no more than $50,000 a year", there's a concise biography here: https://www.britannica.com/biography/William-Holden https://www.britannica.com/biography/William-Holden
peteretep 8y ago
This is not a strong article. Consider: > the top 0.01 percent in the 1950s paid not 90 percent but closer to 45 percent of their income in taxes I suspect 45% is a solid multiple of what rich people pay today

75 points by graeme 8y ago

Left unsaid by the article is that the tax shelters the wealthy invested their money in, were less productive investments. When Reagan lowered the tax rates in exchange for eliminating the tax shelters, the wealthy then moved their investments to more economically productive endeavors. This makes for a more productive economy overall. I.e. the higher the tax rates, the more contortions people will engage in to avoid those taxes, and economic prosperity will correspondingly suffer.

CPLX 8y ago
> When Reagan lowered the tax rates in exchange for eliminating the tax shelters... We got skyrocketing wealth inequality leading to a near breakdown of the political and social order 30 years later.
- whatshisface 8y ago
  What's the argument for how inequality skyrocketed as a result of the reduced tax rate, and how inequality caused a "near breakdown of political and social order?"
  - CPLX 8y ago
    Rising income inequality is essentially defined as rich people getting more money. Lowering taxes on the rich gives them more money. That’s a pretty direct mechanism of action, not sure what else you need. However if you’re genuinely seeking answers there’s plenty of data on how regressive policies have led to increased inequality, it’s not a secret. As for validating the second part I recommend turning on your television.
    - WalterBright 8y ago
      Asserting there is a breakdown of the social order is quite different from asserting what caused the breakdown. There was an awful lot of social strife in the 1960s, for example, which had those high tax rates.
    - antidesitter 8y ago
      > Lowering taxes on the rich gives them more money. > Therefore, lowering taxes on the rich causes “skyrocketing inequality”. Did I get your argument right? Seems to be missing a premise or two.
      - lucas_membrane 8y ago
        Here are two premises: (1) Extraordinary money confers extraordinary power. (2) It is a proper role of government to put reasonable limits on the power of wealth. Sadly, the American government now works on a revised version of (2), i.e.: It is a proper role of wealth to put unreasonable limits on the power of government.
        WalterBright 8y ago
        The federal government is more powerful than at any time in history. I'm curious what you consider unreasonable limits imposed by rich people.
        jakelazaroff 8y ago
        More powerful than the time during which it allowed people to legally own other human beings? Or when it forcibly relocated people to reservations across the country? Or when it put people into concentration camps because of a war we were fighting at the time?
        nec4b 8y ago
        Immensely more powerful than at any of those points you have written. Today at a push of a button it can eliminate most of the world as we know it. Remember, it had to fight civil war to prevent people owning other people.
  - dragonwriter 8y ago
    > What's the argument for how inequality skyrocketed as a result of the reduced tax rate You need a map to figure out how rich people keeping more of their income and and paying less into shared services reinforces inequality?
- cryptonector 8y ago
  https://www.youtube.com/watch?v=pdR7WW3XR9c https://www.youtube.com/watch?v=pdR7WW3XR9c EDIT: I would make my comment more substantial, but Margaret Thatcher made my comment better than I could.
  - BLKNSLVR 8y ago
    Saying that the incomes have improved in 11 years is hardly an argument worth repeating outside the ultra-short-term pithy-insult points scoring arena that is parliament. In 1979 the average house cost 18,785 GBP and the average wage was 4,198, whilst in 1990 the average house price was 56,365 and the average wage was 11,820.[0] The average house price increased 300% whilst the average wage increased 282%. It's a grossly poor resolution comparison, but it shows that, using this metric alone, just looking at averages alone (somewhat problematic in itself), wages increased more slowly than housing. [0]: http://thedesignlab.co.uk/costofliving2015/ukupdate.php?uid=36 http://thedesignlab.co.uk/costofliving2015/ukupdate.php?uid=...
- adventured 8y ago
  We got skyrocketing wealth inequality solely due to the breakdown in the value of the dollar after it became unlinked in 1971 and with the Fed system becoming an asset inflation device for people with capital. Take a look at any commodity priced in dollars after 1971, as though wages were going to keep up with that dramatic real inflation. Just try keeping up with even 3% inflation if you're a median wage worker. Meanwhile, the rich can easily beat that inflation and move their capital around pursuing higher returns. Inflation massacres workers over time. If you have 0% inflation, and your wages go up 3% per year, you can make some real progress in a society over 20 years. If you've got even just 2% inflation, and 1% net real wage gains, you're going to struggle to get anywhere once recessionary set-backs are accounted for. While that 2%-3% inflation is eating your wage growth and pushing up consumer prices, it's also rapidly destroying the real value of your primary middle class asset: your house. The Fed loves persistent inflation because it debases the national debt, which is drowning the US Government. It's terrible for the average person.
  - pjc50 8y ago
    There's a good point in here about wage inflation, but if you get a graph of CPI inflation then 1971 hardly jumps out and there were a number of much higher periods before that.
xenadu02 8y ago
Unfortunately we're in the opposite of a capital-constrained environment. There is far more capital chasing yield than there are worthwhile investments to make. That plus financialization of everything has short-circuited part of the money treadmill. Too much is circulating at the top with too little at the bottom, where most spending is done. Businesses need more customers with more money in their pockets, not more tax cuts.
- devoply 8y ago
  In Capitalism 2.0 the fed interest rate is always negative probably like -10% and the wealthy are forced to always circulate their money to avoid simply losing it all in like 10 years. And that's globally a thing. You use it or lose it... even if it's barely making a return. Why? Because the market is now efficient and the wealthy will simply sit on their money or earn a marginal interest on it rather than spend it.
  - analyst74 8y ago
    That's an interest point, all the articles have been discussing negative rate as an extreme measure that's meant to be temporary without justifying why. Maybe negative rate is a better solution than wealth tax.
    - andrenth 8y ago
      It’s extreme because it reverses a basic economic principle (money is more valuable now than later). You lend me $100 today and I pay you $90 in one year. The idea is to force people to let go of their long term saving goals and spend now, because saving will make you lose money, thus making the economy grow. It doesn’t seem to work as predicted though (countries doing that aren’t growing). Furthermore, people with access to other types of investment will just switch instead of spending their money. In the end I believe this works as a sort of stealth taxation that affects poor people the most, because they don’t have access/knowledge/risk tolerance to more sophisticated forms of investment.
  - salawat 8y ago
rbg246 8y ago
This argument relies on that it is impossible to stop rich people from successfully evading tax. I find it hard to believe in the age of tracking that we live in now that banks and consumer transactions that it wouldn't be hard to implement proper tax evasion tracking across borders. This is purely an issue of there being no political will to do this. It would be even easier to just cut off the tax havens from the global economy - make it illegal for banks to conduct transactions with those banks / branches located in those havens, strand those assets from the global economy destroying the value of those bank accounts.
- WalterBright 8y ago
  I was talking about avoiding taxes, which is legal, as opposed to evading taxes, which is illegal. Though as C. Northcote Parkinson wrote, the higher the tax rates, the more people will engage in tax evasion. If it's high enough, it'll become the national sport.
- e3b0c 8y ago
  Imagine that we are designing an MMORPG world. We know that individual player would seek to maximize their "gains" and to advance their ranking in the game as a part of the gaming experience. Meanwhile, as the game operator, we don't want the inequality to be too extreme between the top players and the casual players so that no hopes for the newcomers to advance their ranking, which hurts their gaming experience and they would quit for other games. But is it a wise idea to brute-forcibly transfer the 'wealth' of the most hardcore, talented, or just luckiest players to the others to make the game more enjoyable for the bottom players? If we were thinking about it in a way that "you're not one of the players, but the designer of the game," and you want the game to be sustainable and reputable, I believe the answer would not just that simple.
  - JauntyHatAngle 8y ago
    I'm not sure that makes for a good analogy. That is a game, I enjoy flaunting wealth over people and using my ungodly strong power I've worked hard for to stomp on people in a game. But I don't want to live on a monopoly board, or squash people into oblivion in real life. Games are quite often about direct competition. While there is some argument for making sure not to kill the motivation of hard workers due to equalising society too far, I don't think the US is close to that level, and the scale is far, far in the other direction. Also, forcibly taking isn't correct, it's a progressive tax on income not a raid. I don't think this analogy works for a meaningful conversation.
fulafel 8y ago
Economic prosperity will only suffer if the difference in investment productivity overshadows the benefits of getting the taxes in the first place. Which seems highly doubtful! (and maybe not even then - from the decreasing marginal utility of money, the "suffering" per dollar is much lower for the rich vs receivers of tax funded social benefits)
clanrebornwow 8y ago
We should replace state tax collection with income sharing where if you make more than X threshold via any means, you need to share your income with low income household. Then all projects like roads etc...can be built if the project finds enough backers who are willing to subscribe to road building subscription in their area
gzzzerble 8y ago
Except that it stopped working that way about 30 years ago. People will not move their money back if you halve the taxes on them because zero will always be 100% lower than whatever tax is currently in the US. Some poor country will always suck that up for a one time charge in order to get foreign money. The money which has left the US will never return, because it will never make financial sense. These aren't complicated transactions anymore, your investment firm will do it for you as a service. They've already found all the legal "loopholes" and have back ups in place for when they're shut down, because that's another way to increase their profits. The simplistic "if you cut taxes it will happen less" concept just breaks when it's effortless, cheap, and will be more profitable the moment you have over X dollars (where X is constantly going down).
- BLKNSLVR 8y ago
  Exactly right. How many billion dollars is Apple keeping out of the US for the sole reason of avoiding paying tax on it?
  - Ntrails 8y ago
    > How many billion dollars is Apple keeping out of the US for the sole reason of avoiding paying tax on it? There is no point in paying tax on offshore money if they will immediately then spend it outside the US. There is no benefit to bringing the money onshore so why on earth would they do so?
    - Arnt 8y ago
      Right. Some people seem to assume that it's natural to build a phone in China, sell it in Italy, and then move the profit to the US and pay tax there. That assumption isn't good. There has to be a point to moving the money to the US.
      - BLKNSLVR 8y ago
        The problem is that they move the money to the lowest taxing area. They redirect profits earned in the US through various carefully constructed loopholes (so it's not illegal, it's just questionably immoral) so that it looks as if it's earned in the Canary Islands or something totally bullshit like that. It's not an exclusively US problem, it's a problem for any country in which Apple sells goods and services that has higher taxation rates than the lowest in the world. I'm picking on Apple singularly here, but they're just a high-profile example of the many globe-spanning companies performing these tax 'minimization' (let's not get all slandery) acrobatics. Designed in California. (4% tax paid in Ireland)
BLKNSLVR 8y ago
My understanding is that Reaganomics / trickle-down economics has been fairly widely proven to be ineffective. I understand that the idea is to grease the wheels of the economy by making more capital available for a company to spend on wages, R&D, recruiting; basically plowing it back into the company for reasons of growth. It's a valid theory, in a vacuum, and maybe the reality of it was more valid in the 80's than it is now, in the times of uber-capitalism, double-digit growth requirements quarter by quarter and "shareholder value at all costs". But these are the times we're in, and tax breaks will improve the bottom line which will be reflected in the quarterly results and compared to the previous quarter and the previous financial year, and the current quarter will be declared a success and justify bonuses to executive management out of whatever is left over once the shareholder dividend has been determined - reflective, of course, of the improved bottom line. It's unlikely to reach anywhere near the low end of the hierarchy; it doesn't trickle very far down due to the very nature of how large businesses operate. In terms of creating jobs, well, that will only happen when there's enough work to justify it, and in an economy that requires some form of stimulation, well, it's unlikely to occur until a number of cycles of stimulation have been in place. And if my opinion / experience of trickle-down economics, as described above, is close to "real world", then there's minimal bottom-end stimulation going to occur at all. You're not wrong in your statement: the higher the tax rates, the more contortions people will engage in to avoid those taxes But how can that possibly be considered as justification or "the right way of looking at it"? It's a fucking disgrace and a dereliction of responsibility to the community in which they operate.
gadders 8y ago
Agreed. This is the argument behind the Laffer Curve [1]. As has been shown again and again, when you lower tax rates the total tax take by the state increases. [1] https://www.investopedia.com/terms/l/laffercurve.asp https://www.investopedia.com/terms/l/laffercurve.asp
- CPLX 8y ago
  There is absolutely no factual support for the Laffer curve and never has been, it’s always been a tool of right wing propaganda. When you raise marginal tax rates revenue goes up. Same as it ever was.
  - gadders 8y ago
    The original article proves the Laffer curve, no? People take action to avoid paying less tax when tax rates become extortionate.
    - CPLX 8y ago
      The Laffer curve is a numerical relationship between tax rates and revenue. It suggests that lowering tax rates will lead to increases in revenue. That’s a factual prediction and it isn’t true.
      - gadders 8y ago
        I disagree. It's a prediction that has been true many times.
      - pcstl 8y ago
        It is not unconditionally true. Your characterization of the Laffer curve is an unfortunate misunderstanding which was widely propagated by Reagan’s political opponents. (Which was not helped by the fact that the Reagan administration, either due to incompetence or malice, propagated incorrect interpretations itself) What the Laffer Curve expresses is that there is a certain amount of taxation where, if taxation is further increased, the actual government revenue will decrease rather than increase, due to growth in tax avoidance and evasion. It does not mean that lowering taxes will necessarily increase government revenue (which is obviously false). It means that, past a certain point, increasing taxation is futile. However, determining where the point beyond which increases in taxation lead to diminishing returns lies is hard and there is no reliable way to do it.
mlthoughts2018 8y ago
The problem is that labor productivity has grown tremendously while real wage has barely grown. So putting the money into “more economically productive investments” did not result in workers getting anything close to a fair share of the returns (for which their labor productivity is the primary creator, and the percentage of which they are responsible for is growing rapidly).
lmm 8y ago
> i.e. the higher the tax rates, the more contortions people will engage in to avoid those taxes Citation needed. E.g. Ireland has only a 10% corporate tax rate, but we still see corporations headquartered there engaging in contortions to avoid paying even that much. I would rather suspect the kind of person who avoids a 70% tax also avoids a 50% tax or a 30% tax, and vice versa.
- tjbiddle 8y ago
  While yes, your last point is correct. And I think everyone should do everything in their power to lower their taxable income (Anything else, in my opinion, is irresponsible.) - So I absolutely think that people would continue to avoid a tax regardless. But you're comparing corporate and individual income tax.
  - lmm 8y ago
    Well the article talks about "collapsible corporations", so the corporate tax rate can be relevant to individual income. I'm not aware of anywhere with a 10% rate on individual income, but I'd bet on seeing the same kind of behaviour from rich individuals in such a place.
    - ljf 8y ago
      Monaco has 0% income tax: https://www.telegraph.co.uk/finance/globalbusiness/7243401/Monaco-might-not-charge-residents-income-tax-but-its-no-tax-haven.html https://www.telegraph.co.uk/finance/globalbusiness/7243401/M...
      - chosenbreed37 8y ago
        Here are few others.... https://www.worldatlas.com/articles/countries-without-income-tax.html https://www.worldatlas.com/articles/countries-without-income...
      - lmm 8y ago
        Sure; that's not really any good for comparing rates of tax avoidance though.

thefourthchime 8y ago

Ah tax avoidance. Richer you are, the better you get at it.

gadders 8y ago
The richer you are, the more you stand to gain from it, so the more worthwhile it is to do. And the more worthwhile to get expert advice.

CPLX 8y ago

So what. There’s tax avoidance and loopholes now too. Whatever. The premise still holds fine, we could drastically increase marginal tax rates at the top end and the world wouldn’t blow up. And to the extent we used that money to make the social contract more stable via health care and education or similar, there would almost certainly be net gains to national efficiency and income.

darawk 8y ago
> Whatever. The premise still holds fine, we could drastically increase marginal tax rates at the top end and the world wouldn’t blow up. No, the world would not blow up. But you'd generate basically zero revenue. People that make $10 million a year are mostly not making that in the form of cash compensation. And those that are have the leverage to demand different forms of compensation. Which they will immediately do. The person that person that makes that kind of money that also doesn't have the power to say "pay me in equity now, thanks" is extremely rare indeed.
- tedsanders 8y ago
  Doesn't income tax apply to equity grants too? (Genuine question.)
  - darawk 8y ago
    For options, not really: https://www.investopedia.com/articles/active-trading/061615/how-stock-options-are-taxed-reported.asp https://www.investopedia.com/articles/active-trading/061615/... In some cases yes, but often no.
    - tedsanders 8y ago
      I receive non-tradeable options from my employer. My understanding is that the value of the option is taxed as income upon exercise (or sale of stock, for statutory options). There are games to play about which tax year to exercise in, but no getting around the income tax. Can you explain how income tax is avoided with options? The only potential tax avoidance I see is: (1) avoided income tax by flexibility in timing of the exercise/sale (2) potentially avoided capital gains tax if the value of the option grows before exercise/sale In neither case do I see a way to get around income tax on options given as compensation for work.

pmoriarty 8y ago

It's probably unthinkable for a lot of people these days, but the US once had an income tax for those in the highest tax bracket of over 90%.

Kaveren 8y ago
This gets parroted out frequently by people who think it's a cute quip. This article, however, explains why the situation was much more complicated than can be explained in a one-liner.
- SeanBoocock 8y ago
  In what way was it more complicated? The top marginal tax rate was ~90% and high earners used a number of means to structure their income to avoid paying that, just as they do today with a far lower rate. I don't think anyone who makes this observation thinks that people were less motivated to lower their tax burden when it was substantially larger.
  - WalterBright 8y ago
    What the article meant was that the 90% tax rate was on paper, but people didn't pay it because they structured their income into tax shelters to avoid paying it. Those tax shelters were removed by Reagan in 1986 as part of the deal to lower the marginal rates. Another tax shelter not mentioned in the article was the "3 martini lunch" where people charged their lunches off to the business, so it was taxed at the lower business rate. This tax shelter was removed as part of that deal. In England, with their high tax rates, it was common to have the businesses provide cars for the employees for the same reason - tax avoidance. Tax avoidance is also why in America today people prefer to pay for their health insurance as a business expense rather than a personal one.
    - dragonwriter 8y ago
      > What the article meant was that the 90% tax rate was on paper, but people didn't pay it because they structured their income into tax shelters to avoid paying it. This is also true with a 39.6% top marginal rate. The specific structuring methods have changed with tax policy (which has not all been closing loopholes; new favorable tax options available primarily to the rich have been opened up, as well), but “people, especially rich people, structure income for tax avoidance” didn't go away as maximum marginal rates dropped.

crb002 8y ago

Curious. Regan got burned as an actor with the obscene rates. Never viewed him as having a personal beef before, now it makes sense.

ableal 8y ago

In case someone else goes after "[William] Holden insisted that Columbia pay him no more than $50,000 a year", there's a concise biography here: https://www.britannica.com/biography/William-Holden https://www.britannica.com/biography/William-Holden

peteretep 8y ago

This is not a strong article. Consider: > the top 0.01 percent in the 1950s paid not 90 percent but closer to 45 percent of their income in taxes I suspect 45% is a solid multiple of what rich people pay today