37 ms·

The linked article is inaccurate. While the US has the highest base corporate tax rate, it has the lowest effective corporate tax rate of any major nation. Th

by rprasad 14y ago

The linked article is inaccurate. While the US has the highest base corporate tax rate, it has the lowest effective corporate tax rate of any major nation. The US favors a deduction/credit-based system for lowering taxes. Manufacturing and research deductions/credits are especially generous. Ultimately, service-based businesses pay the highest effective rates, but few properly advised service businesses pay a 35% effective rate. (For example, choose a tax entity other than a corporation unless you have a compelling reason for being a corporation.) It is very possible to engineer around taxes. This is what I and others in my field do for a living.

forrestthewoods 14y ago
"it has the lowest effective corporate tax rate of any major nation" Can you provide a source on that? I'd love to see a good list.
- xiaoma 14y ago
  Sure! Let me google that for you. The first couple of links have your answer. http://lmgtfy.com/?q=corporate+tax+rate+by+country http://lmgtfy.com/?q=corporate+tax+rate+by+country
  - forrestthewoods 14y ago
    Dude, are you serious? Did you read anything before making that reply? An outlandish claim regarding EFFECTIVE tax rate was made without any citations. Your snarky link does nothing to resolve the claim. A similar search for "effective corporate tax rate by country" also provides no evidence to defend rprasad's claim. Adventureful dug up quotes with sources fully debunking the claim in question.
    - xiaoma 14y ago
      You have access to the same internet the rest of us do. I'm happy to find some resources, like a wiki page with relevant links, but obviously there's a limit to how much research you can expect strangers to do for you. I will try to help though: http://lmgtfy.com/?q=effective+tax+rate+by+country http://lmgtfy.com/?q=effective+tax+rate+by+country The first link brings up this report (which shows the US effective tax rate towards the top): http://businessroundtable.org/uploads/studies-reports/downloads/Effective_Tax_Rate_Study.pdf http://businessroundtable.org/uploads/studies-reports/downlo... Is that the kind of info you're looking for? If not, maybe you could share the citations that you've dug up and enlighten the rest of us?
fidotron 14y ago
That's kind of the problem. Once you can pay for the tax engineering, great, but you have to get to critical mass first, and having a credit/deduction based system instead of an overall flat rate prevents small players from getting there.
- rprasad 14y ago
  Or they could just visit the IRS website. There are taxpayer-friendly guides for understanding the tax system. The NOLO series also has good advice. Alternatively, spending about $1000 on tax advice from an accountant or tax lawyer could pay for itself in weeks. Taxes aren't due until the following year. If you can't afford to pay for basic tax advice after a year, you are either (a) undercapitalized or (b) lack traction and need to pivot. Also, the reason the US uses a deduction/credit system is that it is (politically) easier to balance credits and deductions (which effect fewer taxpayers) than to balance an alteration to the base rate that affects everyone.
  - mahyarm 14y ago
    It's more IRS enforcement risk, you can interpret something incorrectly and the IRS will penalize you with usually crazy penalties.
emiliobumachar 14y ago
Nothing against your chosen profession, but a system in which businesses need to worry about planning and optimising their taxes rather than focusing on their weath-creating activities is flawed. BTW I live in Brazil, where we have big problems with both the tax rates and the byzantine complexity. Companies spend thousands of man-hours doing taxes. Again, once you are in such a system, specializing in giving tax advice is a decent, honest way to make a living. But it's a bad system to begin with. I think the article's point (maybe poorly expressed) is that having a bad tax system cripples the economy so much, that it has to be addressed in any serious effort to increase competitiveness. That's what can't be engineered around.
- rprasad 14y ago
  I could say the same thing about the need to select proper platforms and technologies for scaling a website or SaaS (i.e,. AWS, database choice, even language choice)..."A system in which people need to worry about planning and optimizing their technology platform for future expectations rather than just building something that works from the ge-go is flawed." But that's not the way tech works. And that's not the way tax works either. If you are a small fry, the tax burden (or savings) will not be large enough to matter (because as a corporation, you get taxed on net income, i.e., profits). Affording a tax lawyer to "game" the tax system won't be necessary until you are at the scale where you are already pulling in serious profits. Ultimately, people tend to vastly overestimate (or underestimate) the difficulty of activities outside of their profession.
  - tolmasky 14y ago
    I don't necessarily disagree with your point, but your analogy is severely flawed. Nothing forces taxes to be complicated, its not some sort of inherent property of taxes -- and in fact regardless of where people stand on whether taxes should be higher or lower, I rarely find someone who disagrees that taxes are too complicated in the US. The people who seem happiest with the status quo are precisely the ones whose employment relies on it (no offense). I'm really surprised you'd then compare this situation to choosing between different available techs: it has nothing in common except "being hard". This is a legitimate expense from a natural consequence of invention: there are going to be several options with different trade-offs. You act as if Amazon is doing you a disservice by providing you with another option. Unlike the tax world, if there was a way to simplify this choice, everyone in the industry would immediately jump on board. You don't have to take my word for it, its the pattern we've been seeing from the beginning of technology. Making and scaling website today is vastly simpler than 10, 15, and 20 years ago. Can you say the same for taxes? Or have taxes become increasingly harder to deal with as time progresses? Many aspects of running a website that required experts yesterday are completely automated today. In other words, the cost of "choosing a platform" is justified because there is no workaround and it is not an artificial position that you have been placed in. On the other hand, you have not proven that there is no alternative to a convoluted tax system that requires tax experts -- and furthermore it is not even clear what the benefits of a convoluted tax system even are. BTW, I am not taking a position on this, I am simply pointing out that that is the correct attack vector: explaining why this system that requires tax experts is necessary vs saying "Sure it is hard, but many other things are also hard." EDIT: Added last sentence.
adventureful 14y ago
http://www.bloomberg.com/news/2011-04-14/u-s-companies-pay-world-s-sixth-highest-tax-rate-study-finds.html http://www.bloomberg.com/news/2011-04-14/u-s-companies-pay-w... "The tax rate for the largest U.S. companies between 2006 and 2009 was 27.7 percent, compared with a non-U.S. average of 19.5 percent, according to the study released today. Companies based in Japan, Morocco, Italy, Indonesia and Germany faced higher tax rates. Excluding the U.S., companies based in industrialized countries had an average rate of 22.6 percent. " "A March 31 report by the Congressional Research Service, using different methodology, found that the U.S. had an effective corporate tax rate of 27.1 percent in 2008. Other industrialized countries had an average 27.7 percent effective rate, using a weighted approach that adjusted for the size of the economy, and a 23.3 percent rate with an unweighted approach. " The rest of the world has been competitively lowering corporate taxes (Sweden, once considered a socialist bastion, has a 26% corporate tax rate for example and is discussing lowering it to 20%). http://blog.american.com/wp-content/uploads/2012/02/022212hassett1.jpg http://blog.american.com/wp-content/uploads/2012/02/022212ha... And what's very important is how much the bottom 97% of US firms pay, as companies like GE dodging billions in taxes massively skews the results for small businesses who can't dodge like that. To be a small business in the US and get socked with a 40% combined income tax rate is paralyzing.

by rprasad 14y ago

forrestthewoods 14y ago

"it has the lowest effective corporate tax rate of any major nation" Can you provide a source on that? I'd love to see a good list.

xiaoma 14y ago
Sure! Let me google that for you. The first couple of links have your answer. http://lmgtfy.com/?q=corporate+tax+rate+by+country http://lmgtfy.com/?q=corporate+tax+rate+by+country
- forrestthewoods 14y ago
  Dude, are you serious? Did you read anything before making that reply? An outlandish claim regarding EFFECTIVE tax rate was made without any citations. Your snarky link does nothing to resolve the claim. A similar search for "effective corporate tax rate by country" also provides no evidence to defend rprasad's claim. Adventureful dug up quotes with sources fully debunking the claim in question.
  - xiaoma 14y ago
    You have access to the same internet the rest of us do. I'm happy to find some resources, like a wiki page with relevant links, but obviously there's a limit to how much research you can expect strangers to do for you. I will try to help though: http://lmgtfy.com/?q=effective+tax+rate+by+country http://lmgtfy.com/?q=effective+tax+rate+by+country The first link brings up this report (which shows the US effective tax rate towards the top): http://businessroundtable.org/uploads/studies-reports/downloads/Effective_Tax_Rate_Study.pdf http://businessroundtable.org/uploads/studies-reports/downlo... Is that the kind of info you're looking for? If not, maybe you could share the citations that you've dug up and enlighten the rest of us?

fidotron 14y ago

That's kind of the problem. Once you can pay for the tax engineering, great, but you have to get to critical mass first, and having a credit/deduction based system instead of an overall flat rate prevents small players from getting there.

rprasad 14y ago
Or they could just visit the IRS website. There are taxpayer-friendly guides for understanding the tax system. The NOLO series also has good advice. Alternatively, spending about $1000 on tax advice from an accountant or tax lawyer could pay for itself in weeks. Taxes aren't due until the following year. If you can't afford to pay for basic tax advice after a year, you are either (a) undercapitalized or (b) lack traction and need to pivot. Also, the reason the US uses a deduction/credit system is that it is (politically) easier to balance credits and deductions (which effect fewer taxpayers) than to balance an alteration to the base rate that affects everyone.
- mahyarm 14y ago
  It's more IRS enforcement risk, you can interpret something incorrectly and the IRS will penalize you with usually crazy penalties.

emiliobumachar 14y ago

Nothing against your chosen profession, but a system in which businesses need to worry about planning and optimising their taxes rather than focusing on their weath-creating activities is flawed. BTW I live in Brazil, where we have big problems with both the tax rates and the byzantine complexity. Companies spend thousands of man-hours doing taxes. Again, once you are in such a system, specializing in giving tax advice is a decent, honest way to make a living. But it's a bad system to begin with. I think the article's point (maybe poorly expressed) is that having a bad tax system cripples the economy so much, that it has to be addressed in any serious effort to increase competitiveness. That's what can't be engineered around.

rprasad 14y ago
I could say the same thing about the need to select proper platforms and technologies for scaling a website or SaaS (i.e,. AWS, database choice, even language choice)..."A system in which people need to worry about planning and optimizing their technology platform for future expectations rather than just building something that works from the ge-go is flawed." But that's not the way tech works. And that's not the way tax works either. If you are a small fry, the tax burden (or savings) will not be large enough to matter (because as a corporation, you get taxed on net income, i.e., profits). Affording a tax lawyer to "game" the tax system won't be necessary until you are at the scale where you are already pulling in serious profits. Ultimately, people tend to vastly overestimate (or underestimate) the difficulty of activities outside of their profession.
- tolmasky 14y ago
  I don't necessarily disagree with your point, but your analogy is severely flawed. Nothing forces taxes to be complicated, its not some sort of inherent property of taxes -- and in fact regardless of where people stand on whether taxes should be higher or lower, I rarely find someone who disagrees that taxes are too complicated in the US. The people who seem happiest with the status quo are precisely the ones whose employment relies on it (no offense). I'm really surprised you'd then compare this situation to choosing between different available techs: it has nothing in common except "being hard". This is a legitimate expense from a natural consequence of invention: there are going to be several options with different trade-offs. You act as if Amazon is doing you a disservice by providing you with another option. Unlike the tax world, if there was a way to simplify this choice, everyone in the industry would immediately jump on board. You don't have to take my word for it, its the pattern we've been seeing from the beginning of technology. Making and scaling website today is vastly simpler than 10, 15, and 20 years ago. Can you say the same for taxes? Or have taxes become increasingly harder to deal with as time progresses? Many aspects of running a website that required experts yesterday are completely automated today. In other words, the cost of "choosing a platform" is justified because there is no workaround and it is not an artificial position that you have been placed in. On the other hand, you have not proven that there is no alternative to a convoluted tax system that requires tax experts -- and furthermore it is not even clear what the benefits of a convoluted tax system even are. BTW, I am not taking a position on this, I am simply pointing out that that is the correct attack vector: explaining why this system that requires tax experts is necessary vs saying "Sure it is hard, but many other things are also hard." EDIT: Added last sentence.

adventureful 14y ago

http://www.bloomberg.com/news/2011-04-14/u-s-companies-pay-world-s-sixth-highest-tax-rate-study-finds.html http://www.bloomberg.com/news/2011-04-14/u-s-companies-pay-w... "The tax rate for the largest U.S. companies between 2006 and 2009 was 27.7 percent, compared with a non-U.S. average of 19.5 percent, according to the study released today. Companies based in Japan, Morocco, Italy, Indonesia and Germany faced higher tax rates. Excluding the U.S., companies based in industrialized countries had an average rate of 22.6 percent. " "A March 31 report by the Congressional Research Service, using different methodology, found that the U.S. had an effective corporate tax rate of 27.1 percent in 2008. Other industrialized countries had an average 27.7 percent effective rate, using a weighted approach that adjusted for the size of the economy, and a 23.3 percent rate with an unweighted approach. " The rest of the world has been competitively lowering corporate taxes (Sweden, once considered a socialist bastion, has a 26% corporate tax rate for example and is discussing lowering it to 20%). http://blog.american.com/wp-content/uploads/2012/02/022212hassett1.jpg http://blog.american.com/wp-content/uploads/2012/02/022212ha... And what's very important is how much the bottom 97% of US firms pay, as companies like GE dodging billions in taxes massively skews the results for small businesses who can't dodge like that. To be a small business in the US and get socked with a 40% combined income tax rate is paralyzing.