6 ms·

Individuals are subjected to "alternative minimum tax". Why not corporations?

by Syzygies 5y ago

Decker87 5y ago
Cause they're not people. Oh wait...
- papito 5y ago
  Haha. Good old Citizens United. Corporations are "people" only when it comes to ditching taxes and pumping tons of cash into politics, but when the time comes to pay for crimes - uh uh, hands off, not a person...
  - refurb 5y ago
    This is a ridiculously bad take on Citizens United.
avs733 5y ago
Because individuals don’t have the ability to author the tax code like corporations do.
0goel0 5y ago
Individuals can't pretend to be based in Ireland to not pay US taxes. US taxes global individual income, but not global corporate profits.
- dkarras 5y ago
  >US taxes global individual income... Always wondered why US citizens do not make a bigger deal out of this. If I understand correctly, if you are a US citizen, but live somewhere else in the world, IRS still expects to be paid tax from your individual income in that foreign country (possibly in addition to the tax you pay in your country of residence) right? I assume there are minimum income thresholds but still... Are there even any other countries that do this?
  - Mediterraneo10 5y ago
    US citizens make something of a deal out of it, as you can see from expat forums every spring when tax-filing season comes. However, relatively few American citizens abroad choose to renounce their citizenship because they find it useful to retain it. The minimum income threshold to pay income taxes (otherwise you just file) is ~$100,000, so that generally means most middle-class people don’t have to pay. The real pain is for people who don’t really think of themselves as US expats, but who have US citizenship through an accident of birth and perhaps haven’t thought of that in years. For them, it is when e.g. a bank in their country suddenly doesn’t want to accept them as a customer due to the onerous reporting requirements, that they are aghast at the situation. > Are there even any other countries that do this? Reportedly Eritrea.
    - beckman466 5y ago
      > The minimum income threshold to pay income taxes (otherwise you just file) is ~$100,000, so that generally means most middle-class people don’t have to pay. I wanted to know this, thank you!
    - 252452d 5y ago
      It costs a few thousand to renounce it anyway. The Foreign Earned Income Exclusion is what you're referring to.
    - slavik81 5y ago
      > However, relatively few American citizens abroad choose to renounce their citizenship because they find it useful to retain it. Also because the US government will not allow you to renounce your citizenship if you are doing so for tax reasons.
      - Mediterraneo10 5y ago
        Not really. Most US expats who would want to renounce their citizenship, know to tell the consul at the renunciation appointment a vague "I have citizenship of country X now and I no longer identify with my American citizenship," and not, "I don’t want to file US taxes anymore."
rsj_hn 5y ago
Taxing corporations is one of those things that seems pretty obvious until you really dig into the details, at which point you end up with some uncomfortable conclusions. Thus there is this endless handwringing about corporations paying so little yet at the end of the day, the solutions (those that work) are quite unpopular. Let's walk down this rabbit hole: So you want to tax corporate profits. Well, trouble is, it's easy to hide profits. For example, interest payments are subtracted from profits, which allows investors to lend money to corporations as loans, and the interest is only taxed by the recipient, but if you lend money to the corporation by purchasing equity, that is taxed twice. This asymmetric tax treatment incentivizes taking on debt and thus financial fragility and short-term thinking. OK, you say, let's treat interest and dividends the same. Then you have this issue with massive executive compensation, which is untaxed as it is treated as an expense. You'd like for that to not be tax-exempt as well. Thus you decide to tax value add -- that is revenue net of your cost of goods. That way, you catch cheaters, since if corp A reports something as a cost (payment to B), then B better record it as a revenue. B can't hide. Except now comes the foreign sector. What if B is a foreign company? There's the rub. One option is to say the foreign company also has to pay you taxes based on what it sells to A. This would effectively put an end to all the shell company shenanigans. To be fair, you can give credit for income paid to other jurisdictions so you don't end up double-taxing (like we do), but that's minor. So now you are happy with your system. You survey the landscape and what have you accomplished? A sales tax! This is just a value added tax, or VAT, which is another form of sales tax. But sales tax is regressive! And very unpopular. So there is this problem where Americans don't want a national sales tax of, say 20%, but they do want a corporate profit tax of, say 40%. And they are really angry when they see the effective corporate tax being so low, say 5%. This reveals a cold truth, which is that corporations are effectively pass through entities for the human owners of the corporations. So why tax them twice? Well, because we have so many tax loopholes and such large trade deficits that 40% of our corporations are owned by foreigners that don't pay US taxes and 40% are owned by pension funds and tax-advantaged retirement accounts so that only 20% of US equities are subject to any tax at all. So this thrashing around about corporations reveals yet another uncomfortable truth, which is that our massive outsourcing has resulted in an erosion of the tax base just as much as it has destroyed middle class jobs. This brings us back to a new variant of the old trilema, which is that you can't have free flow of capital (or equivalently, trade) across borders, a floating currency, and your own interest rate policy. You can only have two of these. Except the tax version of this is that you can't have free flow of capital (that is trade), a floating currency, and your own corporate tax policy. The best you can do is a national sales tax for goods sold to your own citizens. If you try to tax corporations, you will run into the two-headed hydra that your corporations are owned by overseas investors and that your corporations have set up overseas businesses that sell them valuable inputs, so valuable that all the value is routed overseas. So what happens is people create a tax policy that tries to also avoid tariffs on trade and foreign capital flows, and then they are shocked when corporations arbitrage that away.
toast0 5y ago
The trump tax changes actually did. IIRC, a US corporation is taxed either 20% of US net income or 10% of global net income with credits for overseas taxes paid, whichever is more. Corrections welcome, I likely misremembered something. The idea being if you paid at least 10% on the income in the jurisdiction where it was earned, great; if not, you'll pay it at home. This replaced a higher rate on US net income and global net income that lands in the US.
- KirillPanov 5y ago
  Incorporate in a low/zero-tax jurisdiction. Form a second corporation that resells your product to your US customers at an insignificant markup. It pays tax only on said insignificant markup. The company it buys from has no US operations or dealings of any kind, therefore does not even file US returns.
  - refurb 5y ago
    Looking up “transfer pricing regulations” to see why this doesn’t really work.
refurb 5y ago
Well presumably you tax corps on profit and if they have no profit, there would be no AMT.

Individuals are subjected to "alternative minimum tax". Why not corporations?

Decker87 5y ago

Cause they're not people. Oh wait...

papito 5y ago
Haha. Good old Citizens United. Corporations are "people" only when it comes to ditching taxes and pumping tons of cash into politics, but when the time comes to pay for crimes - uh uh, hands off, not a person...
- refurb 5y ago
  This is a ridiculously bad take on Citizens United.

avs733 5y ago

Because individuals don’t have the ability to author the tax code like corporations do.

0goel0 5y ago

Individuals can't pretend to be based in Ireland to not pay US taxes. US taxes global individual income, but not global corporate profits.

dkarras 5y ago
>US taxes global individual income... Always wondered why US citizens do not make a bigger deal out of this. If I understand correctly, if you are a US citizen, but live somewhere else in the world, IRS still expects to be paid tax from your individual income in that foreign country (possibly in addition to the tax you pay in your country of residence) right? I assume there are minimum income thresholds but still... Are there even any other countries that do this?
- Mediterraneo10 5y ago
  US citizens make something of a deal out of it, as you can see from expat forums every spring when tax-filing season comes. However, relatively few American citizens abroad choose to renounce their citizenship because they find it useful to retain it. The minimum income threshold to pay income taxes (otherwise you just file) is ~$100,000, so that generally means most middle-class people don’t have to pay. The real pain is for people who don’t really think of themselves as US expats, but who have US citizenship through an accident of birth and perhaps haven’t thought of that in years. For them, it is when e.g. a bank in their country suddenly doesn’t want to accept them as a customer due to the onerous reporting requirements, that they are aghast at the situation. > Are there even any other countries that do this? Reportedly Eritrea.
  - beckman466 5y ago
    > The minimum income threshold to pay income taxes (otherwise you just file) is ~$100,000, so that generally means most middle-class people don’t have to pay. I wanted to know this, thank you!
  - 252452d 5y ago
    It costs a few thousand to renounce it anyway. The Foreign Earned Income Exclusion is what you're referring to.
  - slavik81 5y ago
    > However, relatively few American citizens abroad choose to renounce their citizenship because they find it useful to retain it. Also because the US government will not allow you to renounce your citizenship if you are doing so for tax reasons.
    - Mediterraneo10 5y ago
      Not really. Most US expats who would want to renounce their citizenship, know to tell the consul at the renunciation appointment a vague "I have citizenship of country X now and I no longer identify with my American citizenship," and not, "I don’t want to file US taxes anymore."

rsj_hn 5y ago

Taxing corporations is one of those things that seems pretty obvious until you really dig into the details, at which point you end up with some uncomfortable conclusions. Thus there is this endless handwringing about corporations paying so little yet at the end of the day, the solutions (those that work) are quite unpopular. Let's walk down this rabbit hole: So you want to tax corporate profits. Well, trouble is, it's easy to hide profits. For example, interest payments are subtracted from profits, which allows investors to lend money to corporations as loans, and the interest is only taxed by the recipient, but if you lend money to the corporation by purchasing equity, that is taxed twice. This asymmetric tax treatment incentivizes taking on debt and thus financial fragility and short-term thinking. OK, you say, let's treat interest and dividends the same. Then you have this issue with massive executive compensation, which is untaxed as it is treated as an expense. You'd like for that to not be tax-exempt as well. Thus you decide to tax value add -- that is revenue net of your cost of goods. That way, you catch cheaters, since if corp A reports something as a cost (payment to B), then B better record it as a revenue. B can't hide. Except now comes the foreign sector. What if B is a foreign company? There's the rub. One option is to say the foreign company also has to pay you taxes based on what it sells to A. This would effectively put an end to all the shell company shenanigans. To be fair, you can give credit for income paid to other jurisdictions so you don't end up double-taxing (like we do), but that's minor. So now you are happy with your system. You survey the landscape and what have you accomplished? A sales tax! This is just a value added tax, or VAT, which is another form of sales tax. But sales tax is regressive! And very unpopular. So there is this problem where Americans don't want a national sales tax of, say 20%, but they do want a corporate profit tax of, say 40%. And they are really angry when they see the effective corporate tax being so low, say 5%. This reveals a cold truth, which is that corporations are effectively pass through entities for the human owners of the corporations. So why tax them twice? Well, because we have so many tax loopholes and such large trade deficits that 40% of our corporations are owned by foreigners that don't pay US taxes and 40% are owned by pension funds and tax-advantaged retirement accounts so that only 20% of US equities are subject to any tax at all. So this thrashing around about corporations reveals yet another uncomfortable truth, which is that our massive outsourcing has resulted in an erosion of the tax base just as much as it has destroyed middle class jobs. This brings us back to a new variant of the old trilema, which is that you can't have free flow of capital (or equivalently, trade) across borders, a floating currency, and your own interest rate policy. You can only have two of these. Except the tax version of this is that you can't have free flow of capital (that is trade), a floating currency, and your own corporate tax policy. The best you can do is a national sales tax for goods sold to your own citizens. If you try to tax corporations, you will run into the two-headed hydra that your corporations are owned by overseas investors and that your corporations have set up overseas businesses that sell them valuable inputs, so valuable that all the value is routed overseas. So what happens is people create a tax policy that tries to also avoid tariffs on trade and foreign capital flows, and then they are shocked when corporations arbitrage that away.

toast0 5y ago

The trump tax changes actually did. IIRC, a US corporation is taxed either 20% of US net income or 10% of global net income with credits for overseas taxes paid, whichever is more. Corrections welcome, I likely misremembered something. The idea being if you paid at least 10% on the income in the jurisdiction where it was earned, great; if not, you'll pay it at home. This replaced a higher rate on US net income and global net income that lands in the US.

KirillPanov 5y ago
Incorporate in a low/zero-tax jurisdiction. Form a second corporation that resells your product to your US customers at an insignificant markup. It pays tax only on said insignificant markup. The company it buys from has no US operations or dealings of any kind, therefore does not even file US returns.
- refurb 5y ago
  Looking up “transfer pricing regulations” to see why this doesn’t really work.

refurb 5y ago

Well presumably you tax corps on profit and if they have no profit, there would be no AMT.