Tax Accounting Evil at Google?

theodp writes "In its annual report, Google said it's done no tax-accounting evil, but the search giant acknowledged that both the IRS and SEC are taking a look at the way in which it accounts for income tax. Google is one of a number of U.S. companies that have come under fire for allegedly practicing 'profit laundering', i.e., moving book profits offshore to evade millions and even billions in taxes to the country where it really operates. In past SEC filings, Google has credited its Irish subsidiary for reducing its effective tax rate."

Comments

Google no differnt than the rest

[Reverse Gear]

If Google had not done this then they would be pretty much the single exception from all other multinational companies.

Here in Denmark we have this huge shipping company Mærsk or A.P. Møller as it also known.
They have lots of other activities also, the company has always been somehow very attached to Denmark and many Danes are proud that Mærsk is a Danish company.
The thing is that the government here in Denmark have been proposing to change how the taxing system works for companies. The general idea is to lower the tax rate but to remove many of the things that companies can withdraw from their incomes when taxes are to be calculated, in part to prevent what Google is being accused of doing here, namely putting all their income in countries where they have lot's of losses and expenses also.
Mærsk have been threatening the Danish government that if these tax changes are done as proposed then they may be forced to move many of their activities to other countries. I see no evil in this, companies have to look at the bottom line and for most businesses generating income for their shareholders or who ever gets the money in the end.

I would not consider Google to be evil if they did something similar to this, they would just be acting like pretty much any other multinational company does these days.
I feel pretty sure the Irish doesn't see Googles way of doing their accounting as evil ;)

If something has to be done about this, it can't be done at the national level, I guess that is also what some of these movements like Attack (spelled?) and other have been talking about. I doubt there is ever going to be any real changes in this any time soon, there are far to big interests at stake for countries and big companies.

Re:Google no differnt than the rest

[Anonymous Coward]

Meanwhile, we, the Dutch, are pretty proud of IKEA being a Dutch company. Well, for tax purposes. So, we welcome Maersk!

Re:Google no differnt than the rest

[Anonymous Coward]

The US has this strange rule where profit earned by subsidiaries in other countries must pay income tax to the US, even if those subsidiaries have no US presence or customers. As a consequence of this many US companies have their offical headquarters in Bermuda, which has either no or much lower corporate income tax.

Re:Google no differnt than the rest

[iPaul]

You hit the fundamental problem with tax systems on the head. Their complicated nature and rules allows the system to be gamed (or, in a sense, bugs to be exploited). Perhaps this is not by intent, just like complexity in code makes bugs harder to find. Under US law it is perfectly legal to interprit and use the tax law to your advantage. (If the IRS differs - they *might* let you know if you're one of the precious few that get audited.) In fact, if you don't exploit the law you're not doing all you can to protect your shareholders' interests and therefore violating your fiduciary obligation to the shareholders. (There's a debate about weather or not this narrow definition of interests of the shareholders is actually in the best interests of the shareholders or the public at large - but let's put that aside for now).

On a side note: I'm tired of companies and individuals of claiming that they'll go "somewhere else" if there's a tax hike in their country. In the US we have a very low tax rate over-all, so I'm not exactly sure where these companies or individuals would go. In addition, people in the NYC area pay a sum total of Federal, State and County taxes that are higher than almost anywhere else in the US, yet they have not all moved out of the NY area to go live in Alaska or Texas (where there is no state income tax). In fact, if a company like Maersk says "Gee - the taxes are so high we'll move elsewhere," say - fine, splash it all over the papers and raise taxes. I'll bet you Maersk will not move one inch.

Re:Google no differnt than the rest

[AnonymousCactus]

Just because someone else does it, doesn't make it right.

I would expect Google to seek out the country where they would pay the highest taxes and funnel all of their money there. Governments know better how to manage our money than we do.

Scratch that. Just funnel it all to the U.S. because the U.S. knows better than the rest of the world how to handle the world's money.

Re:Google no differnt than the rest

[Firethorn]

There are benefits to living in NY* and NYC that aren't enjoyed elsewhere. For one, there's not enough jobs in Florida/Alaska. For another, there aren't the services. I bemoan the lack of a good chinese restraunt in my area, for example. Still, my property taxes are only $120/year. It's a trade-off.

The biggest problem for the people in NY is that they can't take their job with them. Corporations, not being individuals, can be in multiple locations at once. Moving where they pay taxes from one location to another is mostly a matter of bookkeeping.

Personally, I believe that the best answer in many of these cases are to stop trying to tax people's incomes, but to tax their spending with a sales tax. It's easy to administer and audit, very visible. There's very little way to avoid it without not spending money. It avoids the double taxation that is corporate income tax. First they tax the corp's income, then they tax the dividends paid to the owners of the stock.

*Note: I'm not a NY resident, though a set of my grandparents are. On the whole I think that it's a net negative for them, but they've always lived there, and aren't about to move out of their town, much less the state. The set of grandparents that DID move out of NY ended up in Florida.

Re:Google no differnt than the rest

[phantomlord]

NYC is the financial capital of the world or maybe it was. The rest of the state has already been decimated as key companies like Kodak and Xerox move out of state and wither away. NYC's politicians already sucked the rest of the state dry and its only a matter of time before they go down the tube with us. Companies aren't just outsourcing to other countries, many are just moving to other states. Up here in Rochester, the University of Rochester is now our biggest employer and the government is the only sector with any type of job growth.

Re:Google no differnt than the rest

[iPaul]

The point being is that the taxes in NYC outweight the money to be made in NYC. Until the advent of digital cameras, I believe Kodak did very well in upstate NY. Both Kodak and Xerox benefitted from (what I understand) are good schools and a local University. I don't think NY taxes had anything to do with the advent of digital photography (and buggy-whipping of film), or the lack of business accumen at Xerox.

I think that we need to partake in the global economy but we can't just tell a city like Rochester, or Flint "tough luck" when the employers move out, and the profitability of the company is more important than the lives of 10's of thousands, if not millions of people. I think we need to start asking ourselves what a company like Xerox owes a community when it pulls out. Or, maybe, what the business community owes US citizens as a whole for the freedom to move around as businesses choose, possibly destroying entire cities. I don't think it has to be a choice between taking care of people or doing what's best for companies. I think you can do both at the same time. Financials

Re:Google no differnt than the rest

[phantomlord]

The decline started happening long before "digital" was on anyone's radar outside of the field. Back around 1996, Kodak shipped my grandpa's job as a film cutter out of the country. Kodak and Xerox aren't the only companies who started bailing on Rochester long before the dotcom era but they're the most prolific two. As it is today, the towns and counties around here are giving multiyear tax breaks to companies willing to hire as few as a dozen people. The local paper recently ran a story bragging about how one local business is expanding by 17 people over the next two years. Things are pretty sad when that's your business highlight for the day.

I've had a good half dozen business startup ideas and have taken a couple through to the point where I have to decide whether its worth getting financing or scrapping the idea. Between the people who left for greener pastures as the technology and manufacturing jobs evaporated (leaving mostly government, retail and service type jobs) and the tax situation (the state has a $55 billion debt and is now proposing the largest budget in its history, Monroe County has a $73 million deficit to make up for this year, the state is talking about taking steps into socialized medicine, etc), none of them have a reasonable chance of turning profitable. The only chance western NY has to survive is to cut its losses now and become a new state, eliminating Albany and NYC since they're too different socio-economically to keep the state as one. Either way, its only a matter of time before NYC ends up falling into the mess it created for the rest of the state. They've got a lot of inertia to break but it will happen, probably within the next 15 years.

As for the local universities (UofR and RIT), the vast majority of people come to get their piece of paper and then leave. Upstate NY is actively losing its educated population and has been for about 20 years now. I wouldn't fault the business for leaving an area the government has made hostile for them to stay in when they have better opportunities. I blame the government for forcing them out by over-milking their cash cows.

Re:Google no differnt than the rest

[RevMike]

I'm tired of companies and individuals of claiming that they'll go "somewhere else" if there's a tax hike in their country. In the US we have a very low tax rate over-all, so I'm not exactly sure where these companies or individuals would go.

There is more to this than it may seem. Under US tax law, a US company can be taxed on all its operations, both those in the US and those outside. Many other countries, however, only tax a multinational on its domestic operations. Why should a company like Ford or GM have to pay taxes twice - to the US and the local jurisdiction - on its operations in Europe and Asia while Daimler Chrysler only has to pay taxes once to the local jurisdiction?

Any multinational with significant operations outside the US would be silly to not create a foreign holding company and a US subsidiary.

Re:Google no differnt than the rest

[iPaul]

What you're describing is not unusual. When times are good no one looks at the books much all sorts of crud gets through (and that is definitely part of the problem). However, when communities loose large employers their deficits and budgets go up, and it is usually driven by much higher levels of spending for social services. Food stamps, CHIPS, unemployment insurance, emergency fuel services, state portions of medicare/medicaide, unreimbursed medical at state/county hospitals, etc. All of these are driven by need, which is created by chronic unemployment, not necessarily malfeasance or incompetance. In some states these social programs are paltry and barely serve any real needs. When they loose 10,000 jobs 9,900 people fall back below the poverty line with so support, no health insurance, bankruptcy and little or no hope. In some states these programs are very generous and attempt to really put people back on their feet, again. A lot of people like to blame their state and county governments (and as I said before they are not without waste) but those are exactly the governments we have the *most* control over.

The Rochester area sounds like it was faced both by a change in technology and the effect of globalization. If the state of NY had slashed taxes paid by Kodak, I don't see how it would have materially changed the outcome. US workers are still paid 100's of times more than some of their Asian counter-parts. States like South Carolina are loosing jobs to overseas factories not because of South Carolina's high taxes and generous benefits (they have neither), but because the same t-shirt can be produced overseas cheaper. I'm sure Rochester could give Kodak a 99 year tax holiday but still wouldn't be attractive compared to sub-contracting all film cutting, spooling and packaging to a factory overseas where your health benefits are a cab ride home if you cut off a finger.

And as someone who has owned businesses or been in business for himself for about half my working life, state and local taxes have never entered into my calculation of weather or not something was profitable. If it makes money, I pay taxes and that's a fact of life. If it doesn't make money, I don't have to pay taxes. But, if I can't get past the cost of county business license, state incorporation fee, a couple of hours with an attorney or accountant, then it probably wasn't a good idea to begin with.

Re:Google no differnt than the rest

[the-empty-string]

I'm tired of companies and individuals of claiming that they'll go "somewhere else" if there's a tax hike in their country. In the US we have a very low tax rate over-all, so I'm not exactly sure where these companies or individuals would go [...] In fact, if a company like Maersk says "Gee - the taxes are so high we'll move elsewhere," say - fine, splash it all over the papers and raise taxes. I'll bet you Maersk will not move one inch.

Why? If companies or individuals, despite all the hassles that come with such a move, consider it to their advantage to go elsewhere, let them. This is how governments can (and must) be pushed to become more efficient. Taxes are what you pay for a package of services from the government. Let the various governments compete for delivering better services at lower costs.

Re:Google no differnt than the rest

[nomadic]

NYC is the financial capital of the world or maybe it was [timesonline.co.uk]. The rest of the state has already been decimated as key companies like Kodak and Xerox move out of state and wither away.

New York City's economy is going quite strong, thanks.

NYC's politicians already sucked the rest of the state dry and its only a matter of time before they go down the tube with us.

That's a complete and utter fabrication. New York City pays substantially more in taxes than it receives in funding. If you're living in New York State but outside NYC, you're not pulling your own weight and you're being subsidized by NYC. Furthermore, by population NYC residents are significantly underrepresented in the NY legislature.

Companies aren't just outsourcing to other countries, many are just moving to other states. Up here in Rochester, the University of Rochester is now our biggest employer and the government is the only sector with any type of job growth.

Despite decades of other states promising tax breaks, less environmental regulations, and weak labor laws, most have not been too successful in attracting NYC's businesses.

Re:Google no differnt than the rest

[iPaul]

It's probably likely that the tax law needs to be revisited so that if you make 75% of your income from US operations, you pay taxes to the US on that 75%.

But, there's a big difference between the US and overseas. We are much less restrictive of how foreign corporations can operate in the US. For example, China often requires you to partner with a Chinese company to form a joint-venture. Europe makes firing damn near impossible. Closing a factory in France can shut down Paris with protests.

Re:Google no differnt than the rest

[iPaul]

Because it's usually an empty threat - like Sean Penn moving to Canada, after 2004. I'm just saying, call their bluff.

Re:Google no differnt than the rest

[phantomlord]

The Rochester area sounds like it was faced both by a change in technology and the effect of globalization. If the state of NY had slashed taxes paid by Kodak, I don't see how it would have materially changed the outcome. US workers are still paid 100's of times more than some of their Asian counter-parts. States like South Carolina are loosing jobs to overseas factories not because of South Carolina's high taxes and generous benefits (they have neither), but because the same t-shirt can be produced overseas cheaper. I'm sure Rochester could give Kodak a 99 year tax holiday but still wouldn't be attractive compared to sub-contracting all film cutting, spooling and packaging to a factory overseas where your health benefits are a cab ride home if you cut off a finger.

If Kodak had stayed in the area, more people would have stayed in the area and more money would be coming into the local economy from outside. Instead, the were forced out by the high costs of doing business in NY and when the jobs left, a lot of people couldn't find jobs so they left too. Many of them went down to the Carolinas where they could find similar chemistry/physics jobs to what they were doing at Kodak. Manufacturing (at Kodak, Delphi, Valeo, etc) is what went to other countries. Those manufacturing jobs were replaced by retail and low paying service and telemarketing jobs, further degenerating the economy. Meanwhile, as more and more young people flee the area, Rochester is growing older and older, increasing the tax burden on the working middle-aged middle-class types. Once they start retiring, its game over. Teenagers and college students aren't going to be able to afford for the entitlements that will be coming due. nor will they stick around to pay them. As I said, there's already a $73 million deficit for the county Rochester is in, the vast majority of which stems from the state shifting more of the burden of Medicaid and the state/local government pension system to the counties. Those counties can't control unfunded state mandates nor unfunded federal mandates. Add in a lot of stupid crap like a $40+ million ferry that failed not once but twice and western NY is economically dead. Our only hope of recovery is to become our own state (NYC doesn't give a crap about the rest of the state's neeeds but controls the state nevertheless) and to lower taxes to try to draw businesses and the 20 and 30 somethings back.

Re:Google no differnt than the rest

[phantomlord]

That's a complete and utter fabrication. New York City pays substantially more in taxes than it receives in funding. If you're living in New York State but outside NYC, you're not pulling your own weight and you're being subsidized by NYC. Furthermore, by population NYC residents are significantly underrepresented in the NY legislature.

If NY is so autonomous, please join me in asking for the state to be divided into two states. The triangle contained between Sullivan County, Albany County and Long Island can be one state and the Adirondacks and western NY can be another state. NYC can hold up its own budgets over rent control fights instead of holding up the entire state's budget, they can keep their embezzling comptrollers, ultra liberal Senators, demands for $6 billion more from the state budget for their failing schools and socialized medicine plans. The rest of us (who are actually a majority republican, agricultural and small business type people) will be able to do what we think is best instead of what Sheldon Silver thinks is good for NYC.

As for the legislature, see NY has an assembly (which NYC dominates) and a senate (which is controlled by land area). That little triangle already has all the political power in the state: Governor Spitzer, ex-Comptroller Hevasi, Attorney General Cuomo, Assemblyman Silver, State Senator Bruno, Senator Clinton, Senator Schumer, a billion Represenatives in Congress, ad nauseum.

Most people don't even know there's a whole world in NY State outside of NY City and that most of it is rural, farming, light manufacturing, etc. Sadly, most people in NYC don't understand it either. Of course, there are only 3 votes that matter in state politics anyway. At least one of them makes the occasional token gesture to us but you'd like to get rid of that too and just give all the Senate to NYC too.

Re:Google no differnt than the rest

[ballyhoo]

This issue has been ongoing for some while, and Google has recently reached agreement with the IRS on the matter. The article quoted in the leader text for this posting is really ancient (Nov 2005) and is completely out of date. For ireland.com subscribers, here's a more up-to-date article:

http://www.ireland.com/newspaper/finance/2007/0205 /1170363595082.html

For those who don't like paying money to read quality web content, I've included the text below.

There's a lot of misunderstanding about the operation of off-shore offices of large multinational companies like Google, Microsoft, Yahoo, Dell, and a pile of others who have bases in Ireland. Lots of people view this sort of activity as purely a tax dodge, where there is little substantial activity going on in the offshore offices to justify this sort of write-off. This is simply not the case.

In the case of Google, their EU hosting services are operated out of Dublin. They do piles of development and EU related sales in the city. It's not like there's 1300 people who are paid to sit on their asses all day to do nothing but justify tax write-offs.

In the case of Microsoft, their entire EMEA internet hosting facility will be moved to Dublin within a relatively short period of time. This will include a whole pile of content which has previously only been hosted in the US (i.e. MSN, MSDN, etc). They do cartloads of localization in Dublin (which city - incidentally - hosts the largest software localisation industry in the world). They do development and sales, and media fabrication, and they are a completely legitimate EMEA headquarters. The situation is similar for all of the other companies which operate in IE.

As a large multinational company, you simply cannot afford to attempt to cheat the IRS by passing profits to tax-havens in a random manner. For each tax dollar or euro which is passed to the irish operations of these companies for the purposes of tax write-off, there _must_ be justification. If there isn't, the IRS will take these companies to the cleaners in terms of back-tax, penalties and interest. It simply isn't worth their while engaging in illigitimate accounting practices.

-b

The Irish Times
Monday, February 5, 2007

US limits Google's tax savings

Colm Keena Public Affairs Correspondent

The US Internal Revenue Service (IRS) has negotiated a deal with Google that limits the tax savings the internet search engine giant will make by way of its Irish subsidiaries.

The agreement, reached in December 2006, will slow or halt a decline in Google's global effective tax rate which was saving it tens of millions of euro annually by having greater proportions of its profits go through Dublin.

The deal, which concerns Google's intercompany transfer pricing arrangements, is backdated to 2003.

In financial results released last week, Google said the deal with the IRS would mean its effective tax rate this year will be higher than it would have been otherwise.

The deal, called an Advance Pricing Agreement, is a structure the US tax authorities negotiate with multinationals to cover how they account for inter company pricing.

Because Ireland's corporation tax rate is half that of the United States, US multinationals can reduce what they call their effective tax rate by locating more profits here than in the US.

The US revenue seeks to ensure that the advantages US multinationals gain from subsidiaries in lower tax jurisdictions, do not exceed what is appropriate.

Last week Google announced revenues of $3.21 billion (2.48 billion) for the quarter ended December 31st, 2006, an increase of 67 per cent on the same period in 2005. Net income was $1 billion.

The company said that depending on the accountancy rules used, its effective tax rate in 2006 was 23 per cent or 26 per cent.

Google's effective tax rate has been falling

Re:Google no differnt than the rest

[sethstorm]

Great. We can stop the witch hunt, now.
Only if it's to fix the loophole.

Re:Google no differnt than the rest

[iPaul]

There's a huge difference! I'm in what's called a right to work state (or employment at will). Unless you have a contract for your employment (generally that's executive level employees only), your employer can terminate you at any time for any reason and does not have to provide severance (although you accrued vacation is payable - but that's 2-3 weeks not the four weeks+ that a lot of Western Europeans get). In many jurisdications in the United States you are basically in the same boat, although some have somewhat better employment protections. There's also been a huge movement towards temporary workers or contract workers that are exempt from those protections. Unions provided a lot of employment protection in the United States, but private sector unions have been pretty much eviscerated. I don't remember if they're a majority of organized labor, but many union workers are actually government employees.

As a concrete example of how easy it is to fire people in my state, a former employer decided after a meeting that he'd had enough of too many people in the sales group, so he fired three that day. After a little thought, he pink-slipped three more over the next week. Two of those fired were friends of mine who recieved two weeks severance and their vacation.

I would never say that the employment protections that European workers have are a bad thing. I think we could do a little better in this country if we raised the cost of firing employees. Maybe then it wouldn't be so common to see entire communities forced into poverty as large employers shut down factories. Maybe they would make a more concerted effort to make that factory or plant work.

Re:Google no differnt than the rest

[Firethorn]

Normally I don't answer AC's, but I will.

Sure, there are a lot of jobs in Florida. But there are a LOT of jobs in NYC alone. Any massive movement would be able to swamp the jobs available in Florida and Alaska combined. That was what I was talking about. Heck, one of my sets of granparents moved to Florida from NY, and, while both sets are retired now, they're considerably better off than the set who stayed. This is two sets of grandparents who started out ~50 miles apart from each other, have comparable education levels, etc... One set stayed, the other moved. Inertia can play a large role in this stuff. The set who stayed are also not able to 'game the system' very well.

And yes, NY has a high unemployment rate. That's partially caused by the relativly high tax rate and a generous welfare system. The combination creates a situation where the benefits of being employed compared to unemployed is less in NY than many other areas.

Re:Google no differnt than the rest

[nomadic]

demands for $6 billion more from the state budget for their failing schools and socialized medicine plans.

Like I said, NYC supports the rest of the state, and then everyone upstate starts whining when NYC asks for some of the money back.

The rest of us (who are actually a majority republican, agricultural and small business type people) will be able to do what we think is best instead of what Sheldon Silver thinks is good for NYC.

The rest of you are a MINORITY.

ultra liberal Senators

Like Al D'Amato?

Re:Google no differnt than the rest

[phantomlord]

Like I said, NYC supports the rest of the state, and then everyone upstate starts whining when NYC asks for some of the money back.

Why is it that NYC needs another 2% of the state's budget just as an education increase? How about we get the state out of funding education all together an leave it up to local communities? How about we just split the state in two and you keep what you make and we'll keep what we make? The solution is really that easy but for some reason, NYC people don't want to lose the rest of the state... I wonder why that could be.

"The rest of us (who are actually a majority republican, agricultural and small business type people) will be able to do what we think is best instead of what Sheldon Silver thinks is good for NYC."

The rest of you are a MINORITY.

Only because of the population of one city.

Statewide excluding NYC: 2,580,910 R, 2,577,976 D, 249,018 I, 1,586,566 No affiliation

NYC: 549,212 R, 2,929,952 D, 96,939 I, 763,507 No affiliation

My proposed states(I'm off by 300 dems here somewhere. I must have typoed a number in while I was going through the voter rolls but its not significant enough to chase down):

West NY: 1,341,062 R, 1,172,404 D

Southeast NY (Sullivan, Ulster, Green, Albany, Rensselaer, Colombia, Dutchess, Orange, Putnam, Westchester, Rockland, Nassau, Suffolk and NYC): 1,789,060 R, 4,335,484 D

As you can see, that one tiny area of the state is extremely lopsided by more than 1:2. The rest of the state is much more evenly divided but has a healthy majority in the opposite direction. Not only are we different politically, we're very, very different economically and socially. As long as the state is controlled entirely by people from Southeast NY, the rest of the state has absolutely no voice. Pander to one city and you get statewide office and the rest of the state can be completely ignored. I've gotten exactly 0 replies from the times I've written to Clinton and Schumer's offices because they aren't elected here, they're elected "there." All three of the power players who dictate the state (Spitzer, Silver and Bruno) are from SE NY.

Like Al D'Amato?

Newsflash: D'Amato lost his seat to Schumer in 1998

definitions

[TheSHAD0W]

Why exactly do you define avoiding taxes as "evil"?

Unlawful, certainly. But evil?

Re:definitions

[Planesdragon]

Why exactly do you define avoiding taxes as "evil"?

Because the taxes that cash-rich google doesn't pay are paid for by the rest of us.

Re:definitions

[Threni]

> Unlawful, certainly. But evil?

Perhaps evil is a contentious word, but if you approve of the uses to which at least some tax money is put - education, welfare, trading standards, hospitals, public transport etc then by deliberately evading that simply to make a bigger profit could be argued to be immoral. On the other hand, not paying taxes to some governments could be seen as the only moral thing to do, given their poor track record of sponsoring terrorism, for instance.

Re:definitions

[Zadaz]

Avoiding taxes is perfectly lawful. It's what tax shelters are all about, and why good accountants get big bucks.

As far as I can tell, what the government calls "Profit laundering" is perfectly legal. It's no different than my corporation paying out year end bonuses so we don't have to report a profit. (It's not my fault if the bonus getters want to reinvest that in the company.)

If the US wants to keep its tax revenue they're going to have to be more competitive. The only thing that's keeping many large American companies from moving offshore is social pressure. If the government keeps ratcheting up the pressure they'll go anyway.

Re:definitions

[Da Fokka]

It depends. Just check the Evil bit.

Re:definitions

[chill]

If you think, for one minute, that if Google paid every last dime it could in taxes without trying to structure business to avoid them, that YOUR taxes would go down, you're on crack.

Re:definitions

[Original Replica]

While I doubt that this is a case of Civil Disobedience, you are correct it's not evil. But it's so much fun to label any non-wonderful Google practice as "evil" because of their "do no evil" ideal.

Re:definitions

[iPaul]

Maybe in the short run you're correct, but in the long run I'm afraind you're wrong. Sure, over the next couple of years it won't affect your tax rate. However, there are essentially three parts to government spending. The first is interest on the debt - which we have to pay or else we'll never be able to borrow a dime again without paying ridiculous interest rates. A lot of people think this is something we could default on since they believe the fiction that "it's money we owe ourselves." However, we borrow a significant chunk from overseas - so not paying it is actually off the table. The second are obligations that are a matter of law - like social security. If we wanted to reduce our social security obligations we have to pass a law stating that you and I won't get our promised benefits. That's hard to do politically. Finally, there are discretionary items, like the military. We do have some wiggle room there, but not a tonn.

Okay, all of this is paid for by incoming taxes. If the taxes aren't sufficient to cover the expenses, then we borrow, adding to the debt. So, the amount we pay in interest on the debt goes up, further reducing the ability we have to make decisions about how much money to spend on which program. Eventually, if there's no fiscal discipline and companies are allowed to avoid paying taxes, the rest of us will have to pitch in more money. So, in the short run, you're right in that your taxes are not a function of Google's taxes. However, in the long run, the more companies game the system to avoid paying taxes, the more likely we will have to raise taxes on individuals in order to meet payment on the debt and obligatory expenditures. In addition, these companies benefit from operating in the US. They are protected by our military, when their CEO has a heart attack the ambulance comes an picks him up, and the police stop the "G-8 protesters" from throwing trashcans through their plate glass windows. They use the same public services we all use, shouldn't they pay their fair share?

Re:definitions

[drgonzo59]

This all started with Google's claim of "do not evil". Sure, it sounds nice, except that we don't clearly know what "evil" means. In this context it seems to mean that "making a legal profit" is "evil". So in that respect Google is "evil". Except that I don't agree with this particular definition of "evil". In other words, my "evil" is not necessarily your "evil". Because I am sure the Irish don't mind at all having Google report all the profit in their country. So what is "evil" for us, all of the sudden is "good" for the people "across the pond".

It would have been much better from the PR point of view for Google to not make such "moral" claims. Every company is doing the same accounting trick but they never used such words as "evil" and "good" in their company's mission statement and therefore they don't suffer from this kind of criticism and controversy.

Usually it is very smart to manipulate such vague moral terms for one's benefit. Here is the algorithm: Step 1: Claim that "I will do no evil" . Step 2: As you go along, redifine what "evil" means" to match your actions. Step 3: Go to Step 1. Pretty easy algorithm -- nice and sweet.

It is true though... If you ask many of the serial killers or cruel dictators how they rate themselves, they would probably say that they are basically "good people". Of course, they have heavily modified what "good" means. These are extreme examples but this algorithm is essentially the same and it is used often by governments, individuals, religions, and _yes_ companies too.

Re:definitions

[Bloke down the pub]

Grandparent said avoiding. You said evading. Those words are not synonyms.

Re:definitions

[jlarocco]

Well, please enlighten us, what is "evil"?

Google's motto is (was?) "Do No Evil". Which most people took to mean they would actively try not to behave like every other giant, rich, corporation.

So far, every time Google has done something questionable, like censoring Chinese search results, or evading taxes (legally or not), the Google fanboys of Slashdot have been quick to point out that Google isn't being evil, they're simply behaving like every other company. Google isn't out sacrificing virgins to Baal, but neither are any other companies. So, please, for the benefit of all the non-fanboys, what exactly does "Do No Evil" mean? What is "evil" for a corporation?

My impression is that "Do No Evil" was good PR. It doesn't really mean anything in "real life."

Re:definitions

[porkThreeWays]

Pfft. imo google is less evil because of this because it's sticking it to the man. That's like getting mad at them because they found a way to play/hide their DS under their desk while watching the phones or found a way into their boss' private bathroom.

Re:definitions

[mc6809e]

"Why exactly do you define avoiding taxes as 'evil'?"

Because the taxes that cash-rich google doesn't pay are paid for by the rest of us.

That's like being mad at your neighbors for installing a security system that causes your house to be burgled instead of theirs.

Re:definitions

[Threni]

> Grandparent said avoiding. You said evading. Those words are not synonyms.

Yes they are:

synonym: a word having the same or nearly the same meaning as another in the language, as joyful, elated, glad.

evaded: to avoid doing or fulfilling: to evade an obligation.

Re:definitions

[Atzanteol]

Which most people took to mean they would actively try not to behave like every other giant, rich, corporation.

Which is retarded. Seriously. Most corporations aren't *evil*. Avoiding taxes (not evading) is not *evil*. We all do it. I drive to NH to purchase some items due to no sales tax, I claim what I can on my income taxes to keep more of my money. Am I evil? Now, if Google is funneling money to African guerrillas to mine diamonds, then you'd have a point...

The definition of "evil" on Slashdot is so vague that we're all pretty much damned at this point for earning an income. "Do no evil" does not mean "Do things Slashdotters like."

Re:definitions

[1mck]

Sort of off topic, but interesting nonetheless:
In the US it isn't unlawful to not pay federal income tax...look into it. When I saw this film, I was blown away: Aaron Russo's Freedom To Fascism ---> http://www.freedomtofascism.com/

Re:definitions

[chill]

Other options to consider rather than raising personal income tax:

1. Simplify the tax code and close loopholes like the ones that allow Google and other mega-corps to move things around and minimize taxes.

2. Spend less.

History shows that taxes rarely, if ever, go down as a net. Once a politician has your money, they don't give it back. They get addicted to the spending and when the time comes, lo and behold there are more "necessities" that can't be cut from the budget. Necessities that were lived without only a few short years ago. The fiscal discipline you talk about needs to apply equally to the gov't as to the corporations paying taxes.

You argue with accounting logic, and I'm arguing with political logic. :-)

In short, the gov't would find a way to spend the extra, regardless, then continue to tax you and everyone else even more.

Re:definitions

[jrockway]

> "Do no evil" does not mean "Do things Slashdotters like."

Hey, I like it when big companies tell the government to fuck off. Eventually, the government will run out of money, and they'll be forced to cut back on bullshit like "The Department of Homeland Security", "The War On Drugs", and "Operation Liberate Iraq OMG commie terrists". Less income will force the government to downsize, and the effects on society as a whole will be wonderful.

google++.

Re:definitions

[Jeff Molby]

Of course they would still spend the extra, but in doing so, I would get more value for my contribution. I'd rather have the cash back, but I'll take what I can get.

Re:definitions

[iPaul]

I agree. I think the best thing we could do in this country is simplify the tax code. Think about the money that we spend in complying with it. That, in itself, is a hidden tax. I actually think that a Repubican controlled legislature and a Democratic president is the best combination to try to keep government in check. I think that division of power and opinion is the big reason we ran surpluses in the late 1990's. (There's nothing wrong with a surplus - it serves to brake the economy just like raising interest rates but at least you get some debt paid off).

I see where people say politicians become addicted to spending, but it really is we that become addicted to spending. The bridge to nowhere, in Alaska, I'm sure has its staunch defenders. What I may call a waste of Federal tax dollars, might be the most important and far-sighted government program by others. Frankly, it's us, we the people, who've come to expect a government that keeps taxes low, but gives us a much higher level of service. In fact, I think that's the basic problem of American culture - the credit card mentality, paid for by borrowing against your home, has ruined our ability to make real choices. For the most part, the Pols in Washington are buying our votes - but we're the ones selling.

Re:definitions

[zippthorne]

Unless they spend the extra on harassing you. Then you'd wish for a little less value...

Re:definitions

[FuMoDi]

if Google paid every last dime it could...that YOUR taxes would go down It's not a dime for dime correlation but it is true. The GAO must balance the ledger somehow and the federal debt is always a campaign trail talking point.

Re:definitions

[KDR_11k]

Of course but at least it'd give the govt a bit more money so it doesn't have to cut budgets for e.g. education that much more.

Re:definitions

[maxume]

So how many people are nodding their heads and saying 'yep, that guys a jerk' right now?

(people are amazingly, depressingly good at ignoring hard work and foresight when deciding that someone else has something that they should have instead)

Re:definitions

[KDR_11k]

You use an English dictionary whereas what we need here is a legal dictionary. Tax evasion is a felony whereas tax avoiding here refers to using methods to reduce the tax you have to pay. The main difference is that the latter is legal.

Re:definitions

[TheSHAD0W]

I suppose that means it's not evil if I steal your wallet, but give all the money in it to the Salvation Army?

Taxation is theft. Even if the government is dedicated to giving that money towards good causes, they're still taking it from you at the point of a gun.

Re:definitions

[Subbynet]

If everyone starting doing this the country would be in deep trouble, and to stand ANY chance of your taxes going down, everyone (and business) needs to pay.

There is no excuse for this at all. Not even from the al-mighty Google.

Re:definitions

[JVert]

So by your logic google is saving the government by avoiding taxes?

Re:definitions

[Threni]

> Taxation is theft. Even if the government is dedicated to giving that money towards good causes,
> they're still taking it from you at the point of a gun.

Taxation is the result of an informed decision by a willing electorate who've decided that society is better with taxation. You have a better idea, I take it?

Re:definitions

[KDR_11k]

Well, try it and tell us if it works.

Re:definitions

[chill]

Sorry, you're wrong.

"A taxpayer need not arrange its affairs so as to maximize taxes as long as the transaction has a legitimate business purpose." --
Judge Cornelia G. Kennedy in the Sixth Circuit Court of Appeals, April 20, 1992, aff. of the Tax Court holding in Proctor & Gamble v. Commissioner

Or...

"There is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich and poor; and all do right, for nobody owes any public duty to pay more than the law demands." -- Justice Learned Hand

The government wrote the law, Google is just playing by the rules. Don't like it? Change the rules, but don't whine about companies (or individuals) that do what is legal to minimize taxes.

Re:definitions

[Anonymous Coward]

Avoiding taxes is not illegal. Evading taxes is.

Re:definitions

[Subbynet]

You can quote anyone you like... The reality is someone has to pay. Ever people or corporations - which would you prefer?

Re:definitions

[chill]

You didn't read the rest of my message. I'm not against paying taxes, only paying more than I have to.

There is nothing wrong with structuring your income to pay the minimal amount REQUIRED BY LAW. You seem to be in the Elvis camp, being proud to pay a ton in taxes.

Re:definitions

[Subbynet]

Certainly NOT...

But I'm a realist who knows things have to be paid for. And ever Google helps your country pay these bills or they don't.

If they don't... Why help them? Why support a company which doesn't support you.

I'm from the UK, so paying is something were use to, but we do see the benefits as a society.

Re:definitions

[fiendy]

In terms of Canadian tax law, 'treaty shopping' has recently had a favourable ruling in the Tax Court of Canada.
see here:
http://www.blakes.com/english/publications/tax/cro ssbordertaxsept2006/favourable.asp

Prior to this it had been CRA's position that it could apply GAAR (General Anti-Avoidance Rules) to funneling profits to offshore locations for the purposes of paying less tax.

The latest ruling is good because it acknowledges that using ratified tax conventions in ways in which they were construed, isn't unlawful or even a 'misuse of the tax act taken as a whole.' Basically, if our federal government signs a tax convention/treaty into law, why would it be unwise/unlawful/avoidance if you utilize those provisions.

Any company who does not fully try to take (fully legal) advantage of these type of things is harming their shareholder by artificially increasing their tax liability. Why would you pay 20% when you can pay 10% and earn a greater return for your shareholders?

I think 'treaty shopping' around environmental laws and other laws (where another country is physically harmed) is heading beyond the grey area and into the ethically wrong. e.g. shipbreaking in India, by getting around hazardous export laws by registering ships as Jamaican etc.

Re:definitions

[hotdiggitydawg]

I'd mod you informative, but you're a day late this time - sorry!

Re:definitions

[TheSHAD0W]

I disagree with the terms informed and willing; it was put in place by representatives who often never represented, in a system which is deliberately deceptive about how much money it takes in.

And as for democracy, what if that "willing electorate" made an "informed decision" that society would be better without Jews? Or without black people? I'm not saying democracy isn't capable of making good decisions, but you shouldn't automatically label it as "good" any more than you should label avoiding taxes as "evil".

And yes, I do have a better idea.

Re:definitions

[Threni]

> I disagree with the terms informed and willing; it was put in place by representatives who often
> never represented, in a system which is deliberately deceptive about how much money it takes in.

It was willing in that people actively vote this or that party in. As for informed - people pay taxes their whole life, so when they vote they know what they're getting. I'm sure there's a good reason for why a party which openly states it will do away with taxes has never made any progress towards election success in any democracy that i'm aware of.

> And as for democracy, what if that "willing electorate" made an "informed decision" that society
> would be better without Jews? Or without black people?

Irrelevant to the argument at hand.

> but you shouldn't automatically label it as "good" any more than you should label avoiding taxes as
> "evil".

I've done neither, of course. You must be confusing me with some other poster.

> And yes, I do have a better idea.

There's no detail on that website. It's hard to see how things such as the National Health Service and free education (I'm in the UK) would work without taxes. Voluntary donation, perhaps? Not sure enough would be given. People like to whine about taxes, but they also want to be treated when they get hit by a car or whatever, and unless you force people to take out insurance - which not everyone can afford - then how are they going to get treated?

Re:definitions

[turing_m]

But... it's not evil! How can they be evil when they have pretty colored letters and an elegant, uncluttered interface?

Re:definitions

[Threni]

Your analogy is faulty. Sure, the majority doesn't own your bank account, but their elected representatives have decided - or at least voted in a part which has decided - when and how much should be taken in the form of taxes. In the UK at least it's income which is taxed, not savings (ie profit on savings, not savings themselves).

> That it is supported by the majority of the populace does not make theft any less wrong.

That you believe it is wrong doesn't mean others also are required to agree with you.

Re:definitions

[barrkel]

Avoiding tax isn't illegal. Evading tax is.

Re:definitions

[UserGoogol]

It's kind of borderline. The goodness of an action is exactly the goodness the happiness it inspires. To a first approximation, taking money from the vaguely middle class and giving it to the poor is a net beneficial action; the harm only comes in when you take into consideration the "externalities" of the unpleasantness of living in a society where money is taken from people willy-nilly. The externalities of taxation are somewhat different from the externalities of common theft.

Of course, the word "evil" doesn't really make sense in such a starkly utilitarian moral system, so maybe what I'm saying is irrelevant to the larger issue.

Re:definitions

[Sir Joltalot]

Of course, there's the following counterargument: suppose companies like Google paid more taxes. Then they couldn't afford to pay as many people to work for them, so there would be fewer people paying taxes. In addition, there would be fewer jobs.

Re:definitions

[wizrd_nml]

Finally, there are discretionary items, like the military. We do have some wiggle room there, but not a tonn.

Err... How about the US stops invading countries like Iraq, that pose little of a security threat?

I wouldn't call that "some wiggle room". Google's tax returns are hardly the problem.

Re:definitions

[Jonny do good]

It doesn't really matter what tax rates companies pay. If they are taxed at a higher rate they just pass it on to the consumer. I can't stand hearing the argument that we should just tax the "rich companies" because it is really just implementing a sales tax when it comes down to it. Taxing corporations is about the least progressive thing we can do.

I don't know what others here have seen from a management perspective, but when expenses go up it rarely hurts the bottom line. Either cuts are made elsewhere (i.e. jobs), or the end price for the goods or services go up. It happens every time there is a minimum wage increase. It seems like a good deal to the low paid worker until they realize that that extra $/per hour they get goes out their pocket just about as fast because anything that they buy that relies on minum wage labor just costs them more. I'm not advocating against a minimum wage increase or anything because I do think it should rise with inflation, but shifting taxes to corporations doesn't change anything in the end.

As for the comments on where spending goes, it is a pretty small percentage spent on interest (I am not looking it up, but I think the last I saw for 2005 or 2006 was about 7%). Everything spent really is discrtionary spending when it comes down to it except the military. The dollars spent there don't necessarily have to be a certain amount, but it is about the only part of government spending in the constitution. Sure laws are passed legislation funding different programs, but they are relatively easy to change. The real problem is that once a program gets started it is almost imposible to get rid of it. Politicians are the real problem because they always want to look good and start a spending program without thinking about how it is going to be funded. The best example is social security, it is the biggest pyramid scheme on the planet, but it sure made Roosevelt popular during the Great Depression, and he is still well respected. In 20-30 years when those of us that aren't retired have to sell or organs to pay the taxes we will have to pay in order to keep it going we will probably all curse him.

Re:definitions

[collinator]

Tax EVASION is unlawful. Tax AVOIDANCE is legal. Taking full advantage of the tax code for your own benefit - including loopholes - is perfectly legal and morally correct. Whether or not it is POLITICALLY correct depends on your own slant. If tax code was SIMPLE and LOOPHOLE-FREE there would be no reason to have this discussion. Unfortunately there is a lot of MONEY and POWER tied-up in governmentally biased, overly complex, loophole-ridden tax codes... FYI: Referring to a "tax avoider" as a "tax evader" could be libel/slander.

Re:definitions

[iPaul]

Actually, that's the problem with entitlement programs. They're not easy to change. Social security is an example, where even modest changes in benefits come after with a great cost of political captial. Essentially medicare/medicaide and social security are promises we've made to people who've contributed to these programs during their working life. Taking their benefits away would be as much a tax on them as raising their income tax. (It also may be the case the benefits paid out are in excess of the contribution made by participants in the program - but that's another matter.)

Of a 1.5 trillion dollar budget, 7-8% represents about 100,000,000,000 USD. That means we have no control over 100 billion to 110 billion dollars. Keep in mind that something like 130 billion would insure the 46 million uninsured Americans with private health insurance. As we keep running deficits, that number goes up. As interest rates go up, that number goes up even faster. A modest raise in interest rates and we could well be up to 10%+. (There's a good chunk of the debt that comes due every year and must be "rolled over" with new bonds - which would be at the prevailing interest rates.

As far as corporations "passing costs" onto consumers - that's a function of the market. For example, you electric utility is (usually) a monopoly. If their costs go up they go before the PUC and get a rate increase, which is probably the most direct example of a cost being passed on. However, if you make a readily fungible product, like 3-button computer mice, you are not able to pass on costs and have to absorb a large portion of those costs. However, taxes are not like energy or labor costs (for example). Taxes occur on money you've made. If you don't make money you don't pay taxes. If you make a little money, you pay a little bit in taxes. If you make huge heaping spoonfulls of money, then you pay boatloads (metric boatloads - not the English crapload) in taxes.

So, no, I don't believe having corporations pay their fair share of the infrastructure they rely on as passing burdensome costs onto consumers. As an example, when corporations feel their intellectual property is being violated they can call on the FBI and local law enforcement to enforce it. Another example might be the SEC, which polices the markets, and keeps the cost of raising money low and markets liquid for both corporations and investors. These are all things that cost money and directly benefit corporations. Other examples are government sponsored research, education, police (so their stuff doesn't get stolen), negotiations to open overseas markets, protection of shipping lanes, courts for contract disputes, etc.

Remember corporations are not some outside entity that the government is poking their nose into, they are complete fabrications of government and law. They are not holy, devine or sacrosanct. They exist because their benefits greatly outweigh their cost to society.

Re:definitions

[iPaul]

The disasterous policy in Iraq will probably exceed 1 trillion dollars when everything is said and done. However, that does not absolve corporations from paying their fair share. Otherwise, it will eventually fall to you and me to pay the debt.

Re:definitions

[iPaul]

Actually we do have a function of "fair share" and a definition we agree on (for the most part). Those who benefit most (measured by money earned) pay more than others. Certainly, if you're making 75% of your income from US operations, shouldn't 75% of your income be taxable in the US?

Re:definitions

[iPaul]

Taxes are not like labor costs. If you don't make money, you don't pay taxes. With labor costs, if you don't make money, you still pay labor costs. Taxes come after deductions.

Re:definitions

[Jonny do good]

I wasn't really trying to say that corporate taxes should be discontinued. What I am implying is that corporations are essentially an extension of the investors (forget their legal stus for a minute becaue it really isn't too important for my discussion). If corporations were treated like pass-through entities like LLC's, partnerships, and proprietorships the government could tax dividends as regular income and end up with the same result (Corporations maximum tax rate is lower than that of the top income earners, if more dividends were paid out more people would end up in that class, and the net result could be the same with some minor tweaking of the individual tax rates). Corporate profits, if used to fund growth, are essentially not taxed because of the large number of tax breaks companies get such as expensing R&D, depreciation, and the like. If the profits are paid out as dividends they are taxed twice which hurts the stockholders. The double taxation system isn't really a bad thing, it just isn't needed and probably leads to many more costs associated with the additional burden placed on the IRS.

Your 3-button mouse example doesn't take into account that any company that sells mice in the U.S. is impacted by an effective U.S. tax hike (changing the rules on foreign earned profits that aren't repatriated is the same thing as a tx hike in it effect) and therefore the price is bound to rise, or the supply will fall making it harder to find a 3-button mouse. In reality it is almost imperciptible on such a small ticket item, the price may change by a few pennies, or a company making a variety of other products will move the price increase to a larger ticket item and force other companies with a less diversified product portfolio to either close up shop, lay people off, or face a revolt from their shareholders (due to lower earnings or earnings growth) which usually leads to the earlier two options. The end effect is higher average prices, regardless of the price of a specific item.

In reality the IRS states that it is an entities responsibility to minimize their tax burden within the laws. The IRS is natorious for going after companies for somethng that is actually legal. When they fail the tax code often changes to ensure that the next time the particular circumstance arises they can be more successfull in a court (providing their lobby in congress outweighs the corporations affected).

Re:definitions

[iPaul]

Actually corporations are not extensions of investors. They are separate entities in the eyes of the law and their debts and liabilities cannot be attached to their shareholders. (Unless the "corporate veil" is lifted in the case of small corporations whose assets are co-mingled with their owners.) If you want to pass income through to individuals, you are welcome to organize your business as a partnerships. Until recently most large accounting firms were partnerships. The shareholders in a corporations are shielded from the liabilities of the corporation because it is a separate entity. You own stock in ExxonMobile, for example, but the state of Alaska can't go after your assets if they sue XOM. Likewise, the bankruptcy judge can't bring in the assets of UAL shareholders, when UAL when through bankruptcy. If UAL were a partnership, then the partner's assets would also be "on the table."

In addition corporations can sell stock in an open and liquid market, something that's impossible in proprietorships and difficult in partnerships. I don't think you can separate the notion of corporations as a separate entity for purposes of liability, access to capital, and so on, and then treat the investors as partners for tax purposes. Either corporations are a separate entity from their investors or they're not. The fact they are separate entities actually makes them attractive to investors, since your risk is only the size of the investment and not subject to tobacco lawsuits, asbestos claims, fraud (Enron), or criminal negligence (Bophal India).

And if you want a more classic and better example than the 3-button mouse, take wheat. Each farmer has essentially not control over the price of wheat in the market (for a certain grade) since there are many sellers (perfect competition). The further away you get from perfect competition and you go toward monopoly, the more power firms have to pass increases in prices to consumers. But, income taxes are not a "cost" to the corporation. There is no income tax if the corporation does not earn money (unlike rent, for example, which is still owed to the landlord that rents the corp its property). Income taxes are taken out after expenses are deducted from revenue (which is the definition of income). Now, you might argue that corporations will attempt to become more lean to make their "after tax" numbers, but you cannot argue that income taxes are a cost.

Also, the IRS allows entities to interprit the tax law in a manner that best suits the taxpayer. They are welcome to challenge your interpritation in an audit. If you so choose, you can go before an ALJ (Administrative Law Judge) and challenge their claim that a deduction is disallowed. If you want to appeal, there is an appeals process and even the ability to take the claim to Federal court. However, any claim of deduction on your return has always been subject to the IRS's interpritation of the tax code. In a sense there is nothing "perfectly legal" or "perfectly illegal" that gets serious challenge. The issues challenged are normally grey areas subject to one person or another's reading of the codes and laws that apply.

Re:definitions

[Deliveranc3]

No but maybe the government would be more lax on immigration from wartorn countries, provide health care to a few more people, or provide better education so less people wind up as gang bangers.

Re:definitions

[chill]

Again, if you think the U.S. gov't is going to do anything like that, you're smoking the same crack pipe as the original poster.

It would be nice, but it isn't going to happen.

Re:definitions

[Jonny do good]

First I would like to say I am enjoying this debate. It appears that you are one of the few /.'ers that really understands things like accounting, economics, and the laws regarding these. I am an accountant finishing my MBA in Finance and Accounting (will be done in 8 weeks) so I understand what you are trying to say about most of the basics so you can skip things like the tax code, appeals process, etc. I have a pretty good understanding of all of these and you can save your time explaining the basics. I am not the typical /.'er that only understands tech, math, and science, and it appears that you are also not. (Yeah, I used to be a tech, sysadmin, and tech manager but have moved on.)

I wasn't trying to get into the semantics of the law, but in reality there is not much difference these days between a C-Corp, S-Corp, LLC, or LLP in the eyes of the law. An S-Corp is slightly different in effect because of the limits on shareholders (the # and that they must be Americans, etc). An LLC or LLP have the same legal protection (albeit it is a state entity and in the eyes of the IRS they are treated more like a partnership and it there is little legal precident about ownersip liability... we will find out after the Anderson case is finished) as a C-Corp for the owners yet they are a pass-through entitity where gains and losses are taxed by the shareholders. And as you stated access to capital is more difficult for those entities today but it is changing. There are several public LLC's and LLP's in various forms (most are MLLP's right now and they are most prevalant in the energy sector but as investors are becoming more sophisticated they are becoming more prevelant). It is hard to issue bonds, but "loans" are still available through other securites. Many special securities such as MIPS, PERCS, PEPS, etc. use LLC's or LLP's as a pass through in order to change the tax structure making the securities have additional value (most of these still just use an offshore company in a tax haven but this trend is changing). When I have worked on tax returns (I hated it but I learned a lot) as an undergraduate intern about half of the personal returns I did had some type of pass-through entity where the owner was a passive owner and not involved in the business. My clientelle was different than most being that I was working at a highly regarded firm in the Naples, FL area so I wasn't working on $50 returns like at H&R block, we usually charged about $500-$1500 per return (some were much more like $2000-$5000 but those were relatively rare).

My point about corporate taxes is the only reason they are the way they are is because the law set them up that way. I personally don't think that it is the best way. When tends to happen is companies are forced to show constant growth or suffer loses in shareholder confidence. If anything affects that growth the incentive is there to cook the books or raise prices. When the EPS goes down all hell breaks lose.

I do like your example of "perfect" competition, but the truth is that is never really exists. In order to have perfect competition there must be perfect information. Considering that many transactions are completed in the futures market for commodities such as wheat there is less than perfect information. No one knows what the weather will do in two weeks so when a futures contract is written neither side has perfect information. While some small farmers refuse to participate in the futures market because they don't fully understand it most are moving towards it, especially as farms become more and more consolidated. Prices are manipulated in the futures market by speculators which also affects the perfect competition. I will agree that the farmer doesn't have much control over the price, but it is a function of their market power. There are many more farmers than there are buyers and the supply is not a constant. In this case it is almost impssible to pass costs on and that is why the small farmer is a dying breed. The larger corporat

Re:definitions

[iPaul]

I've enjoyed this as well. I love reading a well thought out post. It's funny, I'm going the other direction. I double majored in Econ and Poli Sci, passed my CPA exam back in 95, after all that work decided couldn't stand accounting, and then got an MS in computer science. Funny that.

When I took my CPA exam, LLC/LLP laws were fairly new. I don't think Virginia, my state, had an LLC law until after I "went into cmputers." In fact, I'm organized as an LLC right now b/c of substantially reduced paper-work (no more fake meetings with myself), and about to set up a new LLC to form a partnership with another guy I work with. When you incorporate, at least in VA, you are a regular corporation. Your tax treatment (S vs. C) is a basically between you and the IRS (I used to have a corp (now defunct) and it's been a while since I had to do any paper-work for it, so I'm a little rusty). These innovative means of organizing a business and limiting your liability (in an age where spilt coffee makes you a millionaire) are a great boone to small businesses. Passing through the profit and loss to individuals in an S-corp just recognizes the fact that they're mostly small businesses owned by one or a few people.

Normally, when I think of corporate taxation, I think of large businesses (the 20,000 give or take) publicly traded companies. I see your point about the lower EPS caused by a change in tax law. It's also true that no one likes paying taxes, however, they are necessary. At the crux of the matter is the collection of revenue and the expenses bourne by the government. They have to match at some level. It's fine to say the government should save money by providing fewer services, but what goes out of the government should be in line with what comes in. There is also a general agreement that the US could collect taxes more "efficiently," although no one has yet convinced me that their system of flat tax or consumption tax is much better than the progressive income tax. The question is, if we raise taxes on businesses (either by cutting deductions or raising rates), is it on net more harm than good?

And this is where we disagree. You believe that the increased taxes would cause more harm than good because of the disruptions caused in the business community. If I get your basic gist, you believe the drive to raise their EPS numbers back in line with the 10-15% growth they might want, would actually cause greater unemployment, and might lead to recession, and possibly spark inflation. While I don't share your assesment, I do think you make a good argument. I wish you the best of luck on your MBA, God bless and take care.

Re:definitions

[Jonny do good]

I guess that I will have to agree to disagree with you on the issue at hand. I agree that flat taxes and VAT's are not really very good as they tend to hurt the poor and help the wealthy. I don't really mind the progressive system we have but the way it gets trashed by congress is horrible. When Reagan (well, not really Reagan, his subordiantes based on a few basic ideas that he had such as supply side economics) rewrote the tax code it was changed to be relatively simple and had relatively few loopholes. Since then politicians have destroyed it by listening to special interest groups allowing more deductions, removing others and so on. It shouldn't take a huge manual to file a tax return. If the IRS gives you guidance it should be taken that it will hold up if they decide to audit you, but this isn't the case. The IRS can tell you something is okay, you go and do it, then they can audit you and penalize you for listening to them. No one knows what is going on including the enforcement community. It's just ludicrous.

My thought is that by shifting the burden to the owners of a firm isn't necesarilly that it is so much of a benifit to the economy due to higher EPS growth rates, its that it takes the power to cheat out of the corporations hands who tend to be able to afford the best tax lawyers and tend and avoid taxes at all costs. Most individuals (even most of the wealthy) tend to pay their taxes and use relatively conservative methods. By sticking with a progressive system the tax burden doesn't really change since the same physical people that own the corporations would have to pay the taxes instead of getting a smaller dividend and paying a lower rate on the dividend than they do on their other income, they would be able to get a higher dividend (I am considering dividend and capital gain the same here because they are both at the same rate right now) and be taxed at their rate whichever rate that is. To me it is just silly that if I am in the top tax brack based on my salary I pay less on my dividends, while those that are in the lower tax brackets pay closer to the same rate on both dividends and salary. If the Democrats have their way they will raise the taxes on dividends and the opposite will be true. The retirees (usually in the lower tax brackets) paying 15% now on dividends will pay more like 30-35% when the rest of their income is taxed at the 20-25% range hile the wealth will be paying similar rates on both. Neither of these is really ideal since the poorer person should be taxed at a lower rate across the board while the wealthy should be taxed at a higher rate across the board.

Let me state that I am not for the idea of redistribution of wealth, but I do understand the need for a progressive tax system. The underprivledged can barely afford to scrape by and shouldn't have to pay anything while the wealthy can afford to pay significantly more... but I am not for higher taxes in general because of several other beliefs I have such as faith in supply side economics and because of my belief that the government shouldn't be spending my money in the first place (yes that is the extreem end of my view, I do not really mind paying some taxes is used properly, but we have already discussed that aspect).

I hope you are enjoying you career in computers. I definately did enjoy mine when I was in it, I just felt I was better suited to management rather than being a tech. With my resume back then I had no degree and companies didn't want me as a manager, only as a tech. I was only in management at the time because the firm I was with was small and I was in it from the early days. When I decided it was time to move to bigger and better things their really weren't any opportunities for me, this was soon after the dot com crash so jobs were more scarce for those without a degree wanting to be in a management position. At the time I got out my parents had just decided to buy a business and wanted me to help out so I joined their company. I did a bit of everything and found that accounting can be fun wh

No no ofcourse not

[JackMeyhoff]

Neither is Dell, nor Apple, nor any of the other umpteen investigations the SEC does continiously.

Problem with multinational companies?

[D4rkforce]

Is this really a problem with multinational companies being 'evil'? While businesses today are indeed multinational, might this not even be a legitimate(but not necessarily ethical) way to make more profit?

The world has grown together in an economical sense, yet the nations exist in much the same way the existed for a long time.

Re:Problem with multinational companies?

[Original Replica]

Is this really a problem with multinational companies being 'evil'?

Multinationals are prone to "evil". Moving your production facilities overseas is evil if you ask the small town that was built around your industry. Buying huge quanities of a product at a required huge volume discount is evil if you as your competition or you supplier. Undercutting small business is evil if you ask small business. Having an annual income higher than the GDP of many small countries is a money/power behemoth that begs for abuse. It's possible to have a "good" multinational, but that's got to be at least as tough to pull off as a government that "does no evil". We have yet to see that in history.

Re:Problem with multinational companies?

[MrShaggy]

I think what companies should do is re-train their employees, if they are moving out. If a steel-company thats been in your town for 40 years then decides to close, laying off thousands, they should at least help cover the cost of re-training their un-skilled or semi-skilled workforce. If someone is a mill-write, or an electronics engineer, they wouldn't be to hard pressed to find a work. At least help for a welding course, or something along those lines.

Re:Problem with multinational companies?

[cdrguru]

Retrain? As what? Computer programmers? Graphic artists? Musicians? High-energy particle physics scientists?

The issue is that when the factory moves out, the low-skill jobs are gone. People that could work in a knowledge industry or one that required above-average skills already did that when they left college. The high-school graduates that could work in a factory and make decent money did what they could do.

You cannot take a 30-year-old factory worker that knows how to operate industrial machinery and train them to be a scientist. People are not interchangable widgits. They have their own limitations and mostly are working at the limit of their capabilities. You don't find math PhD's in factory jobs, at least not for very long.

What we are doing in the US - and Europe - is removing the low-skill jobs from the economy and at least in the US not replacing them with anything at all.

Re:Problem with multinational companies?

[MrShaggy]

>>You cannot take a 30-year-old factory worker that knows how to operate industrial machinery and train them to be a scientist. People are not interchangable widgits. They have their own limitations and mostly are working at the limit of their capabilities. You don't find math PhD's in factory jobs, at least not for very long

  I never said anything about the idea that some-one with a lower Iq can do a job that requires that of a higher one. That would be silly. But you are trying to tell me that simply someone who works at a factory won't be able to take a welding or other suitable course? How about fork-lift driving? Or bobcat training??? Not everyone will want to be a programmer.

  If the company left these people in a lurch, then these people might not know what option are available to them.

These all things that these massive companies don't provide.

Hold the phones!!

[lantastik]

Do you mean to tell me that Google is doing what every other multinational company in the world is doing? Shut them down!! I simply will not stand for these utterly common business practices.

FairTax!

[XanC]

Support the FairTax, bring corporate headquarters back to the US and end this ridiculous waste of everyone's time.

Re:FairTax!

[Reality Master 101]

Support the FairTax, bring corporate headquarters back to the US and end this ridiculous waste of everyone's time.

I'm cautiously in favor of replacing the income tax with a national sales tax (though, it's not the overwhelmingly RAH RAH GREAT IDEA!! that proponents sell), but it'll never, ever happen. Because: 1) You would shut down a huge number of businesses (e.g., tax accountants), 2) they'd have to fire a large number of Federal Employees, 3) it's not progressive, therefore a huge segment of society will be against it, and 4) the biggest source of power in the Federal Government is the tax code.

Re:FairTax!

[WindBourne]

20 years ago, it made sense. If you move to a sales tax approach (basically a vat like EU uses), then you must also tax the net. Otherwise, you will encourage all major sales outlets to move offshore as well.

Re:FairTax!

[Anonymous Coward]

Wrong on all 4 counts.

- Tax accountants are behind it in droves both individually and as national associations. They are anxious to spend their time on more useful pursuits of their abilities.

- Firing federal employees is a GoodThing(tm) and is a check mark in favor of a flat tax.

- It *is* progressive.... you are forgetting the prebate. The Fair Tax removes the tax burden completely on lower income people, and the burden is progressively increased on everyone else as a percentage of money spent. Someone who spends $34K a year for a family of 4 will only pay about 2% of that money as federal taxes under the Fair Tax. Someone who spends $200K a year will pay over 20% of that money for federal taxes. The essential difference is that the tax is based on money SPENT (taxing consumption) instead of money EARNED (taxing production).

- The tax code is the biggest source of power to LOBBYISTS, not the government. The K-Street lobbyists are the ones really against the Fair Tax.

Re:FairTax!

[XanC]

I agree with the sibling AC, and also wish to point out that the FairTax is the only plan which completely removes all tax obligation from the poor.

Even when their income tax rate is zero, there's plenty extra they're having to pay for everything because of the income tax on everything else. When it's a sales tax, after their prebate, they have paid $0 in tax.

Re:FairTax!

[nomadic]

Support the FairTax, bring corporate headquarters back to the US and end this ridiculous waste of everyone's time.

...because when it comes to a 13 trillion dollar economy and the well-being of 300 million people, let's gamble on instituting dramatic systematic changes that look good on paper to a few people but have never been proven in real life.

Re:FairTax!

[AK Marc]

You are a coward.

National CPA associations are not behind it.

It is not progressive. It is flat. Period. A token prebate does not change that. What is the marginal rate on someone under proverty level? What is the marginal rate on someone at poverty level? What is the marginal rate on someone that makes $10,000,000,000 per year? They are all the same because it is a flat tax.

It is not progressive. It is regressive enough to be supported by conservatives, and it can be confused with progressive (like you kept claiming) to confuse the liberals. But the simple fact is that the marginal rate is completely flat.

Re:FairTax!

[AK Marc]

I'm not a fan of regressive taxes, so I can't really support the unFair Tax. I've tried to talk to people at unFair Tax (back when I thought it could be a good idea), and they all come across as insane people. A simple question about why the poverty level and not 50% of it or 200% of it, and I was accused of trying to sabotage unFair Tax. If they can't even discuss how they came to the numbers and what the economic effect of different choices are, then it's obvious that they have no idea what the real world effect would be.

Talking about a waste of time and money, just think about changing our taxing system completely, then finding out that the new system doesn't work.

Re:FairTax!

[karmatic]

When it's a sales tax, after their prebate, they have paid $0 in tax.

While this is true, the FairTax goes a step further (as far as progressive taxing goes) - if you are below the poverty line (or if your spending on new items is below the poverty line), you actually end up with cash in your pocket from the FairTax.

Personally, I'm not in favor of most government-ran welfare, as it can often provide incentives to _not_ work. Doing better financially typically results in less eligibility for financial programs (student aid, welfare, etc). In addition, many tax plans provide disincentives for working harder due to diminishing returns. As an example of this, I had a subcontractor that wouldn't pick up extra projects in the current tax year because the added tax liability made it not worthwhile (he was not in the US).

The FairTax program avoids both of these issues - you get the exact same prebate, whether you're an unemployed college student, or a multi-billionaire. While it may seem silly, it means a lot less to the billionare, and they both come out of his taxes anyway. You'll end up paying more than the prebate the first Hummer you buy. In addition, there is no longer any incentive whatsoever not to work - your taxes scale linearly with spending, and you are not penalized for making money.

For those who say "but the rich don't have to spend their money" - why are they rich? If they are rich (and not spending like crazy and getting taxed), it's probably because they use sense or discretion with regards to wealth. If that's the case, they aren't hiding it under a mattress somewhere - it's invested, or saved in a bank. Money that sits there doesn't keep up with inflation, and you're being effectively taxed anyway.

So what happens when you leave your money just sitting in the bank? Banks make money by loaning money to people, and charging interest. Suppose they loan the money to a new "homeowner" (I use the term lightly - those who never build equity or suck it out are just renting from the bank)? The homeowner buys a home. Ok, the money's been taxed.

So, the money gets loaned to an evil, tax-avoiding company - what happens next? Well, the company needs facilities and equipment. Buy it in the US? It gets taxed. Buy it overseas? It probably still gets taxed. Next, they need employees, who (of course) want money for their troubles. Under the FairTax, this income isn't taxed... yet. Have to make that mortgage payment (the loan was already taxed in advance, so no "new" tax revenue here; however, the money used for the loan will be taxed again the next time it's loaned out - it still gets taxed). Ok, the kids need new books and shoes for school - more taxes. The family has to eat - more taxes.

The FairTax is a radically simplified system that is largely revenue neutral, avoids the I.R.S and all the invasive, unconstitutional stuff that goes with it, lowers the tax burden on the poor (achieving revenue neutrality and lowering the tax burden on the poor is largely made possible by avoiding the overhead associated with the I.R.S), and based on spending (which is done in public), rather than earning (which is often done in private). For those who dislike illegal aliens, the aliens get no prebate, and pay the same taxes as everyone else - resulting in a higher tax burden for illegal aliens than any citizen). What's not to like?

Re:FairTax!

[maxume]

You can create an income tax structured to be negative below some value, so your 'only' doesn't apply. You have to be careful to structure it so that working more always results in higher income, but it is perfectly possible. The big advantage over a system of special interest deductions is that the people getting subsidized are more likely to notice where the money is coming from.

Re:FairTax!

[Reality Master 101]

They are anxious to spend their time on more useful pursuits of their abilities.

You are high. You think the average tax accountant who gets a big income from tax planning laments that they "can't" spend their time on more useful pursuits, instead of taking all that dirty money? What stops them? Please.

Firing federal employees is a GoodThing(tm) and is a check mark in favor of a flat tax.

I didn't say that wasn't a good thing -- I just said it was a reason it Won'tHappen(tm).

It *is* progressive.... you are forgetting the prebate.

No, I didn't forget the prebate, actually. It's only that the prebate is worthless to the bigger picture of "tax the rich" mentality. Progressive taxes are not about helping the poor, they're about punishing the rich, and the prebate doesn't punish the rich.

The tax code is the biggest source of power to LOBBYISTS, not the government.

Lobbyists don't pass the laws, they lobby the people in power, who exercise their power. Anyway, again you miss the point. This is a reason that it won't happen, not that it's a bad idea. (though, I can argue that manipulating tax policy is an occasionally useful tool for the government, which is one of the bad things about the national sales tax idea)

Re:FairTax!

[mdfst13]

It is not progressive. It is flat. Period. A token prebate does not change that. What is the marginal rate on someone under proverty level? What is the marginal rate on someone at poverty level? What is the marginal rate on someone that makes $10,000,000,000 per year? They are all the same because it is a flat tax. Currently, people (in the US) pay taxes of roughly 14% on the first dollar of wage income for social security and medicare. Then, once they get enough income to get past exemptions and deductions, they pay about 23.5%. This climbs to a maximum of around 43%. Then it drops back to around 35.4% (social security has an income *cap*) before rising to 37.4%. However, since investment income is taxed differently than wage income, the effective tax rate of someone making $10 billion per year is likely to be far lower than their 37.4% marginal rate. For example, the Kerry family paid about a 13% marginal tax rate. Note that this is actually lower than the 14% that low income people pay. Is that really a progressive rate?

A flat marginal rate could be more progressive, in the sense that it is not as regressive. Of course, most flat taxes would be subject to the same kind of tax evasion schemes (which focus on changing the tax basis rather than the nominal marginal rate).

Personally, if I were going to rewrite the tax system, I would start by tying taxes more to their expenditures. I would also shift taxes to better relate to those expenditures. For example, FEMA, defense, and law enforcement are most related to the amount of property that one has. Therefore, it would make sense for them to be paid out of a property tax (and law enforcement often is at the local level). By contrast, education and basic scientific research are most correlated with increasing income. Therefore, they should be paid out of an income or wage tax (whereas now education is mostly paid out of local property and state sales taxes). Social security is about moving consumption from one's wage earning years to one's retirement years, so I'd base it (and welfare) on a consumption, sales, or value added tax.

Currently, expenditures are not tied to taxes in any way. As a result, people want more expenditures and fewer taxes at the same time. If instead the taxes were tied to the expenditures in such a way that increasing the expenditure increased the tax (and decreasing the tax decreased the expenditure), people would have to acknowledge the trade offs. Changing each basis to better match the benefit would also help make the trade offs clearer.

While I would tend to go with flat rates rather than progressive rates, the switch from income to property taxes (for defense, etc.) would probably have much of the effect that you want (switching taxes from poor people to rich people/businesses). Switching from income and wage taxes to consumption taxes (for social security, welfare, and Medicare) would counteract the negative effect of a property tax on investment and eliminate the need for special treatment for capital gains and dividends.

But maybe that's just me.

Re:FairTax!

[anthony_dipierro]

You think the average tax accountant who gets a big income from tax planning laments that they "can't" spend their time on more useful pursuits, instead of taking all that dirty money? What stops them? Please.

I can only speak for myself, and not the average tax accountant, but I'd gladly have the government do away with the income tax system (*). I'd gladly find something else to do with my time, though I do feel my time is usefully spent helping people avoid paying more than they rightfully owe in taxes.

The way I look at it, my reliance as a tax accountant on the income tax system being complicated is no different than a firefighter's reliance on people's homes catching on fire. Sure, if what we help fix was eliminated we'd have to find a new job, but it'd be well worth it.

(*) That said, I don't support the FairTax, as I think it will turn out to be just as complicated and unfair as the income tax. The FairTax is not your run-of-the-mill sales tax that you are used to with state sales taxes. Read more about it before you say you support it.

Re:FairTax!

[anthony_dipierro]

For example, the Kerry family paid about a 13% marginal tax rate. Note that this is actually lower than the 14% that low income people pay. Is that really a progressive rate?

Not if you compare the Kerry family at 13% to a low-income family who paid 14%. But most low-income families pay less than 14%, due to refundable credits (mainly the EIC and the additional child tax credit). And the Kerry family most likely paid more than 13% if you count payroll taxes. Oh yeah, and finally, there's no way 13% was the marginal tax rate for the Kerry family.

The current income tax system is somewhat progressive, when you run all the numbers and take *average* figures. But the distribution is also all over the place due to the enormous discrepancies between different people who make the same income.

All this said, I agree with you that most talk about progressive tax rates inaccurately forgets about the highly regressive payroll taxes.

Re:FairTax!

[anthony_dipierro]

I agree with the sibling AC, and also wish to point out that the FairTax is the only plan which completely removes all tax obligation from the poor.

Huh? For what definition of poor? The current income tax system completely removes all tax obligation from the poor. In fact, poor families with kids get a bigger refund than what they paid in, call it a negative tax.

Re:FairTax!

[AnonymousCactus]

From the site, illustrating its obvious simplicity:

"The most common example is that Joe buys a new car for personal use and pays the FairTax on it. If Joe then sells his car to Bill, there would be no tax on it because the tax had already been paid. Let's look at another example. Assume that Joe owns a flower shop business and buys a van to use when making deliveries to his customers. No tax is charged on purchases for business purposes so that the FairTax on goods sold to consumers does not double tax, or put a tax on a tax.

If Joe decides to sell the van to his friend Bill (who is not in business) for use as his personal vehicle, then it would be a taxable sale to Bill. Why? Because Joe did not pay tax when he bought the van for his flower shop. Since no FairTax has been previously paid on that van; it is not considered used and the sale to Bill would be taxable.

If later, Bill decided he did not like driving a van and sold it to someone else, it would not be a taxable sale. Why? Because the tax had been previously paid (when Bill bought it from Joe) making the item "used" and not subject to tax."

Re:FairTax!

[AK Marc]

Is that really a progressive rate?

I'm confused about the non-sequitur. I have never defended our system, other than something to the effect of prefering to stick with the evil we know than the evil we do not know.

Personally, if I were going to rewrite the tax system, I would start by tying taxes more to their expenditures.

I like the general idea, but I would prefer something simple. Having only one tax would encourage arbitrage, but it would reduce cheating and complexity. I do not know the best tradeoffs, but I think something like the Fair Tax may be close (though it would have to be pushed by people that don't come across as insane every time I talk with them). One thing I do not like is the reduced capital gains. That is a tax that quite simply asserts that the harder your work for your money, the more the government takes of it. I think it should be the other way around (and yes, I have significant investments and multiple pieces of property).

The biggest problem I have with taxes is that the taxes never hit the wealthiest. Aside from real estate, wealth is insulated from taxes. Trusts and estates keep the wealth inside the family. That ends up with the situation you described for the Kerrys, lots of wealth generating income for the family at super low tax rates. I don't know how best to tax wealth, but I think that something that takes wealth into account would be more equitable.

This is perfectly normal

[jorghis]

The government isnt evil for collecting taxes as above posters are claiming.

Google isnt evil for using a perfectly legal accounting system that works within the bounds of the law to pay as little taxes as they can.

Everyone takes as many deductions as they are legally allowed on their tax returns. Would we think that people claiming an exemption for having a kid are 'evil'? Really not much difference.

Re:This is perfectly normal

[Firethorn]

I remember an issue like this coming up somewhere, I think it was California. So they set up a system where you could pay *extra* taxes if you felt that you weren't paying enough.

The year's take for that system was under $1k. $23 keeps coming into my head.

*Everybody* pays the minimum tax they can. The only cases where they don't is some people will only take some of their more questionable deductions as a form of insurance. That way they have something to fight back with in case an audit happens and disallows some of their deductions.

Of course, the whole system's screwy. I mean, the various tax preparers and IRS agents can't agree on the return of a 'typical' family with 2 kids, 2 jobs, a mortgage and some savings.

Re:This is perfectly normal

[FuMoDi]

as many deductions as they are legally allowed If you have extra money then you can buy more. The game is to trade charitable contributions and non-taxable investments for tax returns which are equal to or greater than those contributions and investments. The concept is known, crudely, as money laundering and it isn't profitable in the near to mid term until one can afford a combination of initial investments and contributions totalling hundreds of thousands of dollars.

Re:Google Farts

[Tablizer]

Slashdot smells it! More at ten!

But this time they farted in the wrong country.

Actually we should be thanking Google.

[argoff]

Agreed, it's not like the government earned this money. It's not like the government took personal risks to invest it, build infrastructure, and provided extremely popular search services for everyone to use freely. And would we even want them to? What if Google was a Bahamas startup and not a Silicon Valley startup, would we all now be happy that those "evil" Silicon Valley "tax cheats" don't exist anymore? Even if Google did "cheat", it's not as if that took anything from you or I. The government is already trying to tax the maximum from us anyhow! The government is already wasting 75% of the money on non-productive activities anyhow.! My faith in Google to use that money to do something beneficial to society is far more than my faith in the governments abilities.

Re:Actually we should be thanking Google.

[nonetheless]

I'm open to correction, but my guess is that the bulk of Google's people, physical facilities, and customer base is located in the U.S. That means Google enjoys a considerable set of benefits provided by local, state, and federal governments. Police protect it from being robbed; firefighters protect it from burning down; various agencies pave roads, provide power, etc., etc. Those governments also provide an educated workforce and help secure a style of living that tempts folks to come and stay in the areas surrounding Google. Those are likely among the reasons why Google *isn't* HQ'd in the Bahamas as you suggest.

If the bulk of their work is being done here, they should pay for those benefits. The linked Merck article provides an egregious example: all activities done in the U.S., but parent transfered IP as a sham to a foreign subsidiary, to whom the parent paid massive "royalties," zeroing its taxable revenue. That doesn't sound quite as bad as what Google's doing (their Irish sub actually has employees), but it sounds as though the SEC feels that Google isn't paying in proportion to the work that gets done here.

Re:Actually we should be thanking Google.

[argoff]

Funny thing is, none of those services you mentioned are paid for with income taxes, and all of those services - we are forced to pay for even when the government does a shoddy job - which they do. Especially in California. The bottom line is that people don't "owe" government for the opportunities they have, those happen in spite of government, not because of it.

Re:Actually we should be thanking Google.

[maxume]

So tax the shareholders and employees personal income. That takes care of 'enjoying the advantages of living in the US' just fine, without creating another layer of regulation that it makes business sense to avoid as much as is possible without breaking the law. Corporations exist to generate income for shareholders; expect them to work within the law to maximize that income.

Why this isn't evil.

[955301]

Currently the US foreign policy is driven by warmongering and profiteering. The US military has been outsourced to corporate mercenaries and little regard is given to the well-being of the actual force.

We're about to start a navel and air war with Iran, we're ignoring Darfur, we're disregarding our own people in their time of need (Katrina) and we're supporting countries on questionable moral ground.

If anything qualifies as evil, all that does. So if Google is avoiding paying taxes to a government which executes such evil behavior I'd say they're living up to their mantra.

The problem is that Google claims to be different

[HarryCaul]

That's part of their schtick. They aren't like other corporations, or so they say.

Turns out when money is on the line, oh yes they are just like other corporations.

So if they're like everybody else, why do they deserve geek community support?

Seems a little contrary.

[kodyjoe]

Google's employees and founders have been unflinchingly supportive of Democrat candidates and policies. Those candidates and policies generally favor higher tax rates and oppose tax cuts "for the rich", and favor greater government spending on social programs. But now they're going out of their way to launder their money to avoid those same taxes. Is it evil? No. Taxes are evil. Is it hypocritical? Yep. You get to say all the right things to your pinko NoCal, silicon valley buddies, while avoiding the punitive policies you want to impose of everybody else and pocketing some extra cash for yourself. Lovely.

Re:Seems a little contrary.

[iPaul]

I think part of it has to do with the "business culture" we've created in this country. Google hires accountants and lawyers who've worked at other successful companies where this is "how it's done." I think the reason we aren't more appalled at behavior like this is we've come to believe what's "good for business is good for America." Yet, we forget why we allow public incorporation in the first place. We create a better business climate because the country as a whole benefits from good wages, employment, and sufficient taxes to pay for schools, military, police, etc. (People forget but until about the 19th century it was almost a requirement for just about any business of any size to be part owned by the rulers, subject to numerious and arbitrary taxes, and generally owned by one family. This was a huge impediment to wealth creation for the countries/communities as a whole.) So what happens when Google and the people profitting off Google are able to avoid contributing back to the common good? Are we at the point where the "business culture" has become self serving? Have we lost the notion that Google is part of a social contract - even if implicit - that allows it to use our courts, patent office, and state department to enforce its intellectual property hear and abroad? That paying for these things is in Google's interest?

Re:Seems a little contrary.

[iPaul]

I was going to reply to your ridiculous post, but then I remembered something: "Arguing on the Internet is like running the Special Olympics. Even if you win, you're still retarded."

Re:Seems a little contrary.

[anthony_dipierro]

Google's employees and founders have been unflinchingly supportive of Democrat candidates and policies. Those candidates and policies generally favor higher tax rates and oppose tax cuts "for the rich", and favor greater government spending on social programs. But now they're going out of their way to launder their money to avoid those same taxes.

Is it hypocritical? Yep.

No. It isn't hypocritical. Lobbying for higher taxes and not paying those higher taxes voluntarily are perfectly compatible. Furthermore, you are conflating the beliefs of the "employees and founders" with their actions as fiduciaries of a corporation. The founders are required by law to act in a way which maximizes profits for their company (while remaining within the law), regardless of their personal political beliefs. Employees have a duty of loyalty to their employer, and likewise have to get them every single deduction they legally can, regardless of their political beliefs.

Re:Yeah, Google is evil

[daeg]

Don't just blame Google, blame your legislators for setting up such a ridiculous taxation system, too.

Does the EU have such vast abuses of the VAT system?

When being raped, it is best to save something.

[mtraskos35826]

Maybe if Google didn't have to pay 40% of its profits in taxes, they wouldn't have to spend millions on accountants to move money. We have all seen the fantastic things that Google has done with the money they have, just think of what they could have done (4D Google earth, Google desktop that doesn't take up 1GB, chocolate pudding that tastes as good as Bill Cosby thought it should taste... who knows?) if the government didn't rape them for being successful.
If anything, we should be proud that Google doesn't put money into the vast wasteland of government spending.
--------
- Seconds per year ~ Pi * 10^7

Re:Yeah, Google is evil

[Atzanteol]

So you don't itemize your tax return? You don't claim kids/mortgage/etc.? Or are you 'cheating' on your taxes as well?

Not just businesses

[Jeff Molby]

You're exactly right, but it's worth pointing out that the problem is not just with businesses. Everyone that reports less than their full earnings (especially tipped employees or those paid "under the table") is taking advantage of those of us who do. /Yes, I think the size and role of the government need to be slashed, tax evasion isn't the answer

Re:The problem is that Google claims to be differe

[Reverse Gear]

I am sorry but since when did the "geek community" (if such a thing even exists as a movement or whatever) suddenly get a political or moral side?
The reason why Google should have the geeks support is because they support the geeks with great jobs and great innovative software and code.

Proper Definitions

[dotoole]

Repeat after me: Tax AVOIDANCE is not illegal. This is the entirely legal process of minimizing the amount of tax you pay.

Tax EVASION on the other hand - IS illegal. Ie: not paying the tax you owe.

Please try and use the correct terminology. It's almost annoying as the creationist crowd who use theory when they mean hypothesis.

Re:The problem is that Google claims to be differe

[Atzanteol]

So if they're like everybody else, why do they deserve geek community support?

Do you even realize what you just said? Christ, if this is how the "geek community" behaves then count me out... You can go support your nearest hippy organization, I'll support whom I want.

International companies considered harmful

[iamacat]

There should be a US law that a company should either operate fully inside US or fully outside. If they are not paying US taxes, they shouldn't be taking advantage of US public infrastructure, US education system, US legal and security protection... Countries pass a set of laws that only work together as a whole. A given company should be forced to live with the full set just like a common citizen, rather then cherry picking what they want. If you pay lower taxes, you can not expect as much services from the government, or perhaps some utilities are nationalized. If Apple wants to take advantage of lax labor laws in China, Steve Jobs should also be willing to stand against the wall and get shot if he is (correctly) convicted of non-socialist activities.

Re:International companies considered harmful

[Shatrat]

Sure, let's cripple our entire economy to simplify the tax code and make you feel better.
Let's fast track this.

Re:International companies considered harmful

[iamacat]

How it our economy if it doesn't employ our workers, generate our tax revenues or follow our laws?

2 logical fallacies and one red herring

[argoff]

Because the taxes that cash-rich google doesn't pay are paid for by the rest of us.

This is a double logical fallacy, and a red herring. First, you are presuming that the government isn't already trying to get the maximum amount of taxes from us anyhow. Second, you are presuming that the government would actually spend that money to our benefit. Finally, "cash rich", is a red herring. The government never has taxed net-worth and never will, they tax income. That means that the business man who busts his ass to create 20 jobs and earn a million bucks will get his balls ripped off while the person sitting on a 10 billion dollar stockpile of cash will never notice at all no matter how high the tax rate is. People whose battle cry is "tax the rich" are stupid, and are killing opportunities for themselves more than anyone else.

Re:2 logical fallacies and one red herring

[DogDude]

The government never has taxed net-worth and never will, they tax income. That means that the business man who busts his ass to create 20 jobs and earn a million bucks will get his balls ripped off while the person sitting on a 10 billion dollar stockpile of cash will never notice at all no matter how high the tax rate is.

I'm getting my balls ripped off. Why? I started my small company on a shoestring 5 years ago, and have invested every cent that I don't spend on food and a rat-hole apartment back in my business (created 10 full time jobs with health insurance in the meantime). I still get taxed on all of that re-investment. What does that mean? It means that literally I pay out more in "income" taxes than I actually take home and spend (I pay about 4 times more in taxes than I actually pay myself). I (and people like me) get raped for re-investing in our businesses.
Before I ran into this problem, I always wondered why some small businesses (and large) simply don't re-invest back in the businesses. You know the kind of place... if it's retail, then they don't even change the lightbulbs, or re-paint the building... ever. Now I understand why. If you're gonna get taxed anyway, it makes more sense from a comfort standpoint to spend the profits on a stupid HDTV than it does on lightbulbs for the business.

The current tax system is broken.

Re:2 logical fallacies and one red herring

[maxume]

Plus, you have to pay your accountant to both figure your taxes and your business taxes.

The issue business taxes address, primarily that you could hide income by purchasing a really nice boat 'for business purposes' (which would work just fine if you owned the business outright and had exclusive access) and then using it to have fun, seem like they should addressable in other ways. (Am I missing something about business taxes? I don't think so, most people that do stuff want to pay themselves, just tax that.) Mostly, by prosecuting personal income tax evasion and making you declare the boat as income(the hypothetical guy you, not you).

I guess the problem is that most peoples favorite person to pay taxes is anybody, as long as it isn't them.

Re:2 logical fallacies and one red herring

[rhakka]

I'm in the same boat, and we're a Partnership LLC (I assume you're LLC, or Sole Proprietor).

Since we are in such a rapid growth cycle, we have been advised this year by our accountant, due for clearance by our lawyer, to become an actual corporation. Then the corporation pays taxes on profit, and re-investing in the business is NOT income.

Once growth levels out it's moot either way, but you might want to ask a tax attorney or accountant about this. Looks like it should save us about half of our current tax burden which is currently the money we reinvest in our business vs taking home ourselves, that is currently taxed as profit.

And I'm with you.. it HURTS.

Re:2 logical fallacies and one red herring

[rhakka]

I meant to say reinvesting is not PROFIT.. of course it's income, but apparently if we do something like buy additional inventory, it's not profit until we sell it. Currently, it's profit when we pay for it, because it increases the value of the company.

Not sure exactly why that changes if you're a corp, but who am I to argue?

Re:2 logical fallacies and one red herring

[DogDude]

Yeah... my accountant switched my single member LLC to an S Corp in September of 2006, and she was vague, but she did say it would save on "self-employment" taxes. Like you, I don't understand all of the ins and outs of it (which is why I pay her), but she said it would help *some*. Well, taxes are due in less than 2 weeks, so I guess I'll have my answer very shortly.

Re:2 logical fallacies and one red herring

[Silmaril]

The government never has taxed net-worth and never will

Inflation is essentially a tax on net worth. And governments are the sole cause of inflation in their fiat currencies.

Re:2 logical fallacies and one red herring

[bodesign]

It would be interesting to filter what things people could vote on based on if they own property or a business. People that don't own either usually have low understanding of stewardship and tend to have a high desire for entitlement programs. Those without stewardship usually don't understand where the money comes from to pay their entitlement programs. In the end they loose because the taxes are always passed back to them in lower wages, lower benefits and higher prices. Those with stewardship spend even more resources working to improve things for others by creating jobs, services and products.

Re:2 logical fallacies and one red herring

[DogDude]

You make a good point. Even though I generate more tax revenue than even the most wealthy homeowner, I can't vote in my town because I live in the next town over. It seems kinda' silly.

Re:2 logical fallacies and one red herring

[bodesign]

Inflation is silent tax that erodes all of our net worth. If you don't keep your assets moving then you're losing ground to not only inflation but also the many other eroding factors. Net worth is also a terrible way to measure wealth - net worth is simply dormant potential. If that potential is put into production then it will result in more income and growth. Potential means nothing until it is put into production.

Re:2 logical fallacies and one red herring

[bill_mcgonigle]

The government never has taxed net-worth and never will, they tax income.

Unfortunately in some jurisdictions a "personal property tax" is levied. Also, homes and often autos are taxed. So, they tax you for earning the money, and then tax you when you spend it, tax the people who you spent the money with for your having spent it, then tax you for having the thing you spent your money on (until such point as you don't have the money to keep your property and have to sell it to pay the taxes, then they'll tax that sale as income).

Just so we're clear.

The purpose of all of this appears to be to force people to keep all of their money in cash. I'm not sure why.

Remember the difference

[gmcraff]

As told to me by my ex-IRS tax accountant:

TAX AVOIDANCE is a patriotic thing to do. It does no good to give the government money in excess of what it needs to do its job, and what it has been lawfully authorized to collect.

TAX EVASION is illegal. That's what they got Al Capone on when then couldn't nail him for any other crimes.

Re:Remember the difference

[lvcipriani]

Did your accountant tell you certain tax avoidance ( minimization ) strategies have been patented so if you violate the patent you can get in trouble with the patent owner. Nice huh. I think that's pretty crummy, but it is happening.

"Evil" here assumes an anticapitalist viewpoint.

[phunctor]

in which the State already owns everything anyway, but allows you to pretend otherwise because that makes you work harder. If you have the bad taste to try to keep what you have created (because you "own" it, it's "yours", or some other mean-spirited excuse), the narrative of selfishness and greed gets trundled out. All standard stuff so far. But...

Ireland has been indulging in "harmful tax competition". That's why it makes sense to locate profitable activities in Ireland. And why Ireland has had exemplary economic growth.

The ability of states to confiscate wealth from particular businesses depends strongly on the relocatability of the business, as Maersk has offered to demonstrate. Google is another case in point.

--
phunctor

CFO of the week?

[goarilla]

this just seems like good business practice to me and c'mon who wouldn't try to evade taxes anyway :D

navel and air war with Iran

[phunctor]

Innie or outie? -- phunctor

Re:Yeah, Google is evil

[otterpop81]

This is why you should support the Fair Tax. The Fair Tax eliminates taxation of income, and instead creates a national retail sales tax. Under the Fair Tax, corporations would pay no taxes at all, and _all_ federal tax would be collected at the point of retail sale.

This sounds a little crazy at first, but currently corporations don't _really_ pay taxes at all; they only _collect_ taxes. This is because corporations pass _everything_ on to the consumer in one way or another. Think about it for a minute. If corporate taxes go up, a large corporation like say, Wal-Mart, has one of three options. 1: Raise prices, 2: Keep the prices the same and lose profit, 3: Keep the prices the same and cut quality of service or quality of products. Option 1 obviously hits the consumer. Option 2 hits the owners of the corporation. Who are these owners? Shareholders. Who are these shareholders? Well, that's anyone with a 401K or any other kind of retirement plan. Thus, option 2 is hitting the general public. Option 3 obviously hits the consumers as well. Since corporations have 3 options to consider when dealing with taxes, and they all end up trickling down to the consumer, one has to start to wonder why not just tax the consumer directly and be done with it? What happens if we take away corporate taxes? Prices for consumables will go down because the cost to produce them will go down. Everything you buy has an embedded tax component to it. Basically it's the tax that was paid by every company which handled the product along the way (e.g.: raw materials, wholesale of components, assembly into new product, wholesale to retailer, etc). If the taxes on these "intermediate" companies go away, the retail price of the item is going to go down. Some don't believe this, but I do. Why? Free market forces _must_ drive this cost down. That's the principle our entire economy is based on. If one company tries to hold out and keep their prices up and keep the extra profit for themselves, one (or many) of their competitors will lower their prices to grab extra market share (Economics 101). Because of the lowered prices, the new tax which would be levied at the register would make the item cost (after the Fair Tax is added) roughly the same as it did under an income tax system.

So what's the difference? The difference is that there would be NO INCOME TAX. You would take home 100% of your paycheck, and items for retail sale would cost roughly the same. That's huge. Never mind the savings caused by corporations no longer requiring teams of accountants to find and exercise loopholes in the current income tax laws (How much do you think it cost Google in accounting time to move some of their stuff overseas?).

The other major benefit of the Fair Tax is that with tax only collected at the time of retail sale, consumers know _exactly_ how much tax they are paying. Under the current system, tax is paid at so many places along the way (each corporation who handles every product paying income tax) that people have absolutely no idea how much tax they are paying. Since people don't really know, the government can quietly raise taxes on corporations, making the price of goods go up, and making the people none the wiser. People will probably just assume corporate greed or inflation. Under the Fair Tax, and people seeing exactly what they're paying in taxes, it becomes much harder for the government to raise the rate. As proof of this, does anyone live in a state with a retail _state_ sales tax? I do, and I know how much public opposition there is anytime anyone wants to raise the rate.

Anyway, I could go on and on about the Fair Tax. (Some may argue that I already have.) When talking to people about the Fair Tax for the first time, the first impression they seem to get is that there must be some hidden gotcha in there somewhere, and they are very skeptical about it. I would suggest one read the book (Title: The FairTax Book: Saying Goodbye to the Income Tax and the IRS. (No sponsored link here :) )). As I

Axis

[offlerthecrocgod]

Now that Ireland has joined the Axis of Evil they can soon expect to be liberated by the US. Yumm, Taco Bell here I come.

Re:Yeah, Google is evil

[Henry V .009]

I just submitted a post suggesting the lynching of the rich, and you reply to suggest a regressive tax system? I hope you're a billionaire trying to con foolish Slashdoters, because the alternative is just too stupid to contemplate.

Widespread doesn't mean correct

[Anonymous Coward]

It may be a widespread practice, but it's exploitation none the less. Lets face it, 'regular' people earn these companies every penny of profit. How do they repay us? Cutting our benefits and moving all their earnings offshore to 'legally' cheat on taxes. Thanks for being so willing to contribute back to the country that made you richer than God. There's potholes on my street and none on the one in front of Google headquarters...

Fair Tax

[cdrguru]

The problem is today the suppliers aren't paying US taxes. The US does virtually zero manufacturing and the manufacturing is done by foreign subsidiaries. No tax there.

You then pay most of your income to the foreign subsidiaries as cost of goods. Not much tax there.

Anyone not in this game isn't very big and is paying taxes out the wazoo. Therefore, their costs are higher than someone with a foreign subsidiary and when Wal-Mart comes calling their prices are too high.

Yes, there are some boutique shops that have are supplying a need but nearly all manufacturing has been moved outside the US for obvious reasons. This leads to global dependencies that mean the standard of living in the US and Europe is in the hands of Far East countries and there are fewer and fewer low-skill industrial jobs for people. If you aren't a "knowledge worker" you can clean floors or flip burgers but that's about it. Does everyone have the ability to be a "knowledge worker?" No. This creates a major social problem that some would fix with a permanent welfare (or dole) class.

Fair tax would change almost nothing in this entire situation, because fundamentally the tax is already being paid by middle and upper class folks. Sure, the so-called rich can afford to pay people to find ways to avoid paying 50-60% of their income as taxes. The one problem with Fair Tax proposals is it would certainly change what the lower and lower-middle classes are paying. Since these folks pay nothing or almost nothing today, it would be a big shock to them to be paying anything. And that is why Fair Tax will never pass, unless there is a very, very unfair exclusion for lower income people.

Re:Fair Tax

[otterpop81]

You are exactly right with your last sentence. This is why there is a monthly rebate paid at the beginning of each month for the taxes that one would pay up to the poverty line. Since it is paid at the beginning of the month, the book refers to it as a "prebate." Those below the poverty line end up paying no net taxes; In fact, they get a prebate check each month for more than they could have possibly paid in taxes. Consult the chart here for info on the prebate.

In response to the rest of your post, doesn't the thought of these smaller companies paying taxes "out the wazoo" to keep their suppliers domestic bother you? The Fair Tax levels the playing field somewhat in this respect.

U.S. Tax Code

[Talisman]

I know a few tax lawyers. The tax laws of the U.S. have grown so complex over the decades that it has become literally impossible for one person to know them all. Tax law firms have lawyers dedicated to specific portions of the tax code.

When you have a set of rules as ridiculously long as the U.S. tax codes, it basically makes it impossible to comply 100%, because no matter what you do, there will be a segment SOMEWHERE in that massive wall of text that you unintentionally violate.

The novelty about the deeply complicated tax laws is that loopholes abound - it may be the specific reason the government maintains its complexity.

Google trying to minimize its tax burden is just good business. That they seem to have done it in a way that is suspect doesn't mean they intentionally broke a law, it probably means they did it so well that the IRS isn't sure it's legal or not.

But again, with tax codes as complex as ours, it will probably fall into the realm of ambiguity so that it can either be legal OR illegal, which is yet another governmental advantage of highly complicated tax laws.

Re:U.S. Tax Code

[Prof.Phreak]

Indeed. They (congress, whoever is in charge) should prove that the tax code is self consistent :-)

Yeah, that's a horrible idea.

[encoderer]

Forgoing the income tax for a sales tax is a pretty bad idea.

First, the income tax is progressive. This would be impossible to achieve with sales tax. The only people that would benefit from a "flat" tax (sales or income) are those at the highest tax brackets. In order to replace the income lost from dropping taxes on the top 5%, taxes would have to be raised on the bottom 50%.

Second, a sales tax puts a disproportionate burden on the lowest income families. Those with low incomes--even up to $50k/yr for a single man--spend a very large proportion of their income. The lower your income, the higher percentage of it is spent. People making minimum wage are spending 100% of their pay checks.

Those making $1MM a year, on the other hand, may spend only a small fraction of their income.

And you can say that you would simply not charge sales tax on the things that poor people are spending their money on -- food, shelter and utilities -- but doing so would drastically reduce tax receipts. It would be impossible to exempt those things and the suggestion that it is possible is just used by proponents to try to sell their plan.

Furthermore, this is about Google. Corporations pay a pitifully small percentage of taxes in America. The percentage of taxes paid by corporations has dropped dramatically since the 1950's. Your notion that double taxation is a serious problem is just plain wrong. The tax code currently incentivizes businesses to invest in capital expenditures, R&D, etc.

In summary, the only people that want a sales tax are those that don't understand it's implications and those that could pay less taxes by shifting the tax burden more on the lower & middle classes.

The notion that there is tax injustice because the top minority of Americans pays the majority of taxes is absurd. The people at the top of the food chain reap the highest rewards of our society. Without our national infrastructure, they wouldn't be able to make and horde millions or billions of dollars. They SHOULD pay a tax burden that more closely resembles their share of the US pie, not necessarily their share of the US Population.

Re:Yeah, that's a horrible idea.

[Original Replica]

I hate to break it to you, but the complexity of tax law enable the very wealthy to pay less of their taxes, putting more burden on the lower and middle incomes. How many minimum wage earners do you know with "tax shelters"?

Re:Yeah, that's a horrible idea.

[jcr]

First, the income tax is progressive.

Hook. line, sinker, rod, reel, basket, boots, and copy of Angling Times.

John Kerry's exceptionally rich wife pays about 10% of her income in taxes. What's your rate?

-jcr

Re:Yeah, that's a horrible idea.

[baldass_newbie]

Minimum wage earners don't have tax shelters because they don't have any tax liability to shelter their income from. Not that they don't give the government an interest free loan in terms of tax withholding and then waiting for that rebate (which some call 'free money' funny enough.)

Ironically, 50% of the wage earners in the US pay 97% of the taxes. And the top 3% pay over half the income taxes in the US. Learn more here.

Re:Yeah, that's a horrible idea.

[Courageous]

What you fail to fully comprehend is that the very wealthy enjoy the ability to decide whether or not their cash flow is expressed as "income" at all. Be that as it may, I don't think sales taxes are the best solution. Property taxes are. They cannot be dodged in any meaningful way, and the rich tend to hold onto gobbles and gobbles of property.

C//

Re:Yeah, that's a horrible idea.

[Stickerboy]

>>First, the income tax is progressive.

>Hook. line, sinker, rod, reel, basket, boots, and copy of Angling Times.

>John Kerry's exceptionally rich wife pays about 10% of her income in taxes. What's your rate?

I'm sorry, were you arguing against an income tax? It seems to me the problem with John Kerry's wife and her taxes isn't the income tax, it's the numerous loopholes that the rich politicians have put in the income tax for the benefit of themselves and their rich buddies. Isn't it ominous that people like Steve Forbes support replacing the income tax with a flat or sales tax? I wonder who would benefit the most from the change?

John Kerry and his wife should be paying 40%+. At that income level, you shouldn't need any sort of loophole.

Re:Yeah, that's a horrible idea.

[TapeCutter]

"Ironically, 50% of the wage earners in the US pay 97% of the taxes. And the top 3% pay over half the income taxes in the US."

I'm no maths wizz but you seem to be saying that 53% of wage earners pay ~150% of income taxes. Does that mean the other 47% get back more in tax rebates than they paid in tax? If so then that really is "free money"! /sarcasm

Re:Yeah, that's a horrible idea.

[Score Whore]

John Kerry's exceptionally rich wife pays about 10% of her income in taxes. What's your rate?

You know there's a difference between being rich and having a large income? If I earn $100,000 dollars this year and pay my > 30% total tax, live on $20,000 and put the remaining $50,000 in a non-interest bearing checking account. The next year I don't work but live on the money I have, why do you think I should pay taxes on that $50,000? I've already paid taxes on it. It sounds like you want to tax people's savings.

In Teresa Heinz' case, her income is based on tax free municipal bonds. Which is to say that she is lending the money that is paying for everyone else's public projects to be built. In exchange the city pays her back, tax free. You could do the same thing if you had the brains to do it.

Re:Yeah, that's a horrible idea.

[swillden]

John Kerry's exceptionally rich wife pays about 10% of her income in taxes.

Cite?

I doubt this claim. I don't doubt that you can find some definition of "income" such that John Kerry's wife pays 10% of it in taxes, but I doubt that any accountant would find such a definition reasonable.

Re:Yeah, that's a horrible idea.

[baldass_newbie]

The top 3% of earners are also in the top 50% of earners.

And yes, a significant amount (not 47%) of wage earners get more in tax rebates than they pay in taxes. It's called the Earned Income Tax Credit.

Re:Yeah, that's a horrible idea.

[mrscorpio]

"Those making $1MM a year, on the other hand, may spend only a small fraction of their income."

They may, but they don't. How many $1MM households do you know live like those that make $60k and sock away the rest?

Further, the way this has always been described to me, is that necessities will not carry this tax. So if all you can afford is groceries, you're going to be paying less than somebody who buys groceries and HDTV's and vacation cruises.

Getting taxed because I earned money by working has to be one of the stupidest concepts I've ever heard.

Re:Yeah, that's a horrible idea.

[TapeCutter]

I was yanking your chain because because what you said was ambigous (thus the "/sarcasm" tag).

Your link says EITC will reduce or eliminate tax for low wage earners, that is not "getting more back in rebates" it is basically a free one year loan from the poor to the government. Nor is giving the boss a subisdy to pay you the minimum wage, a "rebate". (My attention span is weak for financial matters, so that's as far as I got into the article.)

Having worked under such a scheme (almost 30yrs ago) I can tell you that the workers learn precious little in the way of marketable skills since the job you are doing is either seasonal or meanial. And since "the boss" has an ROI higher than what he spends on each worker, he is getting the lions share of the benifit generated by these type of subsidies.

Without going into a long drawn out rant, this type of scheme if implemented without an independently recognised training program is corporate welfare, not social welfare.

Re:Yeah, that's a horrible idea.

[jcr]

It seems to me the problem with John Kerry's wife and her taxes isn't the income tax, it's the numerous loopholes that the rich politicians have put in the income tax for the benefit of themselves and their rich buddies.

And that is why the income tax doesn't even suceed in soaking the rich, which is the premise on which it was sold to the public. Punitive taxation as the marxists demanded and got in the twentieth century has a nasty habit of soaking the middle class (which is where the money is: enough to be worth looting, but not so much that the looted parties can afford to take heroic measures to retain it.)

Isn't it ominous that people like Steve Forbes support replacing the income tax with a flat or sales tax?

Forbes, like most businessmen, wants to see the economy actually grow. He stands to gain (as do we all), if that happens. What I find ominous is how many people argue in favor a tax system that is so easy to manipulate that it forms the major means for politicians to pay off their backers.

-jcr

Re:Yeah, that's a horrible idea.

[vakuona]

Two words for you, inheritance tax. Just raise that and you are good to go.

Re:Yeah, that's a horrible idea.

[jcr]

In Teresa Heinz' case, her income is based on tax free municipal bonds

A financial device which allows local governments to spend more than they collect in taxes. Isn't that sweet?

Of course, this is just one of the many tax breaks available to rich people. Thanks for helping me make my point. If we were to move to the Fair Tax, she'd pay out 17% of whatever she spends, and have no way to avoid it.

-jcr

Re:Yeah, that's a horrible idea.

[Overzeetop]

Turn down Rush...he's fogging your brain.

If you check the income tax records, you would find that she pays about 22-25% on her gross income, as do most people at her level. Kerry paid about the same (they file separately), as did GWB and Cheney. Nobody actually pays the top marginal income tax rate on their gross income. Many types of actual income are taxed at lower rated (such as capital gains rates), and tend to buffer the top rates paid.

(BTW - Edwards, back in '04 was the tax winner, paying only about 10-12% of his income in taxes. He somehow managed about $150k in deductions to take his $330k gross down quite a bit.)

Re:Yeah, that's a horrible idea.

[aggiefalcon01]

Not to mention Ariana Huffington (and this came up during the CA governor's race debates ... Arnold said her tax loopholes were so big he could drive his hummer through them).

It's not really double taxation

[iPaul]

The corporation is a separate entity from its owners. If the corporation kills 1,000,000, or goes bankrupt, the shareholders are not held liable (except in a few rare cases that hardly ever apply to large, publicly traded companies). So, when a corporation makes money, it pays taxes as a separate entity under the law. Proceeds paid to its investors are payments to distinct entities under the law, and taxes are owed by those entities because they (hopefully) made money on their investment in the corporation. In addition, selling stock is a different form of financing than borrowing money.

You are welcome to create sole proprietorships or partnerships, where the business is not taxed separately from its owners. However, you now become liable for the legal, criminal, and financial obligations of the partnership/proprietorship. You cannot sell stock in your entity, however, you can bring in new partners to raise money.

As a sole proprietor of an LLC, I agree. Abolish the income tax and only tax consumption. I live simply, make good money as an IT consultant, and would love not to pay taxes.

Re:It's not really double taxation

[Firethorn]

except in a few rare cases that hardly ever apply to large, publicly traded companies

Yeah, the case where the stockholder is also more active than choosing the board of directors. Still, when it comes to corporations, I believe that they can't be guilty of a crime. They aren't a person. Still, the employees, board of directors and CEO can all be held liable for criminal conduct as far as I'm concerned.

I live simply, make good money as an IT consultant, and would love not to pay taxes.

You'd still end up paying some taxes, unless you manage to live below the poverty level. You just wouldn't pay much as a reward for helping our economy grow by investing* in infrastructure.

*In a very abstract way, of course.

Re:It's not really double taxation

[iPaul]

They can't be convicted of crimes, but they can be sued civilly from the harm caused by those crimes.

Normal procedure for any large company...

[Elbowgeek]

All companies of this size engage in these sorts of games, and always have. It's not considered "evil" by even the most ostensibly ethical of organisations, but a means of maximizing profits or even simple survival in the case of industries with very tight profit margins.

To these corporations the cost of "getting caught" worth it for what they save in taxes in the long run. Sometimes it's cheaper to get a parking ticket than to pay for a parking slot in a large garage when certain things are factored in.

There have been occasional calls by noisemaking politicians about cracking down on what they claim to be tax cheats who suffle their capital offshore to centres such as Bermuda, but you will notice that nothing ever comes of such legislation. This is because the politicians know damn well that a lot of the affected companies would either find other ways of skirting tax laws or in some cases simply cease doing business altogether with the resultant loss of jobs and local tax revenue. In other words, it's better to take the relatively small amount of tax revenue that these companies do generate than to scare them off altogether and get nothing at all.

Cheers

Google THIS.

[UncleTogie]

I, for one, welcome our new tax-avoiding overlords....

or not.

When driving to the "Googleplex", Google's employees drive on public roads. They drive on roads made safer by law enforcement. They're defended by a brave group of Americans that volunteered to give their lives when necessary. If they have an employee that's been in a car accident, many time a city/county EMS unit will take them to the tax-funded public hospital. If there's a fire at the Googleplex, the local fire department will respond.

When Google is ready to handle the cost of maintaining the public resources it wants/needs/uses, then allow it to dodge taxes. Until then, my opinion is that Google should hold buying their execs new platinum-stitched whaleskin hubcap covers at a lower priority than paying the cops, firemen, soldiers, and other tax-funded folks upon whom they rely.

Re:Google THIS.

[nikhilvraj]

This is a short coming of our tax system rather than an evil act by Google... over reaction in my opinion.

Re:Google THIS.

[anthony_dipierro]

When driving to the "Googleplex", Google's employees drive on public roads. They drive on roads made safer by law enforcement. They're defended by a brave group of Americans that volunteered to give their lives when necessary. If they have an employee that's been in a car accident, many time a city/county EMS unit will take them to the tax-funded public hospital. If there's a fire at the Googleplex, the local fire department will respond.

And these employees pay taxes. And Google pays property taxes. And none of these things are provided by the federal government anyway.

Re:Google THIS.

[UncleTogie]

And these employees pay taxes. And Google pays property taxes. And none of these things are provided by the federal government anyway. Shirley, you jest.

You're not familiar with federal law enforcement, interstate highways, or the military? Those come from fed taxes. As for your example, I'd like to point out something you said: Employees pay "taxes", while Google only pays "property tax". Are you suggesting that corporations have more rights than the individuals that comprise them?

Re:Google THIS.

[anthony_dipierro]

You're not familiar with federal law enforcement, interstate highways, or the military?

Not with their benefits to the average Google employee. OK, interstate highways are kind of cool.

As for your example, I'd like to point out something you said: Employees pay "taxes", while Google only pays "property tax". Are you suggesting that corporations have more rights than the individuals that comprise them?

No, I'm not.

Re:Yeah, Google is evil

[otterpop81]

I guess I'm just too stupid to contemplate then. I will however, ignore your flame in the interest of good debate.

I would suggest that you quickly check the difference between "Regressive Tax," "Progressive Tax," and "Proportional Tax" (You can find these on Wikipeda).

What most people mean when they say regressive is that it is disproportionally unfair to the poor.

The Fair Tax is not regressive. It's somewhere between Proportional (Flat) and Progressive. This is because of one thing that I didn't mention, the monthly prebate. Since a straight-up taxation on retail spending would cause the poor to pay more taxes than they currently do, a provision was put in the Fair Tax that would cause people living below the poverty line to pay no taxes at all. At the beginning of every month, every taxpayer would receive a check for the amount they would pay in tax on the basic necessities of life. This dollar figure is basically the Fair Tax rate multiplied by the poverty line for the state of life that each person is in (i.e.: single, married, married with X number of kids, etc.). Because of this prebate, people living _below_ the poverty line will get a check for more than they could have possibly paid in taxes.

The Fair Tax by itself is a Proportional (Flat) Tax. With the prebate (and the lower-income paying a lower percentage of their income to tax), it becomes somewhat Progressive.

Now let's consider the current tax situation. Did you know that most people pay more into Social Security and Medicare than they do into income tax? Check your tax return, you are probably one of those people. Did you also know that above a certain wage, people don't pay Social Security or Medicare tax at all? Did you also know that a lot of rich people don't have wages at all (or very small wages), and that most of their income comes from dividend payments (on which no social security or medicare taxes are paid)? All these things together make the current system sound more regressive. Certainly more regressive than the Fair Tax.

I seriously recommend that you consider doing some reading on the Fair Tax. It is definitely not what you currently think it is.

Corporations: No Taxes at All?

[Dutch Gun]

Does anyone think that perhaps corporations shouldn't pay taxes at all? In thinking about basic economic realities, I've been leaning in this direction. It sounds like a bit of a radical idea on the surface, but it's always seemed to me that taxing a corporation is really just an indirect tax on anyone who uses that corporations's services or products. In other words, they'll just raise prices to the point that they're making a profit, and thus simply pass along any increased tax burden to the consumer.

It's the same sort of hidden tax as the idea of having employers pay for half of your social security benefits. Where do you think the extra revenue comes to do this? Higher prices on products and lower wages. The government loves to obscure the true source of taxes, especially when they can make it appear that someone else is really paying for them. These are two good examples.

Am I missing something in my logic here? I haven't really heard anyone else talking about this (although I haven't looked all that hard). My suspicion is that this would never fly, if only for the huge political target you'd make yourself for even bringing this up.

Re:Corporations: No Taxes at All?

[XanC]

You're not missing a thing; it's one of the big reasons the FairTax makes sense: corporations don't really pay taxes, they pass them along to people. There's a whole chapter on this in the FairTax book, I really suggest you read it; it's at least interesting even if you don't end up agreeing (but I think you will).

That's a non-referring link, but I don't know what I can chop out and have it still work, so I left it all in.

Re:Corporations: No Taxes at All?

[anthony_dipierro]

Does anyone think that perhaps corporations shouldn't pay taxes at all?

Yes. Lots of people think this. In fact, I'm sure George Bush would sign such a law if it passed Congress.

As for myself, I'm not a huge fan of the corporate income tax, but I'd favor getting rid of the personal income tax first, and I'd favor getting rid of payroll taxes before even that. The corporate income tax is at least one that is optional - you don't have to run your business as a corporation.

In thinking about basic economic realities, I've been leaning in this direction. It sounds like a bit of a radical idea on the surface, but it's always seemed to me that taxing a corporation is really just an indirect tax on anyone who uses that corporations's services or products.

Well, it's not *that* simple. Those who use the corporation's services or products will likely pay some of the tax. The corporate shareholders will probably pay part of it. The employees of the corporation will pay some of it. The vendors of the corporation will pay some of it. The specifics depend on a lot of factors.

But what's inherently wrong with such an indirect tax in the first place? Corporations have to keep records anyway, so it's easier to tax them than it is to tax the customers directly.

Re:Corporations: No Taxes at All?

[Qzukk]

Does anyone think that perhaps corporations shouldn't pay taxes at all?

Sure! Once they're no longer considered people, I'll be fine with them not paying taxes just like the rest of us.

Re:Corporations: No Taxes at All?

[Software]

Yes, you're missing something in your logic: the corporate income tax is paid based on the corporation's profit, not on its sales. So corporations do not raise prices in order to pay taxes and make a profit. Without a profit, there's no tax to be paid (in fact, losses in prior years are deductible in later years when/if the company does turn a profit -- well, with some restrictions). Of course, accounting profits and tax profits are different, but that's another story. Also, as other posters pointed out, the market usually sets a price that a company can charge for its product or service.

Re:Corporations: No Taxes at All?

[Slashdot Parent]

the corporate income tax is paid based on the corporation's profit, not on its sales. So corporations do not raise prices in order to pay taxes and make a profit.

First, you have obviously never heard of Gross Receipts Tax. Secondly, as the owner of two corporations, please let me assure you that I do raise prices in order to pay taxes. When taxes go up, my prices go up, and so do those of my competitors. If my customers didn't pay my taxes, who would?

Fortunately, the field of economics provides an answer. Corporate income taxes are paid, in some ratio, by the following groups: the business owner(s), the employees, and the customers. The ratio varies by industry, company, market, etc., but guess who sets wages and prices? The owners do, so guess which group is the last resort for paying corporate taxes? C'mon, guess. If you guessed corporate profits, you've guessed the last resort! Congratulations! You have just won higher prices and lower wages for yourself.

Also, as other posters pointed out, the market usually sets a price that a company can charge for its product or service.

True. Everyone remembers that little one from Econ 101. Everyone trumpets "Supply and Demand! Supply and Demand!" but then they totally ignore Supply. Negative pressures on supply (such as taxes, fees, etc. on business) raise prices and constrict quantity sold. Ask your econ teacher. I can't make this stuff up. I was a C student, after all. Not too bright.

Re:Corporations: No Taxes at All?

[Slashdot Parent]

Does anyone think that perhaps corporations shouldn't pay taxes at all?

Corporations do not pay taxes. Living, breathing, human beings pay taxes. Corporations are pieces of paper. Pieces of paper pay no tax.

Who pays the corporate income tax, then? Some combination of the owners, employees, and customers. Since the owners set the prices and wages, guess who is the group of last resort to pay the corporate income tax?

Deductions

[Harmonious Botch]

I'm getting my balls ripped off. Why? I started my small company on a shoestring 5 years ago, and have invested every cent that I don't spend on food and a rat-hole apartment back in my business (created 10 full time jobs with health insurance in the meantime). I still get taxed on all of that re-investment. What does that mean? It means that literally I pay out more in "income" taxes than I actually take home and spend (I pay about 4 times more in taxes than I actually pay myself). I (and people like me) get raped for re-investing in our businesses. Before I ran into this problem, I always wondered why some small businesses (and large) simply don't re-invest back in the businesses. You know the kind of place... if it's retail, then they don't even change the lightbulbs, or re-paint the building... ever. Now I understand why. If you're gonna get taxed anyway, it makes more sense from a comfort standpoint to spend the profits on a stupid HDTV than it does on lightbulbs for the business. As a business owner also, I sympathise with your damaged anatomy, but I disagree with your conclusion. IRS form 1040 schedule C has a line labeled 'maintainence'. Anything on that line is subtracted from the pre-tax total. I have no problem buying paint or bulbs or other materials because the majority of the cost is essentialy paid for by the IRS and state income tax agency.

Re:Deductions

[DogDude]

Well, I've never seen a 1040, but you're right... maintenance and that sort of stuff is expensable. Bad example on my part.
In my case, I own a rapidly growing retail business, so every time I need to buy more (new) inventory that isn't a replacement for stuff already sold, that's not deducted from taxable earnings. A business can show $100K profit, but if you spend $80K for additional (new) inventory, you're still taxed at the $100K level.

Re:Deductions

[Harmonious Botch]

Well, I've never seen a 1040... *THUNK* ( That sound is my jaw hitting the floor. ) You have never seen your own 1040???
It's really in your best interests to understand your taxes. Let the accountant do the paperwork for taxes and offer you advice, but you should be making the final decisions about how your taxes are structured.
Ok, ok, if you're like me, you don't have the time because you're too busy running the business. At least get a second opinion from another accountant.

...every time I need to buy more (new) inventory that isn't a replacement for stuff already sold, that's not deducted from taxable earnings. Yeah, I have the same problem. It truly sucks.
A partial solution for that is to handle your own deliveries. Right now, the cost of delivering your inventory is probably added in to the cost of your inventory, and thus is not deductable. I have started picking up some of my own inventory. The vehicle and travel costs to do so are deductable, the employee who covers for you while you are gone is deductable. ( Or you stay, he travels. Still deductable. ) I don't know if that would work for you, but it transfers my inventory delivery costs from non-deductable to deductable, and makes my vacations partially deductable.
A good accountant should be able to come up with other ideas.

... a rat-hole apartment back in my business This is a great way to save money. Some of the finest businessmen I know did that. Me too.

Is it evil to screw the government?

[Gothmolly]

Does it cancel out?

Enter new Google Taxly product

[caywen]

Google's new Taxly product now opens all the shady accounting practices to everyone this tax season, and the beta will be free for the next 4 years. This is freedom baby!

Re:Yeah, Google is evil

[synx]

The US has a very unfair tax system. If you are an American citizen, then you pay taxes on ALL your income, regardless of where you were when you earned it, where you lived, who paid you, etc, etc. Meaning those citizens who have moved out of the country for various reasons continue to pay american taxes, despite not being in the US. As a counter example, as a Canadian no longer residing in Canada, I pay the Canadian government 0 taxes. I am not using services, hence I don't pay.

As for the Google case, I believe the Irish office is an IP generating office - they have an engineering office there, and engineering jobs for hire (search for it). Ask yourself: should Google pay US taxes for revenue and value created in Ireland?

This what the core of the article is about. The Ireland office is contributing to the value of Google, hence it's only fair that Google pays taxes to Ireland (if you were in ireland you'd think so). At the same time, double taxation is generally considered unfair, so what's your beef?

As to why you can't get this benefit? Well, you don't get the benefit of being able to fly whenever you want, so why not complain about that instead?

war with Iran???

[80 85 83 83 89 33]

We're about to start a navel and air war with Iran

and you know this how?

not such a horrible idea afterall...

[Firethorn]

Sigh....

Should have known this would come up. For the record, I support the fairtax idea. It's also progressive, though maybe not as much as currently. Sure, there are some issues with it, but I believe those issues to be less than the issues with the current system, which is massive fraud, complexity, and inefficiency. I happen to believe that it shouldn't take more than an hour for the average family to calculate their taxes.

In summary, the only people that want a sales tax are those that don't understand it's implications and those that could pay less taxes by shifting the tax burden more on the lower & middle classes.

I'd likely pay more in taxes under the new system than what's currently the case. Still, I firmly believe that I'd ultimately come out ahead due to increases in the economy.

The notion that there is tax injustice because the top minority of Americans pays the majority of taxes is absurd. The people at the top of the food chain reap the highest rewards of our society. Without our national infrastructure, they wouldn't be able to make and horde millions or billions of dollars. They SHOULD pay a tax burden that more closely resembles their share of the US pie, not necessarily their share of the US Population.

I'd argue that the wealthy tend to be some of the cheapest for the government to support - It's the poor that consume the majority of the government's resources. Rich neighborhoods place less stress on pretty much every government resource going. There's less crime for the police to pursue, fewer fires as their buildings tend to be up to code, and not really getting much welfare. They do tend to get assistance, because like in other matters - they're rich because they know how to game the system.

Despite this all, the truly rich tend to pay less in taxes as a percentage than the middle class. Why? Because they've managed to game the system. Even when the top rates were much higher, research shows that the truly wealthy tended to pay about the same percentage in taxes. They simply diverted from making money to hiding money. Hired more accountants rather than more engineers.

As for them not investing money instead of spending it - That's the best way to grow the economy.

And I'm not too sympathetic for the 'poor' either. I happen to like the idea of charging a flat $4k or whatever per adult to fund our country. That way the largest portion of our population would be trying to get them to spend less.

I've paid income taxes even as a minimum wage earner. I think that's for the best.

Damn taxes!

[MaWeiTao]

There was a time when I would have been far more critical of a company like Google going to these lengths to dodge taxes. However, that was before I started my own business.

Now I get the enjoyment of having to deal with a mind-blowingly complex tax system, both on the State and Federal level. Complete, reliable information covering everything I need is difficult to find and even more difficult to wade through. So I had to get an accountant.

Then comes the joy of having hard-earned money go to the government. I can't find a better term for the way the government taxes us than extortion. In addition to the income tax I pay, in my state I have to pay additional taxes simply because my company exists. On top of that, I have to pay yearly property tax for office equipment I've already paid sales tax on. This isn't like a car, mind you, where I'm using public roads. This is taxes on stuff sitting in my office. And this is just a small piece of what goes to the government.

It's enough that I initially considered not even bothering to start a company. It's made me a lot more sympathetic to the actions companies like Google take. Some would argue I pay more because of what companies like Google do. But that's just nonsense. It wouldn't make a difference. The government is like a bad welfare case; they want every last penny they can get their hands on. It's this sort of nonsense that drives companies to move overseas where tax systems are far simpler and less of a burden.

This tax nonsense did change something else. It made me a lot more conscious about how the government is spending my tax money. It's made me more involved in what's going on. It made me realize that this is probably one of the reasons companies have more sway over government than regular people. Because most regular people just don't care. They'll complain, but they wont actually be driven to do anything about it. The impact they experience is relatively small and brief. But a company has to deal with it on a regular basis. I see this sort of thing all the time amongst people I know.

Of course if campaign contributions, legal bribes as I call them, were completely banned that would help immensely. But that's another subject.

I do think this tax nonsense is a lot more problematic for small companies than it is for large ones. I don't think it's right what Google is doing, at all. And I do think they could afford to be paying everything they should be paying. However, most in government don't care about the small guy, even when they pretend to be pandering to them.

As a google employee ...

[Barraketh]

let me just say - if Google has to skirt the law a bit to get a third pool table in my building, then I can live with it!

You Keep Using that Word

[sweatyboatman]

I do not think it means what you think it means.

You may or may not have something worthwhile to say in your post. However, your use of the word "rape" leads me to believe that you have no concept of the meaning of that word.

Paying federal income tax code may be burdensome, but it does not involve forced sexual penetration. Might I suggest, if you believe that the services provided by the US government are not commensurate with the taxes they collect, you might use the words "rob", "steal", or "swindle".

Re:You Keep Using that Word

[mtraskos35826]

"rape - an act of plunder, violent seizure, or abuse; despoliation; violation: the rape of the countryside."
"plunder - to rob, despoil, or fleece"
- source: dictionary.com

The state, or in this case the US governing body, is the only organization that is legally permitted to carry out violent actions. Though the removal of funds from my bank account by anyone else would be considered theft, I have a legal recourse in this matter. The only recourse that I have from the plundering done on the fruits of my labor by the state is to payoff some representatives to maybe get a change in the law ...but this has to be done with fewer dollars because they raped/pillaged/plundered my account - leaving me with even less money.

The wonderful/deplorable part of the English language is that there is more than one definition to everything.

Re:Yeah, Google is evil

[Henry V .009]

And you'd be right if this was a Canadian subsidiary. But you're wrong -- not through bad logic, but through ignorance. (I'm going to charitably assume that you don't know what you're talking about, instead of being a shill for Google.) One of Ireland's main industries is corporate tax evasion. They are a well known tax haven for multi-nationals. "Irish subsidiary" should set off the same warning bells in your head that "Madeira subsidiary" does.

Google?

[wytcld]

First off, Google would move ... where? They're intimately tied to US infrastructure.

Second, all public corporations partially fund themselves by issuing stock, and most in large part pay their executives in stock options. Corporate stock is worth significantly more if the incorporation is in America and the stock is traded on one of the major American exchanges. Why? In large part because American regulation of corporations is - although flawed - considered to be better than the regulation of corporations anywhere else. And the same goes for American regulation of stock markets. Much of that has to do with the laws requiring openness about a corporation's finances.

That's right. It's worth a lot to have your corporation be American because in an essential way we enforce open source in regards to a public corporation's books. America's advantage isn't in being more free, but in being better regulated.

And any American corporation that wants to move elsewhere loses that very lucrative advantage. So where is it unfair for America to tax them on the advantage that being American conveys to those corporations?

Re:The problem is that Google claims to be differe

[m0rph3us0]

What's wrong with avoiding taxes? I do it. Every dollar that is not sent to the gov't is a dollar that will be put to better use elsewhere. Other than the nightwatchman state services which are subject to market failure, every other service the government provides could reasonably be paid for by those involved.

I am all for any sort of tax evasion

[uber_geek9]

http://www.originalintent.org/edu/fedincometax.php It's legality is questionable and it's a horrible system that leads to corruption.

Avoiding taxes legally is a duty!

[pdwalker]

It is every citizens and businesses duty to to legally avoid paying taxes in whatever legal manner possible.

Government is a parasite that must be starved into a manageable size.

Any money taken by government is lost and profits no one.

No...

[encoderer]

The problem with property taxes is that it's very finite. Townships which are unable to levy income taxes have this problem all the time. Incomes can grow faster than property values.

Re:No...

[Firethorn]

Incomes can grow faster than property values.

The opposite's seemed true for most areas for a good while...

Still, Florida used to have an 'intangibles' tax. You'd have to pay a tax on the value of your stocks/bonds/etc.. each year. I understand it was a big pain in the butt.

And yeah, there is a very real difference between being 'rich' and having a large income. I could have a million bucks in the bank and only make $50k a year off of interest from it. By the time I get done with the deductions(Health care would be a big one, as I'd be effectivly self employed), I wouldn't have much taxable income at all.

Re:No...

[robwicks]

encoderer wrote:

The problem with property taxes is that it's very finite. Townships which are unable to levy income taxes have this problem all the time. Incomes can grow faster than property values.

Why is this a problem? Why should government's income grow as fast as the income of people who produce value for other people? It seems to me that if incomes explode, and property values don't, then the people in an area are going to be much more prosperous than they otherwise would be. That sounds like a good thing to me.

So what?

[encoderer]

Yes, the wealthy citizens cost government less, but so what? It would not be _possible_ to be a wealthy American if it weren't for the poor and middle-class Americans. Wealthy citizens get the most benefit from the infrastructure. Middle class Americans like us drive on the interstates. Wealthy people make millions shipping goods on them. Middle class Americans serve in the military. Wealthy Americans protect their industries with the military. I could go on.

Furthermore, it's noteworthy to me that the right wing only wants equality when it saves them money. They were against equality in voting rights, equality in civil rights, equality in gay rights, equality in health care, equality in compensation, equality in criminal justice, etc.

It's absurd to most peoples sensibilities that we'd all make the same amount of money (even mine, and I'm pretty far left), but somehow not absurd to the right wing that we all pay the same taxes. Is this the kindness of their hearts? No. It will save them money.

I agree that the tax code is esoteric and convoluted, but it doesn't mean that a progressive tax doesn't work. It just means that a bloated tax code with tons of special case clauses for oil companies or sheep sheerers or steel companies, etc, doesn't work.

And by the way, I don't think you _actually_ paid federal income tax on a minimum wage income. I suppose I don't know your specific tax details but someone earning nothing but a single minimum wage job for 40 hours a week shouldn't have any tax liability. It will be deducted from their paychecks but it should all be returned at the end of the year.

Re:So what?

[Firethorn]

Ah great... The system ate my first reply.

Furthermore, it's noteworthy to me that the right wing only wants equality when it saves them money. They were against equality in voting rights, equality in civil rights, equality in gay rights, equality in health care, equality in compensation, equality in criminal justice, etc.

I'll note that the left wing/democrats were the main offenders when it came to voting and civil rights. Gay rights I'll give you as the religious nuts have mostly infested the republican party. As for Health care - Why should it be equal, and for what parties? Equality in compensation? I've read studies that say that once you account for the fact that men, on average, work more hours and have more seniority, women tend to make more. Now, I don't believe this, but I do believe that it's close enough now that major corrective actions would be counter productive. As for criminal justice, it's a sad fact in the USA that black men are statistically far more likely to be a criminal. A colorblind justice system would thus; in the USA; tend to convict more blacks, because they're a larger portion of the criminal class. Now, I personally believe this was due to discrimination resulting in poorer black families that were then effectivly destroyed by the housing projects and welfare. Welfare also destroyed the work ethic. Now, this is not purely a black problem(I 'poor white trash' relatives), but statistically only a small percent lift themselves out of that poverty and crime ridden situation each generation. It's become self sustaining, a cancer on our society. Unfortuantly, like many cancers, treating it will cause the situation to get uglier before it gets better.

bleh... Talk about off topic.

I agree that the tax code is esoteric and convoluted, but it doesn't mean that a progressive tax doesn't work. It just means that a bloated tax code with tons of special case clauses for oil companies or sheep sheerers or steel companies, etc, doesn't work.

Very much true; then there's the evil that is the AMT(Let's force people to figure out their taxes twice!). I tend to be fairly hostile to progressive taxes because it enables the government to be more wasteful without pissing off a majority of people to do something about it. With a flat percentage EVERYBODY would feel the pain equally and possibly find/harrass their representatives enough to actually practice some fiscal restraint.

And by the way, I don't think you _actually_ paid federal income tax on a minimum wage income. I suppose I don't know your specific tax details but someone earning nothing but a single minimum wage job for 40 hours a week shouldn't have any tax liability. It will be deducted from their paychecks but it should all be returned at the end of the year.

Mine was the standard minimum wage situation in my area: High school student, still living with his parents, working a part time job. My parents still claimed me as a dependent, so my standard deduction was something like $400, not $4000.

Don't forget FICA. There's a true regressive income tax. It has a cap just under $100k(goes up each year).

Re:So what?

[encoderer]

AMT, like the EITC, mortgage interest deduction, etc, are just patches that had to be added every now and again to keep the whole thing from just falling apart.

The AMT in our current system was a good idea when it was created. It worked well. It helped prevent exactly what we've been deriding--the wealthiest people escaping their responsibilities.

The real flaw is that it has no provision to handle inflation. If its trigger point was adjusted upwards as the mean income rose, it would work fine.

Of course, a better idea is just to scrap the tax code and fix the things that make the AMT necessary.

Unfortunately, we have, what, a $3tn budget? Think about the special interests there. That's enough money to give 3 Million people One million dollars every year. With money in politics the way it is, there's no way we could do any meaningful tax reform.

Which, if you ask me, is why we should have publicly financed elections in this country. Gag orders on political speech for 6 months before every national election and each candidate gets a check from the government. Right now it's easier to get votes than money. That makes doners the real constituency. Special interests. The only way to fix that is going to be to completely remove money from politics. When you cut out cancer you can't just cut our part of it. It will have no effect. McCain/Feingold just proves that the money finds other cracks.

Re:Tough Situation

[mrscorpio]

Go look up the definition of "stock" and "publicly traded company", AC.

count those teeth, aristotle

[80 85 83 83 89 33]

funny how you can just make up anything that sounds good, and get modded up for it. and since you made up a lot, you got modded up a lot.

i'd really like to see some hard evidence that we are going to start a war in iran. and how about dates, you know, like when and where? how long will it last? what are the conditions for stopping the war? are we going to have an emperor-general run the place afterwards, like we did in japan? will we use nukes, tactical or other? do we keep their oil and annex the oil fields? how, exactly, are we going to handle the terrorist/insurgents that will surely love to take us on in iran? how are we going to pay for it? by taking the money we currently use for katrina refugees?

what do you know, and when did you know it? (that is a little bit of funny.)

are you part of the decision making process at the whitehouse or pentagon? or maybe you have some audio recordings of the pillow talk between you and condi?

Re:count those teeth, aristotle

[955301]

To suggest that I'm not qualified to make this assessment is to suggest I'm not qualified to live my life because I have no prior experience living a life. Anyone with reading comprehention and an internet connection can figure this out.

1) The dates aren't important - even software doesn't stick to a date - do you seriously think a war does?
2) You could compare the duration of the occupation in Iraq to that of the occupation of German and Japan with military bases - we currently have four major bases in Iraq which will will not be turning over to the Iraqis. They will stage the attack on Iran - The Iraq war was a ground war because of the contruction required. The Iran war will be an air and naval war because of the goal and the poximity to water. The goal is to bomb them back in time - think Lebenon and Libya. We have three major branches you know, and only one is taxed right now.
3) There are no conditions for stopping the war - every excuse will be made until it comes about - the precursorory military bases *are* the beginning of the war.
4) We don't care who runs Iran "afterwards", since the goal is just to make them ineffectual.
5) We would use tactical nukes, sure. We'll blame it on an explosion at their new nuclear facilities and the inexperience of their scientists.
6) As long as they can't use their own fields, we don't care about their oil - Iraqs is already being manhandled.
7) The terrorist/insurgents don't affect the plan - they just show up on tv as statistics.
8) We pay for it by reducing scuttling social programs in the US and recirculating the money back into US corporations to do the work - Everyone likes to quote the $1 billion here, $4 billion there numbers on the cost of Iraq, but then the money just comes back to US corps it's not really paid out, is it? Notice we don't use many overseas contractors except individual people?

The US foreign policy does not make sense for the US. Ask yourself a question instead of me - who does the US foreign policy make perfect sense for? What other country?

Re:count those teeth, aristotle

[80 85 83 83 89 33]

thanks for replying thoughtfully, even though i was being a sarcastic dick.

The US foreign policy does not make sense for the US. Ask yourself a question instead of me - who does the US foreign policy make perfect sense for? What other countr[ies]?

the whole region? the whole world? who in that area WANTS iran to have nukes? who in the world wants iran to have nukes?

On a national scale...

[encoderer]

I think you're wrong about that. It may be true for the middle class (stagnant income growth for past 25 years) but the income of the top earners has skyrocketed. This is off the top of my head, but in 1980 the average CEO earned, i think, 20 times more than his average employee. Today that number is 400 times. These are the people that allow for the "top 3% pay top x% in taxes" arguments.

The truth is, it doesn't much make sense that property values would be outstripping the income increases. After all, property values are nothing more than what someone is willing to pay for your house. It simply doesn't make sense that property values would outpace income growth. That's just not how supply & demand works.

Re:On a national scale...

[Firethorn]

This is off the top of my head, but in 1980 the average CEO earned, i think, 20 times more than his average employee. Today that number is 400 times. These are the people that allow for the "top 3% pay top x% in taxes" arguments.

Yeah, but those CEO's are also the ones most capable of hiding their income. Much of it comes from capital gains(stock options) as well, which are taxed under a different system.

The truth is, it doesn't much make sense that property values would be outstripping the income increases. After all, property values are nothing more than what someone is willing to pay for your house. It simply doesn't make sense that property values would outpace income growth. That's just not how supply & demand works.

Actually it is. There are several reasons why property is going up faster than incomes. The first is that 'No more land is being created', combined with a still increasing population level. Sure, land can still be had for cheap; but what about a house close to your work and maybe a grocery store? That's harder and harder to get.

The Second would be the idea that houses always appreciate, as far as I'm concerned a myth pushed by real estate workers. I'll say that the LAND will appreciate if it's in a good location, but the house won't. Newer houses; properly built; are safer and nicer than old houses. Nasty old houses tend to have been torn down, so mostly only the nicer ones survived.

The Third would be the great expansion of credit. Low interest rates combined with interest only mortgages, Ballon mortgages, ARMS, no down payment mortgages, 50 year mortgages, and such have all increased the money available to people for buying a home. Many have taken the bank up on the offer. The problem is that many are getting into trouble now; repossessions are up. So I see it as leveling off.

Re:On a national scale...

[Courageous]

The truth is, it doesn't much make sense that property values would be outstripping the income increases.


I know out here in California, a very strong factor in local property value increases was foreign investment. This particularly applied to "estate" property. A lot of wealthy Chinese were buying mansions out here as a hedge against economic changes in China. Or so it's been claimed.

Anyway, when they refer to the "new economy," they are often talking about forces like foreign investment propping up local markets.

C//

profit laundering across US states lines too

[lvcipriani]

US states have a similar problem. A corporation can have all it's IP assigned to a subsidiary in a low tax state, and the corp pays that subsidiary royalties for using that IP, gets deducted as a business expeness in the high tax state and shows up as profit in the low tax state. Nice trick huh. The only way to cut that out is for all states to tax businesses identically in every way but that's never going to happen, or maybe something at the federal level to prohibit this. That'll never happen either.

The Definition of Value

[encoderer]

You fail to grasp the true definition of "Value."

Go call an appraiser. Ask them what the definition of appraised value is. They will tell you that, based on data from what people have recently paid for similar properties, a value is determined that, once adjusted in either direction foe certain variables not able to be matched in comparable sales, appears to be what someone at that moment would ACTUALLY PAY for your home.

Fair Market Value is just that, Market Value. It is, once more, based on what someone will actually pay for it.

If nobody is willing to pay a higher price, that price will never be attained.

In a small excercise to illustrate this, imagine an island nation secluded from the rest of the world where there are only 10 people possibly capable of paying $1,000,000 for a house. Imagine for control purposes that a person can only own one house.

Now imagine that there are 11 identical mansions built. As time goes on, 10 are purchased by the 10 millionaires at $1MM a piece. Tell me: is the 11th house still worth 1MM? If nobody can PAY the $1MM, is that truly what the house is worth? The answer, of course, is no. After all, what good would a worth of $1MM be if it could only ever be sold for, say, $800k?

Now, when the market caught up--one mansion burnt down or another person became wealthy--the house would go up in value quickly to $1MM.

In summary, demand drives the cost, not the supply. If you build a $1MM house and nobody is willing to pay $1MM, you're out of luck. Supply is the constraint and Demand is the actor.

In summary, a home values simply are not growing faster than peoples ability to pay for them.

Yes, creative financing has helped put people into more house, but aside from ARMS and no down payments, most represent a tiny fraction of home mortgages. But they also cut both ways. ARMS mean that when interest rates rise, it will pain many home owners. Demand will shrink, and home prices will drop. At the end of the day, over a long enough time line, people cannot pay for more house than they can afford. A family making $2MM in 30 years cannot pay $3MM in expenses throughout that time. Something will act externally to adjust the issue before it gets too large. That's the whole idea behind credit reporting.

Re:The Definition of Value

[Firethorn]

You fail to grasp the true definition of "Value."

You failed to understand me. Thus, the rest of your post is pretty much wasted as I DO understand this.

You see, what I was trying to say is that there are a number of factors tending to push up the value of real estate. Some of these are sustainable, some are not. Due to the non-sustainable factors I see a leveling or even dropping in real home values in many areas.

In summary, demand drives the cost, not the supply. If you build a $1MM house and nobody is willing to pay $1MM, you're out of luck. Supply is the constraint and Demand is the actor.
One point that I made is that our population is still rising - an increase in demand. Sure, homes are still being built, but the LAND that previous homes were built on tend to be nearer to the city center, thus are closer to services and working areas. This makes it more valueable. This will continue until we either have a leveling off of population level or a shift in housing style/technology, such as from single-family/duplex homes to condos. But again - there is a certain mythos to the single family home in the USA.

Now imagine that there are 11 identical mansions built. As time goes on, 10 are purchased by the 10 millionaires at $1MM a piece. Tell me: is the 11th house still worth 1MM? If nobody can PAY the $1MM, is that truly what the house is worth? The answer, of course, is no. After all, what good would a worth of $1MM be if it could only ever be sold for, say, $800k?

The appraiser, as part of the real estate market, has a vested interest in staying on the high side of home value, though real estate agents tend to be the worst. They've sold a mythos to the public just like the deBeers. Yes, a home w/land is a lot like stock; It's ultimately only worth what you can get somebody to pay for it. But I've seen it myself, real estate people constantly push the 'homes appreciate!' line. I say - Homes may depreciate at under inflation, but they don't improve in real value unless you improve them under normal conditions. A new bathroom, kitchen, flooring, deck, garage, etc...

Yes, creative financing has helped put people into more house, but aside from ARMS and no down payments, most represent a tiny fraction of home mortgages. But they also cut both ways. ARMS mean that when interest rates rise, it will pain many home owners. Demand will shrink, and home prices will drop.

ahem... from my first post: The problem is that many are getting into trouble now; repossessions are up. So I see it as leveling off.

What point?

[Slashdot Parent]

A financial device which allows local governments to spend more than they collect in taxes. Isn't that sweet?

Muni bonds are like a mortgage. Did you pay all cash for your home? Well, your county didn't pay all cash for your kids' school, either. Muni bonds allow localities to borrow money at low rates of interest. Muni bonds are a good thing.

Of course, this is just one of the many tax breaks available to rich people. Thanks for helping me make my point.

Anyone can buy muni bonds. Anyone can buy shares muni bond funds and take advantage of the tax breaks. This is not a tax break targeted at the rich. It is a tax break targeted at those who want to help localities build infrastructure.

If we were to move to the Fair Tax, she'd pay out 17% of whatever she spends, and have no way to avoid it.

First of all, that's 23% or 30%, depending on how you state the rate (H.R.25/S.25). (When you buy a $1 item at the Dollar Store, the total at the register would be $1.30 under FairTax. You tell me what tax rate that was: 17%, 23%, or 30%.)

Secondly, the "Fair" tax is anything but fair. The current largest US population group is the baby boomers who have lived their working years under a tax system that concentrates taxation on their income. And once they retire and no longer generate income, now we switch to a tax system that concentrates on their consumption. Yeah, real friggin' fair.

Re:What point?

[jcr]

Secondly, the "Fair" tax is anything but fair. The current largest US population group is the baby boomers who have lived their working years under a tax system that concentrates taxation on their income.

It does not follow that because one generation has been subjected to a bad policy, that fairness demands that it be continued. Was the end of slavery more or less fair to the freed slaves, depending how long they'd been slaves?

-jcr

Re:What point?

[Slashdot Parent]

Was the end of slavery more or less fair to the freed slaves, depending how long they'd been slaves?

I dunno. Ask the slaves and ask the baby boomers and see what you find. I think you'd find the following:

1. All of the slaves would find it more fair to be freed, irrespective of duration of servitude
2. Baby boomers won't think it's fair to pay a 30% sales tax
3. Both groups will tell you your analogy was lousy, irrelevant, and made no sense

I agree with both groups.