Battle Lines Being Drawn As Obama Plans To Curb Tax Avoidance

theodp writes "Barack Obama has squared up for a major battle with big business, announcing a crackdown on offshore tax avoidance and evasion by US multinationals that's designed to raise $210B and make it easier for companies to create 'good jobs here at home'. Obama cited a building in the Cayman Islands where more than 18,000 US companies are housed: 'Either this is the biggest building in the world or it is the biggest tax scam in the world,' he said. 'I think the American people know which it is.' The administration says that more than a third of US foreign profits in 2003 came from Bermuda, the Netherlands and Ireland, and noted US companies paid an effective tax rate of just 2.3% on the $700bn they earned in foreign profits in 2004. Among tech companies affected by the crackdown, Microsoft joined 200 companies who signed a letter complaining that the proposed tax changes would put them at a disadvantage with their rivals, Cisco moaned that the measures 'would adversely impact our ability to invest and grow our business in the US,' and Google declined to comment for the time being."

Comments

two ways to solve the tax "scam"

[z-j-y]

two ways to solve the tax "scam"
1. raise overseas tax
2. lower domestic tax

guess which road the government takes.

Re:two ways to solve the tax "scam"

[mollog]

Will the anti-tax people please explain how to pay for two wars and a large military budget?

Thanks in advance.

Re:two ways to solve the tax "scam"

[SoapBox17]

That's an incredibly simplistic view of the situation. Lowering taxes isn't a "reward" for bad companies. It is an "incentive" to all companies to do more business in the US (rather than in other countries where the taxes are lower). It is more of a "decreasing a penalty" than a "reward".

Usually when the government lowers taxes they see an increase in tax revenue because of increased spending since taxes are lower. Instead of easing penalties or adding incentives to do business in the US, the administration has instead elected to add more penalties. Two guesses how that will turn out.... Not like it hasn't been tried before.

Re:two ways to solve the tax "scam"

[Narpak]

I guess a persons viewpoint on corporate taxations and regulation is based in part on perception, part on hearsay and part on belief. Should a corporation have the same rights as a citizen? Should the government favour corporations over individuals? And does low corporate tax mean a higher quality of life for citizens?

These are, in my view, important questions that need to be debated, research and argued for and against with reason, reflection and as far as possible with a comprehensive and broad study of the many many factors involved. Hopefully one would eventually end up with a policy based in reason that reflected practical reality and not dogmatic ideology.

Usually when the government lowers taxes they see an increase in tax revenue because of increased spending since taxes are lower.

Hard for me to evaluate this but I would be surprised if it was quite that simple. The economy is complex and there are many factors involved in levels that might not be immediately obvious. Of course if you provided links and information about in which period you are referring to we could perhaps evaluate further and speculate to whether or not the lowered tax was the ONLY contributing factor to increased revenue.

The goal, again in my view, should be to arrive at a tax, budget and economic policy that allowed the state to do all the things that are necessary (fire, police, roads, and other institutions depending on what you believe the Government should, or could, run or regulate); while providing the greatest amount of freedom for the individual. Though in this particular case I see only a Head of State trying to push for enforcing the laws and regulations that are already present. And to make it harder to avoid paying the existing taxes by finding loopholes. Debating about whether or not those taxes and regulations are fair is another issue entirely; but one, as I state above, is important no doubt about that. However anyone trying to excuse their criminal or unethical behaviour by saying "The law isn't fair!" can join the rest of the prison population; or actually try to use the democratic means available to argue for changing those laws. In this case "the corporations in question" are just a whining bunch of cry babies who believe they should be allowed to do what they wish disregarding what the laws of their own nation says.

Re:two ways to solve the tax "scam"

[Bombula]

Here's another option:

Require companies to generate ONE set of financial statements each year, not two.

At present, companies create one set of financial statements for shareholders (showing big profits) and one statement for the IRS (showing little or no profits). A simple law that forbids this two-faced scheme would do a great deal to bring companies in line.

Re:two ways to solve the tax "scam"

[Chris Burke]

Business taxes are just indirect taxes on people. Consumers pay more for goods, investors receive fewer dividends or the value of their shares decreases, and employees receive lower wages and have fewer job opportunities.

Yeah, it is funny how the price of everything went down when corporate tax cuts were given. Oh wait, they stayed the same. If we actually start collecting corporate income taxes, I'm betting what will happen is that the companies will earn somewhat less net profit, and continue charging whatever the market will bear like they always do.

Businesses do not set prices at (cost to produce) * (1 + modest profit ratio). They set prices to maximize revenue by maximizing price times expected sales at that price. If that's less than it costs to produce, then they find another business, if it's more, even a lot more, then yee-ha! When their costs go down, they only tell you they're "passing the savings on to you!" when they think they can get more money by undercutting others. When their costs go up, they might like to charge more, but if that means fewer people will buy and they end up with less money, they suck it up and go on at the current prices.

Unless I'm mistaken, it's mostly income taxes that are at issue with foreign tax havens anyway, which are based on profit and shouldn't push a company from black to red. On the other hand if things like payroll taxes on U.S. employees increase, that's more incentive for them to outsource, not that they really need any more. Outsourcing is a bucket of worms to be sure, since just about anything you do to try to stop it just encourages it, and doing nothing means it's happening rapidly regardless.

Either way, don't expect the price of your next Dell to go up 12.4% because their tax rate did too. It just doesn't work that way.

Re:two ways to solve the tax "scam"

[Red Flayer]

Corporations don't pay taxes, they only collect them. People pay taxes.

While true, that's an overly simplified view of what is being taxed, and how taxes play out economically. In essence, it's a straw man -- it diverts from the question of what activity is actually being taxed (and thus what activity is being inhibited by the tax).

In the end, there are only four types of taxes: taxes on labor, taxes on capital, taxes on imports, and taxes on consumption.

Each type of tax has different impacts on the economy, although their effects overlap in a lot of ways. Corporate taxes are a tax on profitable capital investment. While the tax is in the end born by everyone, those it impacts the most are capital investors. This is very different from a tax on labor (income tax) or a tax on consumption (sales tax).

I don't buy into a lot of the class warfare concepts; however, I do believe that assigning tax heavily on labor is a bad idea. I personally don't cherish the idea of a permanent underclass -- and it's getting ever harder for someone who earns primarily from labor to climb into the ranks of those who earn primarily from capital gains, save via tax-sheltered investment plans like 401ks or Roth IRAs.

Re:two ways to solve the tax "scam"

[Red Flayer]

All taxes punish success. You can't get around that fact.

So the question is, what are the things that we can tax and minimize the negative impact on the economy?

Since I believe trickle-down economics has been shown to not work, I believe taxes levied on capital investment are a good bet. One can increase capital investment to increase income. There is a limit to how much a person can increase labor to increase income.

Re:two ways to solve the tax "scam"

[plurgid]

All taxes punish success. You can't get around that fact.

You know, I hear this one all the time, and it just doesn't ring true to me. By most standards, I'm one of the people who has found success (starting reasonably low on the totem, even). I don't feel particularly "punished".

It's true I'm taxed vastly more now, than I was when I was making minimum wage. This isn't "punishment", it's paying my dues.

I'm taxed proportionately based on the benefits I've extracted from the system. Without community college, public health care & other social safety net systems I'd have never made it this far. Now I'm paying back into the system.

The idea that progressive income taxes are a disincentive for success is the stupidest thing I've ever heard. If that was true, people would stop playing the lottery, no?

Why bother getting rich if you're just gonna be "punished". Oh right. Having more money is always better than having less money.

Stop bitching people. It's patriotic to pay your taxes, unless they are unjust ... and they aren't.

Wont increase taxes on middle class

[ArsonSmith]

What does he think is going to happen? These evil rich businessmen are going to go out and deliver pizzas in their free time to pay the extra taxes? Corporate taxes are exactly the same as raising income tax, except you are paying at the point of purchase rather then the point of earning. The only real point of corporate taxes is to give the government the ability to punish companies that fall out of favor.

Re:Wont increase taxes on middle class

[JCSoRocks]

Thank God someone else realizes this. Although I must point out that taxing companies can also be used for shaping or encouraging a specific type of behavior. E.g. 10% tax rate for all companies and then you get .5% off for being green or .5% off for R&D spending.

I'm tired of seeing people duped into clamoring for corporate taxes as though they'll somehow benefit from it. Can we replace everything on TV with basic economic and political education for a month? People need figure stuff like this out. Politicians drag out the same tired tricks over and over and the sheeple eat it up like it's free candy.

Re:Wont increase taxes on middle class

[Xabraxas]

What does he think is going to happen? These evil rich businessmen are going to go out and deliver pizzas in their free time to pay the extra taxes? Corporate taxes are exactly the same as raising income tax, except you are paying at the point of purchase rather then the point of earning. The only real point of corporate taxes is to give the government the ability to punish companies that fall out of favor.

You're really going to defend tax cheats? They make a ton of money from US customers and they live in the US but they don't have to pay there fair share of taxes?

It all makes sense after reading your sig...

Socialism is a tool of fascists. Used to ease the minds of the masses and to present power grabs in the veil benefits.

You don't know anything about socialism or fascism. If you really believe your own line then you would be calling pretty much all of Europe fascists. I'm not sure anyone else is really going to agree with you other than other whackjobs.

Go Obama

[je ne sais quoi]

For starters, maybe if corporations started paying their taxes, we could take down the debt some, or maybe we could lower taxes on the rest of us. I don't feel bad for the corporations, maybe they'll just have to forgo paying their executives their excessively huge salaries.

Also, every time Obama does something wrong, we see a bunch of people making sarcastic comments here on how Obama represents "change we can believe in". I do not agree with everything he has done, but I do like to see this sort of thing, he seems like he is honestly trying to run the government in a fiscally responsible way. That's a big difference from our previous president who refused to cut spending to pay for his tax cuts, and even refused to allow the cost of his several hundred billion dollar unnecessary war to be included in the normal budget. We're all paying for that kind of "limited government" now, as will be our children and grandchildren.

And of course we can expect the legislation to....

[Whatsisname]

And of course we can expect this to work flawlessly, and won't make businesses avoid the US, just like other great laws such as SOX.

How about lowering taxes and making the tax code simpler, so theres not all these loopholes and thus no reason to have the offshort accounts.

Complicated tax codes create the loopholes that allow this to happen, and this legislation will only make more of them.

Where is the crossing line for lowering tax rates?

[sirwired]

It is not the case that "usually" lowing taxes increases revenue. It hasn't seemed to work too well for the last several rounds of tax cuts. Certainly there is a point where lowering taxes reduces total revenue. That point is a tax rate somewhere between 0 and 100%; where? That's up for debate.

Many economists would argue we passed that point some time ago.

SirWired

Market rules work for countries, too

[mangu]

If you can't make a profit playing by the rules then stop trying to make a profit and die

This is more or less what's happenning to the USA as a whole. American companies simply cannot compete against foreign companies, that's why the industrial sector is moving to Asia. It's useless to say "stop trying to make a profit and die", they died a quarter century ago.

It's the US government at all levels, federal, state, and local, that should learn to live by the rules. When the corporations are moving overseas to places with lower taxes this means your taxes are too high, you should cut government spending and taxes at the same time.

Re:w00t!

[LWATCDR]

Why blame Ballmer and Microsoft?
Ireland offers these companies a way to pay less in tax. You really expect them to not take it?
Ireland sees it as a way to increase their income so they do it. If you want to blame anybody then blame Ireland and or the EU in general.
Hey I am not a fan of Microsoft but in this case the blame seems really misplaces.
Of course you could just stop buying Windows.
You have Linux, BSD, and even Solaris now to choose from and build a local software industry around or you can keep buying Windows and pumping money out of your country. Windows is probably the path of least resistance... Kind of like going through Ireland for software sales.

Re:Not a tax scam

[sycodon]

And actually, the evil businesses he is targeting are not cheats. They followed the law to the letter. Blame congress for leaving the loop holes.

Tim Geithner, Tom Daschle, Nancy Killefer, and Hilda Solis are tax cheats. The law was clear, but they were too important to follow it.

Re:Not a tax scam

[halsver]

Well gee, maybe the hundreds of employees who work, eat, and live near these headquarters.

Assuming of course that at least some of them pay taxes...

Re:Where is the crossing line for lowering tax rat

[diablovision]

I dispute the premise that maximizing tax revenue is a legitimate function of government.

Re:Not a tax scam

[Red Flayer]

Yes. Better question is why aren't you?

Because communism is dead, and has been for a long, long time. I am scared of fascism, which is far different from Communism, and I think you need to learn what the difference is. Key aspect: in the Cold War Soviet Union, the workers did not control the means of production. Neither did they in Communist China, nor do they in modern China. In actuality, it is logistically impossible for the workers to control the means of production on a large scale. Hence, I do not fear that.

The UAW was the biggest contributor to the failure of the US auto industry. By raising labor costs to the point only huge luxury cars could earn a profit.

Yet another falsehood from the right. The Ford Ranger was hugely profitable, despite labor costs. The smaller cars that were produced by Honda and Toyota faced labor costs very close to that of American car companies. Yet they were very profitable -- and the difference in profit was greater than the difference in labor costs. The failures of the auto industry are squarely on the shoulders of those who were unable to foresee and meet the demands of the market. This happened because the automakers in the US grew accustomed to creating and molding the market, and were unable to adapt to quality competition being able to serve the actual demands of the market.

But we do have a system to deal with the controllers of the means of production failing. It used to be called bankruptcy court. But the UAW would lose bigtime so it wasn't considered a (politically) viable option.

I think you consider the unions a bugaboo. So be it; it helps me understand where you're coming from, and where I'm unlikely to be able to get a point across. The biggest one being that the health of the UAW, in this case, is a bellwether for larger labor concerns. And by labor, I don't mean organized labor, I mean working class. These are the people that ultimately pay if the automakers close their doors. Any sane capital investor loses a small part of their portfolio; any worker entangled loses their entire livelihood for a while.

I understand the philosophy you are coming from (I once believed much the same), but please be aware that the Communism bugaboo was supported by the government largely to keep the domestic populace in check. The external threat is a wonderful tool for those in power...

Re:Not a tax scam

[Kaboom13]

Taxes on business is retarded. I know everyone wants to stick it to big business, but it makes no sense. When companies make money, the company either: is used to pay off expenses, including employees (who pay income tax) rent, etc (who pay property tax) or buying shit (and paying sales tax). Or they reinvest it (which hopefully leads to bigger income in the future) or they pay it out as some sort of dividend or stock buy (in which case those who benefit will be taxed with income/capital gains tax). Taxing the businesses profit amounts to double-dipping. The result of which is businesses now must compete with their competitors in not just the quality marketing, and price of their products, but also in how good they are at evading taxes. A company who manipulates its balance sheet to minimize tax liability has a competitive advantage against one who doesn't.

the result is ploys like being "headquartered" in a tax haven, and balance sheets that have been manipulated to hide as much information on their actual assets as possible. They further avoid taxes by buying influence over politicians to get tax rebates and incentives and other such bribes.

The result is, companies still manage to pay little to no taxes, the balance sheet manipulation makes accurate assessment of businesses impossible for investors and regulators, and competition is stifled because established businesses have the politicians bought and paid for, making sure any upstarts don't get the same rebates and preferential treatment they got.

The only people actually paying business taxes are small businesses, who cannot afford a team of lawyers, "creative" accountants, and massive campaign donations to minimize their tax liability. These are the exact same businesses who politicians claim to support.

Everyone knows when it comes to taxes the game is rigged. If a country cracks down on tax evasion there will be another one right behind it looking to claim all the jobs and economic stimulus that business creates. Obama's crackdown will probably lead to a net loss of tax revenue, and cost a lot of people their jobs.

Re:Not a tax scam

[digitalunity]

After looking at my girlfriends taxes who got divorced during early 2008, bought a house, has itemized business expenses and has an extra property, I thought "no freaking way i'm doing those taxes". I tried to figure out eligibility for extra child tax credits but we gave up and ended up giving it to a tax accountant.

If anything can be gleamed from this very long thread, it should be that taxes overall are too fucking complicated. Everyone thinks they should get a handout and politicians were more than happy to oblige, giving us this conglomerate of shit we call the IRS code.

Re:Nowhere near the same

[ottothecow]

you pay taxes an all of your online purchases (assuming your state asks for it)?

Re:Not a tax scam

[visualight]

Man that pisses me off. The whole 'dependent' thing.

The whole point is that it's an *entitlement*. I'm not asking anyone for a handout and praying they're in a good mood in my time of need. It's OWED to me. As in MINE. That's the important part. That I don't have to ASK.

As someone that came out of foster care with no relatives I know first hand what it's like to have _no_ safety net. And I've been laid off a few times, in fairly quick succession. That means I know what it's like to sleep outside, or in the back of a car.

I pay taxes on every penny I make. If an hour of my labor is worth $20 and I trade that hour for $20 I pay as if I had gained $20 _income_ and not merely broken even. Why do I have to pay? The New Deal, that's why.

The New Deal and the safety net it promised is what made it possible for the government to put that tax liability on my head. And now that it's on and fixed good, the people that used to foot 80% of the bill is now only covering 20% wants to take away that safety net -because if I wasn't lazy I wouldn't need one. That 20% is just too damn much now.

Let me tell you something. When my employer goes belly up or lays me off (to get a momentary jump in stock price so some fat cat can line his pockets) and I need help, I'm not going to any 'faith based charity' or some shit like that. I'm going to get my 'entitlement'. You know why?

Because I'm ENTITLED GOD DAMN IT. I'm sick and tired of carving out 30+% of my wages to subsidize a laundry list of corporate interests in this country, only to listen to the bastards rant on about how if I have any kind of a guarantee it'll just make me DEPENDANT. WTF. You don't know me. I once pulled a 60 hour shift and spent 25 of those hours at hard labor. Call me lazy to my face and I'll take your fucking teeth out.

Redistribution of wealth? That's my motherfucking MONEY going to subsidize the corporate fat cats pocketing BILLIONS Look it up. Get a map of 'giver' states and 'taker' states and overlay it with a political Dems vs Rep map. Holy Shit?! Welfare is what I call it.

There's a line that people just flat out shouldn't be _allowed_ to fall through. Not talking about living high, but I am talking about food, dry clothes, place to sleep *when it's needed* and ffs the knowledge that I can see a doctor when I'm sick. What you don't seem to realize is that when people have to fight day and night for those minimum needs, they feel relieved and emotionally 'take a breath' during the times when they have them. Having those things guaranteed frees people to look up, to start thinking about personal _achievements_ and not mere survival. Knowing I don't need to go to my neighbors or to some charity on my knees for a 'handout' in a crisis means dignity and respect. I earned that. If you think I'm being unreasonable or greedy, fine. Gimme my money back then.

If grubby hands are gonna be in my pocket every Friday there needs to be some RECIPROCITY.

Re:Not a tax scam

[twostix]

Well "gee" who knew that there's hundreds of thousands of American employees working, eating and living in the cayman islands.

Must be getting crowded with 18000+ US corps multiplied by hundreds of employees each.

Or not.

Kinda the point of the article...they *don't* live there. The corp shifts its paperwork out of the nice cushy western country where all the executive live to some pathetic third world country, but still maintains 100% of its physical presence *in* the nice cushy western country. If your business is 100% physically in the country, hiding behind the government, using the infrastructure and courts and mooching off the public resources that allow you to operate that have been paid for by OTHER MORE UPSTANDING BUSINESSES without paying your share for all those things then your a parasite and deserve everything you get from people who pay their share!

They're nothing but parasites and not long ago such unpatriotic behavior was scorned publicly by both sides of the aisle.

Now the western world has the lick-spittle, power worshipers who enable them...