6 ms·

> You can't appeal to the "spirit" of a soulless ruleset. This is a great point that I always try to inject into conversations about “tax avoidance.” People of

by baddox 8y ago

> You can't appeal to the "spirit" of a soulless ruleset. This is a great point that I always try to inject into conversations about “tax avoidance.” People often claim that taking advantage of “loopholes” is ethically equivalent to straight up illegal tax evasion, but that claim implies that companies need to “know” the “correct ethical amount” for them to contribute.

SolarNet 8y ago
Yea which is one benefit of simple tax systems. If the tax rate is 10% across the board, then there is a simple "spirit" there to appeal to.
- jhbadger 8y ago
  But that's not really a fair system because poor people need their income to live on while rich people paying more taxes just means they will have one less yacht or mansion.
  - SolarNet 8y ago
    I never said it was fair, just that that was a benefit of it. Also, an alternative is a higher tax rate but use a UBI so poor people always have an effective negative tax rate. Constant offset, multiplicative tax rate. Ensures a floor of income such that people can always survive and that there are always consumers.
  - Mattasher 8y ago
    How is it unfair for people making twice as much, to pay twice as much? If anything, "fairness" would favor a system where (absolute) taxes went up slower than income, as I doubt consumption of government services increases linearly with income (modulo rent seeking by the very rich and powerful).
    - zaksoup 8y ago
      Taxes are explicitly and intentionally not fair. It's not fair that I pay taxes to public schooling when I could just send my kids to a private school. It's not fair that I pay taxes to the roads when I drive significantly less than average. It's not fair that I pay taxes to subsidize the USPS when I don't ever mail things. Nothing about taxation is fair because it's not intended to be fair. We agree that society as a whole benefits from every child having access to a high quality education. We agree that society as a whole benefits from free and easy travel. I read an economic report a while back (still trying to find it) that posited that a significant contributor to the US's current economic success and high rate of entrepreneurial system was the USPS. The ability for everybody to mail anything anywhere on the cheap allowed for an untold number of companies to exist and be competitive. To pretend like taxes should be associated with the consumption of government services is a-historical, fallacious, and based on any number of lies that vilify the poor for being poor.
      - LyndsySimon 8y ago
        > Nothing about taxation is fair because it's not intended to be fair. I agree with this 100%, and thank you for stating it so clearly. > We agree that society as a whole benefits from [...] Well, not all of us agree, but certainly a large majority. > To pretend like taxes should be associated with the consumption of government services is a-historical, fallacious, and based on any number of lies that vilify the poor for being poor. It also sets up a hell of a strawman for the abolition of taxation in general - if the goal is for the individual to pay based on their consumption, then the most effective means of achieving that with the lowest possible overhead would be to allow a competitive marketplace to develop for those things. For the record, I do support the abolition of all taxation, but find this argument to be very poorly constructed. My justification is that taxation is instituted through the implicit threat of violence. That said, from a practical standpoint, if we're going to have a government funded through taxation, it's in our best interest to ensure the overhead for collecting it is as low as possible. That means the ruleset should be as simple as possible, and that using taxation powers to modify behavior should be done rarely if ever in order to maintain that simplicity.
- aero142 8y ago
  I disagree. The loopholes are not from the progressive part of the tax code, so making it a flat rate doesn't simplify anything. I assume you are talking about a flat tax, which is a personal income tax only, but event still that is difficult. The complexity is from defining "income". A big source of complexity is about companies operating in other countries. You still have to define rules about a company car vs a personal car; and a business expense and a personal expense; and income that is entirely in another country vs domestic income. These problems don't go away with a flat tax despite it's proponents unquestioned belief that it does.
- andrewla 8y ago
  This is not simple. If the tax rate were $10 per person across the board, that would be simple. 10% of what is what the question reduces to. What if I have an investment that increases in value? Does the gain count as income? What if I don't sell it? What if I receive non-monetary compensation? Is that income? How valued? What if I have a loan forgiven (as in the article)? Do I pay tax on the forgiven amount? What if I lose money or spend money? Does that affect income, or am I being taxed on my gross income? What if my company pays for my rent and other living expenses? Is that income? If you don't close these "loopholes" then the 10% just becomes a penalty for the people who don't have the time or the knowledge to circumvent the rule, but for those that do, they just don't have any "income" so there's no problem. The closure of the loopholes creates more loopholes, that push the problem upstream until only the very wealthiest individuals can afford to not pay taxes.
  - LyndsySimon 8y ago
    You're assuming that the parent poster meant a 10% income tax. If it were a 10% sales tax, then it would be based on consumption and there would be no issues over and above the current complications with what is and what is not exempt from sales tax.
    - HeyLaughingBoy 8y ago
      In that case bartering would suddenly look very appealing.
- jogjayr 8y ago
  10% of what? Revenue? Profit? Assets? Companies already engage in all sorts of shenanigans to show lower profits when it suits them. [1] Taxing revenue goes against decades, maybe centuries, of established tax law and tradition, which roughly operates on the principle "The state makes money when you make money." If you start taxing assets, you're going to need very invasive government bureaucracy that knows everything you own, down to the last paperclip. Anyone who claims they can make taxes simpler is either lying or doesn't understand the subject. 1. https://en.wikipedia.org/wiki/Hollywood_accounting https://en.wikipedia.org/wiki/Hollywood_accounting
  - reboog711 8y ago
    Where I live; in northeastern US my assets are taxed. Personal assets such as my home and car are taxed on a yearly basis. As are business assets, which includes everything from the desk I'm sitting at; the chair I'm sitting on; to the computer I'm using. Disposable supplies, such as paperclips, are not taxed but once a year I have to fill out paperwork--roughly a 10 page document--to pass onto my local government declaring said assets.
- singron 8y ago
  Graduated rates aren't the complicated part of the tax system. The complicated part is figuring out the amount the rate applies to. E.g. capital gains, deductions, credits. If you have never filed your own tax return before, go skim the instructions for form 1040[0] (117 pages). It includes a 10 page table for the graduated tax rate so most people don't need to do any arithmetic if they make <100,000. Besides a couple tables like that and some administrative pages, the rest is text and worksheets for figuring the amount to apply the rate to. And this is just the basic form that everyone files! There are additional forms someone might file for complex circumstances, let alone filings for all the kinds of trusts and corporations. 0: https://www.irs.gov/pub/irs-prior/i1040gi--2018.pdf https://www.irs.gov/pub/irs-prior/i1040gi--2018.pdf
sir_brickalot 8y ago
Why do they have to "know the correct ethical amount"? Don't use loopholes and you can be sure to be ethically, morally and lawfully on the right path! Comparisons are stupid but still: Compare loopholes with game glitches. They are not intended, they break the system and every player is hated for using them. Often "pro-loopholers" claim that everyone tries to optimize their tax, so why not big companies. But tax breaks which are used by the regular guy have clear implications: Support families, incentivize businesses, steer society in a certain direction. Loopholes are just edge cases that have not been thought of, thus have to be closed as soon as possible. They are the glitch in a perfect tax law. Don't exploit them!
- mactrey 8y ago
  > "...[glitches] break the system and every player is hated for using them." That's not my experience, having played numerous competitive games. Bhopping in CS, wavedashing in melee, all of the various glitches necessary when speedrunning almost any game, are pretty universally loved and players that can perform them well are looked up to.
  - Izkata 8y ago
    Even casually, various bugs and glitches gave rise to the whole "stupid tricks" genre of StarCraft custom maps.
- Verdex 8y ago
  I'm not sure that's really feasible for two reasons. 1) How do you know it's a loophole. Sure, there's probably some instances where it's pretty obvious what you're doing is a loophole. But others require you to be up-to-date on economic and political debates as well as being extremely well read in the tax law. Similarly, half of the people who signed the loophole into law may consider it not a loophole and the other half might consider it to be a loophole. In general there's no way to know. 2) What if part of the tax law was signed into law specifically as a favor to a corporate entity who funded a political candidate, but disguised with complicated language so it's not obvious who is getting the favor. In this instance realizing that you qualify for the tax reduction would be considered a loophole by the shady politician that created the law ... or a bonus because it will obfuscate who the kickback is going to. In case 1), I feel a little bit uncomfortable with calling someone's action unethical when it depends on their ability to understand a complicated law AND the economic scenario and theory behind the law AND the minds of ALL politicians involved with making the law. In case 2), I actively want everyone to abuse loopholes created for this purpose as much as possible. It's like watching someone burn themselves on a stove. If a politician is doing this sort of thing, I want it to blow up in their face so they learn not to try to do such things in the future.
ip26 8y ago
Smokey Yunick was a race mechanic famous for skirting the rules. My favorite was, gas tank sizes were fixed but he noticed that there was no rule specifying the parameters for a fuel line. So, Instead of a half-inch fuel line, Yunick created a two-inch fuel line that was 11 feet long, and held five gallons of gas. (A car with more gas has to stop less often) You could say he took a loophole. You could try, I'm sure, to argue "how could he have known he wasn't supposed to make a fuel line that way? What was the correct ethical size of a fuel line?". But it's pretty obvious to most people that took it too far, and specifications for fuel lines were created immediately after the gambit was discovered.
- jdsully 8y ago
  Yes but the dimensions of a fuel tank are straightforward. The rules for a PFIC are intentionally designed by congress to be byzantine (to protect US investment funds). The two rulesets are following different ethical norms.
- paulddraper 8y ago
  I still contend that it was impossible for him to “know” the “correct ethical amount”. So a 2in x 11ft fuel line was "too far". But what about a 1in x 6ft fuel line? 0.75in x 3ft? Which of these is not too far? > specifications for fuel lines were created immediately It sounds like everyone recognized there was underspecification and it was remedied. Are you suggesting that was wrong?
- baddox 8y ago
  I don't think the analogy applies. It is pretty easy for reasonable people to agree that that fuel line loophole is not in the spirit of the rules, since we know that the point of the rule is to ensure each racer has the same amount of fuel. In that case, of course, patching the loophole is trivial: just limit the total amount of fuel that can be stored in the car. The difference with taxes is that there isn't some well-agreed upon precise amount or percentage of money that companies are supposed to pay. The rules are very complicated, even for companies that most people wouldn't consider to be "searching for loopholes." In other words, it may be easy to get a lot of people to agree that Apple should be paying more taxes to the US, but how will they agree on an exact amount?

by baddox 8y ago

SolarNet 8y ago

Yea which is one benefit of simple tax systems. If the tax rate is 10% across the board, then there is a simple "spirit" there to appeal to.

jhbadger 8y ago
But that's not really a fair system because poor people need their income to live on while rich people paying more taxes just means they will have one less yacht or mansion.
- SolarNet 8y ago
  I never said it was fair, just that that was a benefit of it. Also, an alternative is a higher tax rate but use a UBI so poor people always have an effective negative tax rate. Constant offset, multiplicative tax rate. Ensures a floor of income such that people can always survive and that there are always consumers.
- Mattasher 8y ago
  How is it unfair for people making twice as much, to pay twice as much? If anything, "fairness" would favor a system where (absolute) taxes went up slower than income, as I doubt consumption of government services increases linearly with income (modulo rent seeking by the very rich and powerful).
  - zaksoup 8y ago
    Taxes are explicitly and intentionally not fair. It's not fair that I pay taxes to public schooling when I could just send my kids to a private school. It's not fair that I pay taxes to the roads when I drive significantly less than average. It's not fair that I pay taxes to subsidize the USPS when I don't ever mail things. Nothing about taxation is fair because it's not intended to be fair. We agree that society as a whole benefits from every child having access to a high quality education. We agree that society as a whole benefits from free and easy travel. I read an economic report a while back (still trying to find it) that posited that a significant contributor to the US's current economic success and high rate of entrepreneurial system was the USPS. The ability for everybody to mail anything anywhere on the cheap allowed for an untold number of companies to exist and be competitive. To pretend like taxes should be associated with the consumption of government services is a-historical, fallacious, and based on any number of lies that vilify the poor for being poor.
    - LyndsySimon 8y ago
      > Nothing about taxation is fair because it's not intended to be fair. I agree with this 100%, and thank you for stating it so clearly. > We agree that society as a whole benefits from [...] Well, not all of us agree, but certainly a large majority. > To pretend like taxes should be associated with the consumption of government services is a-historical, fallacious, and based on any number of lies that vilify the poor for being poor. It also sets up a hell of a strawman for the abolition of taxation in general - if the goal is for the individual to pay based on their consumption, then the most effective means of achieving that with the lowest possible overhead would be to allow a competitive marketplace to develop for those things. For the record, I do support the abolition of all taxation, but find this argument to be very poorly constructed. My justification is that taxation is instituted through the implicit threat of violence. That said, from a practical standpoint, if we're going to have a government funded through taxation, it's in our best interest to ensure the overhead for collecting it is as low as possible. That means the ruleset should be as simple as possible, and that using taxation powers to modify behavior should be done rarely if ever in order to maintain that simplicity.
aero142 8y ago
I disagree. The loopholes are not from the progressive part of the tax code, so making it a flat rate doesn't simplify anything. I assume you are talking about a flat tax, which is a personal income tax only, but event still that is difficult. The complexity is from defining "income". A big source of complexity is about companies operating in other countries. You still have to define rules about a company car vs a personal car; and a business expense and a personal expense; and income that is entirely in another country vs domestic income. These problems don't go away with a flat tax despite it's proponents unquestioned belief that it does.
andrewla 8y ago
This is not simple. If the tax rate were $10 per person across the board, that would be simple. 10% of what is what the question reduces to. What if I have an investment that increases in value? Does the gain count as income? What if I don't sell it? What if I receive non-monetary compensation? Is that income? How valued? What if I have a loan forgiven (as in the article)? Do I pay tax on the forgiven amount? What if I lose money or spend money? Does that affect income, or am I being taxed on my gross income? What if my company pays for my rent and other living expenses? Is that income? If you don't close these "loopholes" then the 10% just becomes a penalty for the people who don't have the time or the knowledge to circumvent the rule, but for those that do, they just don't have any "income" so there's no problem. The closure of the loopholes creates more loopholes, that push the problem upstream until only the very wealthiest individuals can afford to not pay taxes.
- LyndsySimon 8y ago
  You're assuming that the parent poster meant a 10% income tax. If it were a 10% sales tax, then it would be based on consumption and there would be no issues over and above the current complications with what is and what is not exempt from sales tax.
  - HeyLaughingBoy 8y ago
    In that case bartering would suddenly look very appealing.
jogjayr 8y ago
10% of what? Revenue? Profit? Assets? Companies already engage in all sorts of shenanigans to show lower profits when it suits them. [1] Taxing revenue goes against decades, maybe centuries, of established tax law and tradition, which roughly operates on the principle "The state makes money when you make money." If you start taxing assets, you're going to need very invasive government bureaucracy that knows everything you own, down to the last paperclip. Anyone who claims they can make taxes simpler is either lying or doesn't understand the subject. 1. https://en.wikipedia.org/wiki/Hollywood_accounting https://en.wikipedia.org/wiki/Hollywood_accounting
- reboog711 8y ago
  Where I live; in northeastern US my assets are taxed. Personal assets such as my home and car are taxed on a yearly basis. As are business assets, which includes everything from the desk I'm sitting at; the chair I'm sitting on; to the computer I'm using. Disposable supplies, such as paperclips, are not taxed but once a year I have to fill out paperwork--roughly a 10 page document--to pass onto my local government declaring said assets.
singron 8y ago
Graduated rates aren't the complicated part of the tax system. The complicated part is figuring out the amount the rate applies to. E.g. capital gains, deductions, credits. If you have never filed your own tax return before, go skim the instructions for form 1040[0] (117 pages). It includes a 10 page table for the graduated tax rate so most people don't need to do any arithmetic if they make <100,000. Besides a couple tables like that and some administrative pages, the rest is text and worksheets for figuring the amount to apply the rate to. And this is just the basic form that everyone files! There are additional forms someone might file for complex circumstances, let alone filings for all the kinds of trusts and corporations. 0: https://www.irs.gov/pub/irs-prior/i1040gi--2018.pdf https://www.irs.gov/pub/irs-prior/i1040gi--2018.pdf

sir_brickalot 8y ago

Why do they have to "know the correct ethical amount"? Don't use loopholes and you can be sure to be ethically, morally and lawfully on the right path! Comparisons are stupid but still: Compare loopholes with game glitches. They are not intended, they break the system and every player is hated for using them. Often "pro-loopholers" claim that everyone tries to optimize their tax, so why not big companies. But tax breaks which are used by the regular guy have clear implications: Support families, incentivize businesses, steer society in a certain direction. Loopholes are just edge cases that have not been thought of, thus have to be closed as soon as possible. They are the glitch in a perfect tax law. Don't exploit them!

mactrey 8y ago
> "...[glitches] break the system and every player is hated for using them." That's not my experience, having played numerous competitive games. Bhopping in CS, wavedashing in melee, all of the various glitches necessary when speedrunning almost any game, are pretty universally loved and players that can perform them well are looked up to.
- Izkata 8y ago
  Even casually, various bugs and glitches gave rise to the whole "stupid tricks" genre of StarCraft custom maps.
Verdex 8y ago
I'm not sure that's really feasible for two reasons. 1) How do you know it's a loophole. Sure, there's probably some instances where it's pretty obvious what you're doing is a loophole. But others require you to be up-to-date on economic and political debates as well as being extremely well read in the tax law. Similarly, half of the people who signed the loophole into law may consider it not a loophole and the other half might consider it to be a loophole. In general there's no way to know. 2) What if part of the tax law was signed into law specifically as a favor to a corporate entity who funded a political candidate, but disguised with complicated language so it's not obvious who is getting the favor. In this instance realizing that you qualify for the tax reduction would be considered a loophole by the shady politician that created the law ... or a bonus because it will obfuscate who the kickback is going to. In case 1), I feel a little bit uncomfortable with calling someone's action unethical when it depends on their ability to understand a complicated law AND the economic scenario and theory behind the law AND the minds of ALL politicians involved with making the law. In case 2), I actively want everyone to abuse loopholes created for this purpose as much as possible. It's like watching someone burn themselves on a stove. If a politician is doing this sort of thing, I want it to blow up in their face so they learn not to try to do such things in the future.

ip26 8y ago

Smokey Yunick was a race mechanic famous for skirting the rules. My favorite was, gas tank sizes were fixed but he noticed that there was no rule specifying the parameters for a fuel line. So, Instead of a half-inch fuel line, Yunick created a two-inch fuel line that was 11 feet long, and held five gallons of gas. (A car with more gas has to stop less often) You could say he took a loophole. You could try, I'm sure, to argue "how could he have known he wasn't supposed to make a fuel line that way? What was the correct ethical size of a fuel line?". But it's pretty obvious to most people that took it too far, and specifications for fuel lines were created immediately after the gambit was discovered.

jdsully 8y ago
Yes but the dimensions of a fuel tank are straightforward. The rules for a PFIC are intentionally designed by congress to be byzantine (to protect US investment funds). The two rulesets are following different ethical norms.
paulddraper 8y ago
I still contend that it was impossible for him to “know” the “correct ethical amount”. So a 2in x 11ft fuel line was "too far". But what about a 1in x 6ft fuel line? 0.75in x 3ft? Which of these is not too far? > specifications for fuel lines were created immediately It sounds like everyone recognized there was underspecification and it was remedied. Are you suggesting that was wrong?
baddox 8y ago
I don't think the analogy applies. It is pretty easy for reasonable people to agree that that fuel line loophole is not in the spirit of the rules, since we know that the point of the rule is to ensure each racer has the same amount of fuel. In that case, of course, patching the loophole is trivial: just limit the total amount of fuel that can be stored in the car. The difference with taxes is that there isn't some well-agreed upon precise amount or percentage of money that companies are supposed to pay. The rules are very complicated, even for companies that most people wouldn't consider to be "searching for loopholes." In other words, it may be easy to get a lot of people to agree that Apple should be paying more taxes to the US, but how will they agree on an exact amount?