5 ms·

Imposing taxes on a legal entity always seemed fishy to me. Politically, it sounds great to say, "Make the corporations pay their share!", but who exactly are

Imposing taxes on a legal entity always seemed fishy to me. Politically, it sounds great to say, "Make the corporations pay their share!", but who exactly are we targeting with these taxes? Is it the rich executives? Why not just raise taxes on the rich directly? I suspect in most cases the tax burden is just shifted onto the lower-income workers or the customers somehow.

eunos 5y ago
> who exactly are we targeting with these taxes? Is it the rich executives? Lot of times the money were not handed to the employee, executives included. They just stay at the company or paid to the financial company that owned the companies.
- harikb 5y ago
  At least from my eyes, recent trends are exact opposite. Stock buyback returns the money to investors (by raising stock price). Huge bonuses to executives. The company itself is managed on a very thin buffer so that a) When things go south, they can always ask the government for bail-out. Too big to fail & all that. b) Anything affecting the company, in terms of regulations, can be shown to directly affect the employees and their job. This may be a cynical take, but this is what I see.
  - ClumsyPilot 5y ago
    But investors keep their money in honding companies and trusts, sometimes registered in panama. The billions never actually have a physical person as their official owner
bradford 5y ago
> it sounds great to say, "Make the corporations pay their share!" the Global minimum tax rate is only tangentially related to the 'make corporations pay their share' problem. The real problem is a 'race to the bottom' where corporations will shop around and put tax headquarters in the country with the smallest tax rate (i.e., Ireland). > I suspect in most cases the tax burden is just shifted The big question for me is: is it really a significant tax burden? or do the companies choose nations with the lowest tax rate because they are seeking a competitive advantage, and thereby inducing all their competitors to make a similiar choice? the minimum tax rate is trying to level the playing field in this regard.
- novok 5y ago
  It's a collusion agreement amongst the government industry to not compete with each other on this one aspect.
Mordisquitos 5y ago
Yes, I agree. I myself have always wondered about the opposite strategy: literally zero corporation tax, compensated by an overarching income-agnostic personal income tax which would go up to stupidly high percents in the stupidly high income brackets, say for the sake of the argument 80% above 1 million €/$/£, 90% above 10 million, 95% above 100 million etc. I don't necessarily mean these specific values, but you get the idea. This income tax wouldn't care if the individual's income is salaried, or dividends, or stocks, or real estate, or whathaveyou. Any transfer of wealth from an un-taxed business to a taxable individual would count equally. Of course, the zero corporation tax would be conditional on all of a corporation's profits being distributed to individuals in states subject to the zero-corporate-hardcore-income tax agreement. I'm sure it would be extremely difficult to implement correctly, and to avoid tax avoidance schemes it would also require strong levels of capital controls with non-participant nations. I may be a bit naïve, but intuitively I feel that erasing corporation tax altogether but highly taxing all individuals' personal profits may encourage innovation and reinvestment, and perhaps even make UBI a feasible option.
- lordnacho 5y ago
  If we did that, rich people would keep a corp as a piggy bank and only pay taxes on whatever they took out. Most of the money would stay in the corp and be use on various investments. To a degree this is already what people do (eg contractors), except they have to pay some corp tax each year on what they made.
  - magila 5y ago
    How is that any different from having money invested in stocks/real estate/etc today? Unrealized capital gains aren't taxed regardless of whether the asset is held by a corp or individual. In any case it's when the person realizes the gains that a taxable event is triggered.
    - lordnacho 5y ago
      The difference is it can be a realised gain that you'd then not pay tax on. Eg the Corp makes 100 in profits but at zero it doesn't pay out anything. For unrealised gains you're right, there's no difference.
throwaway34241 5y ago
It's basically the shareholders that pay this tax - the corporate tax being described here only on applies to the profits, so salaries for example would be counted as an expense and not included in that. There's also not a lot of reason for this to be passed on to the consumer - if raising prices would let the company make more profit, it would make sense for them to do that anyway regardless of the specific tax rate they pay on those profits. As for taxing the shareholders directly, they of course do do that in addition to the corporate tax. One way the corporate tax is a little bit different is that it's paid before income is distributed to the shareholders, so if a company accumulates a huge cash balance but doesn't do any share buybacks / dividends, it will still pay the corporate tax even though the shareholders won't pay any tax (unless the company starts distributing the profits).
- djrogers 5y ago
  Shareholders tend not to wind up holding the bag - higher corporate taxes result in higher prices at the consumer level.
  - svachalek 5y ago
    No one ever wants to argue the opposite -- "but if you tax consumers, they won't spend as much, and corporations won't make as much money!" Although personally if I had to bet on one way or the other, I would say this reversal is easier to prove.
dougmwne 5y ago
What stops a person from creating a legal entity to funnel your activities through to personally avoid taxes? If the corporate tax rate is 0% and the individual tax rate tops out at 40%, the incentives to practice this kind of avoidance are strong.
- magila 5y ago
  Existing tax law already covers this. If you use a corp to fund personal activities that is a benefit-in-kind and subject to income tax same as if you received the money directly.
runarberg 5y ago
I think you’ll find hints of the answer in the fact that most countries are pretty bad at collecting taxes from the rich already. It is fairly easy if you are rich to hide your wealth and evade taxes. I suspect it might be a little more difficult for a publicly traded company to hide its wealth the same way.
- 8note 5y ago
  Apple would be an example. Rather than pay taxes, they get a tax free date to onshore their money every so often
handrous 5y ago
> Politically, it sounds great to say, "Make the corporations pay their share!", but who exactly are we targeting with these taxes? I just think of it as forced public ownership of a fraction of the shares of companies chartered & granted special privileges by the public's government, but with extra steps.
UnpossibleJim 5y ago
One of the even bigger issues with this bill is the lack of accountability in government spending. This does nothing to tackle military spending or riders tacked on to bills that have nothing to do with the proposed spending bill. If politicians really wanted to make people happy and get things under control, it would be transparency in spending and no riders on spending bills. This is just another way to wring more money out of a populace with a better sales pitch by saying, "Make the corporations pay their share!", knowing full well that people don't consider the down stream effects on middle and lower class economic systems.
- PoignardAzur 5y ago
  I mean, I don't disagree that governments can spend their money in undesirable ways, but in general increasing government revenue is a good thing. Maybe this bill doesn't stop oversized military spending, but it at least puts a damper on the race to the bottom of countries offering low taxes to gigantic corporations.
  - robertlagrant 5y ago
    Preventing that race to the bottom is not a goal in and of itself.
- walshemj 5y ago
  Well that's a very US specific thing with its current rather 18th century set up. I agree from a parliamentary perspective its horrific. Its a bit similar to the way the tiny NI parties hold UK governments feet to the fire in return for support they get nice bungs or optouts on human rights laws.
  - UnpossibleJim 5y ago
    That's completely fair, as I really can't speak to the government expenditures in other countries, nor how they pass their budgets.
mullingitover 5y ago
> Politically, it sounds great to say, "Make the corporations pay their share!", but who exactly are we targeting with these taxes? Is it the rich executives? Why not just raise taxes on the rich directly? Pretty basic megarich person accounting: You realize zero income, you just hold a lot of valuable assets, and you pay no taxes. "But surely they must have some income to live on!" you argue. Nope, you get a $10 million loan backed by your assets. You spend that loan, which is not income, tax free. When the time comes to pay back that loan, obviously the next move is to get a $20 million loan. You can keep rolling these loans tax-free until you die. "Aha, now the estate pays the taxes!" except there are a multitude of other loopholes for evading inheritance taxes. On paper and at first glance it seems like everything is fair (which is the goal, to seem fair), but only the most incompetent ultra-wealthy person is pulling anything close to their own weight when it comes to taxes.
- dantheman 5y ago
  Except that doesn't happen? Bezos paid 973 Million in taxes [1], note that article conflates income and wealth in a truly economic illiterate way. https://www.seattletimes.com/business/irs-records-show-wealthiest-americans-including-bezos-and-musk-pay-relatively-little-in-income-taxes/ https://www.seattletimes.com/business/irs-records-show-wealt...
  - mullingitover 5y ago
    Bezos is playing it pretty straight, but then again 973 million is basically pocket change for him, also let's not forget about the year he paid zero taxes and got a refund: > Bezos filed a tax return in 2011 reporting he lost money because of bad investments, allowing him to claim and receive a $4,000 tax credit for his children, according to ProPublica. Anway Bezos is far from the only mega-rich person, for example from that article you cite: > Another wealthy person whose tax data ProPublica obtained was Carl Icahn, the activist investor who built his wealth through corporate takeovers. He paid zero income taxes in 2016 and 2017, partly because he was able to deduct interest expenses on loans from his “adjusted gross income,” ProPublica said.

eunos 5y ago

> who exactly are we targeting with these taxes? Is it the rich executives? Lot of times the money were not handed to the employee, executives included. They just stay at the company or paid to the financial company that owned the companies.

harikb 5y ago
At least from my eyes, recent trends are exact opposite. Stock buyback returns the money to investors (by raising stock price). Huge bonuses to executives. The company itself is managed on a very thin buffer so that a) When things go south, they can always ask the government for bail-out. Too big to fail & all that. b) Anything affecting the company, in terms of regulations, can be shown to directly affect the employees and their job. This may be a cynical take, but this is what I see.
- ClumsyPilot 5y ago
  But investors keep their money in honding companies and trusts, sometimes registered in panama. The billions never actually have a physical person as their official owner

bradford 5y ago

> it sounds great to say, "Make the corporations pay their share!" the Global minimum tax rate is only tangentially related to the 'make corporations pay their share' problem. The real problem is a 'race to the bottom' where corporations will shop around and put tax headquarters in the country with the smallest tax rate (i.e., Ireland). > I suspect in most cases the tax burden is just shifted The big question for me is: is it really a significant tax burden? or do the companies choose nations with the lowest tax rate because they are seeking a competitive advantage, and thereby inducing all their competitors to make a similiar choice? the minimum tax rate is trying to level the playing field in this regard.

novok 5y ago
It's a collusion agreement amongst the government industry to not compete with each other on this one aspect.

Mordisquitos 5y ago

Yes, I agree. I myself have always wondered about the opposite strategy: literally zero corporation tax, compensated by an overarching income-agnostic personal income tax which would go up to stupidly high percents in the stupidly high income brackets, say for the sake of the argument 80% above 1 million €/$/£, 90% above 10 million, 95% above 100 million etc. I don't necessarily mean these specific values, but you get the idea. This income tax wouldn't care if the individual's income is salaried, or dividends, or stocks, or real estate, or whathaveyou. Any transfer of wealth from an un-taxed business to a taxable individual would count equally. Of course, the zero corporation tax would be conditional on all of a corporation's profits being distributed to individuals in states subject to the zero-corporate-hardcore-income tax agreement. I'm sure it would be extremely difficult to implement correctly, and to avoid tax avoidance schemes it would also require strong levels of capital controls with non-participant nations. I may be a bit naïve, but intuitively I feel that erasing corporation tax altogether but highly taxing all individuals' personal profits may encourage innovation and reinvestment, and perhaps even make UBI a feasible option.

lordnacho 5y ago
If we did that, rich people would keep a corp as a piggy bank and only pay taxes on whatever they took out. Most of the money would stay in the corp and be use on various investments. To a degree this is already what people do (eg contractors), except they have to pay some corp tax each year on what they made.
- magila 5y ago
  How is that any different from having money invested in stocks/real estate/etc today? Unrealized capital gains aren't taxed regardless of whether the asset is held by a corp or individual. In any case it's when the person realizes the gains that a taxable event is triggered.
  - lordnacho 5y ago
    The difference is it can be a realised gain that you'd then not pay tax on. Eg the Corp makes 100 in profits but at zero it doesn't pay out anything. For unrealised gains you're right, there's no difference.

throwaway34241 5y ago

It's basically the shareholders that pay this tax - the corporate tax being described here only on applies to the profits, so salaries for example would be counted as an expense and not included in that. There's also not a lot of reason for this to be passed on to the consumer - if raising prices would let the company make more profit, it would make sense for them to do that anyway regardless of the specific tax rate they pay on those profits. As for taxing the shareholders directly, they of course do do that in addition to the corporate tax. One way the corporate tax is a little bit different is that it's paid before income is distributed to the shareholders, so if a company accumulates a huge cash balance but doesn't do any share buybacks / dividends, it will still pay the corporate tax even though the shareholders won't pay any tax (unless the company starts distributing the profits).

djrogers 5y ago
Shareholders tend not to wind up holding the bag - higher corporate taxes result in higher prices at the consumer level.
- svachalek 5y ago
  No one ever wants to argue the opposite -- "but if you tax consumers, they won't spend as much, and corporations won't make as much money!" Although personally if I had to bet on one way or the other, I would say this reversal is easier to prove.

dougmwne 5y ago

What stops a person from creating a legal entity to funnel your activities through to personally avoid taxes? If the corporate tax rate is 0% and the individual tax rate tops out at 40%, the incentives to practice this kind of avoidance are strong.

magila 5y ago
Existing tax law already covers this. If you use a corp to fund personal activities that is a benefit-in-kind and subject to income tax same as if you received the money directly.

runarberg 5y ago

I think you’ll find hints of the answer in the fact that most countries are pretty bad at collecting taxes from the rich already. It is fairly easy if you are rich to hide your wealth and evade taxes. I suspect it might be a little more difficult for a publicly traded company to hide its wealth the same way.

8note 5y ago
Apple would be an example. Rather than pay taxes, they get a tax free date to onshore their money every so often

handrous 5y ago

> Politically, it sounds great to say, "Make the corporations pay their share!", but who exactly are we targeting with these taxes? I just think of it as forced public ownership of a fraction of the shares of companies chartered & granted special privileges by the public's government, but with extra steps.

UnpossibleJim 5y ago

One of the even bigger issues with this bill is the lack of accountability in government spending. This does nothing to tackle military spending or riders tacked on to bills that have nothing to do with the proposed spending bill. If politicians really wanted to make people happy and get things under control, it would be transparency in spending and no riders on spending bills. This is just another way to wring more money out of a populace with a better sales pitch by saying, "Make the corporations pay their share!", knowing full well that people don't consider the down stream effects on middle and lower class economic systems.

PoignardAzur 5y ago
I mean, I don't disagree that governments can spend their money in undesirable ways, but in general increasing government revenue is a good thing. Maybe this bill doesn't stop oversized military spending, but it at least puts a damper on the race to the bottom of countries offering low taxes to gigantic corporations.
- robertlagrant 5y ago
  Preventing that race to the bottom is not a goal in and of itself.
walshemj 5y ago
Well that's a very US specific thing with its current rather 18th century set up. I agree from a parliamentary perspective its horrific. Its a bit similar to the way the tiny NI parties hold UK governments feet to the fire in return for support they get nice bungs or optouts on human rights laws.
- UnpossibleJim 5y ago
  That's completely fair, as I really can't speak to the government expenditures in other countries, nor how they pass their budgets.

mullingitover 5y ago

> Politically, it sounds great to say, "Make the corporations pay their share!", but who exactly are we targeting with these taxes? Is it the rich executives? Why not just raise taxes on the rich directly? Pretty basic megarich person accounting: You realize zero income, you just hold a lot of valuable assets, and you pay no taxes. "But surely they must have some income to live on!" you argue. Nope, you get a $10 million loan backed by your assets. You spend that loan, which is not income, tax free. When the time comes to pay back that loan, obviously the next move is to get a $20 million loan. You can keep rolling these loans tax-free until you die. "Aha, now the estate pays the taxes!" except there are a multitude of other loopholes for evading inheritance taxes. On paper and at first glance it seems like everything is fair (which is the goal, to seem fair), but only the most incompetent ultra-wealthy person is pulling anything close to their own weight when it comes to taxes.

dantheman 5y ago
Except that doesn't happen? Bezos paid 973 Million in taxes [1], note that article conflates income and wealth in a truly economic illiterate way. https://www.seattletimes.com/business/irs-records-show-wealthiest-americans-including-bezos-and-musk-pay-relatively-little-in-income-taxes/ https://www.seattletimes.com/business/irs-records-show-wealt...
- mullingitover 5y ago
  Bezos is playing it pretty straight, but then again 973 million is basically pocket change for him, also let's not forget about the year he paid zero taxes and got a refund: > Bezos filed a tax return in 2011 reporting he lost money because of bad investments, allowing him to claim and receive a $4,000 tax credit for his children, according to ProPublica. Anway Bezos is far from the only mega-rich person, for example from that article you cite: > Another wealthy person whose tax data ProPublica obtained was Carl Icahn, the activist investor who built his wealth through corporate takeovers. He paid zero income taxes in 2016 and 2017, partly because he was able to deduct interest expenses on loans from his “adjusted gross income,” ProPublica said.