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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."
And depending on which iteration of the article you have read, that's kind of what everyone is predicting. We'll lower corporate tax while closing loopholes. It's regrettable that this will be necessary, but we've spent 7 years funding multi-nationals in setting up operations outside the US, so they can create some amount of trouble, it's just not optimial for either the US or them.
On the other hand, we will at least regain some control over what is outsourced. Right now "if it doesn't need to be done here, ship it". This is leaving companies full of redundant white collar middle management, with no real skills or intellectual output. If we make some changes we can theoretically retain some of the R&D work we want to keep here, and by proxy, some of the MFG/"know how" and infrastructure required to do that.
I am curious who MS's competitor is that they'd me "disadvantaged" to. The same goes for pretty much all of them, I know who my company's major competitors are, and I know they're US based and off-shoring because of each other. I am not aware of any purely foreign based company that is even on our our top 10 competitive threats. In fact 99% of the market is divided into 3 major competitors, all US based.
Congratulations on missing the point congress. (surprise)
Forbes had a great piece on this a few months ago. People aren't going to Ireland / the Caymans because they don't want to pay taxes and just want to cheat... the cost of compliance is too high.
One of the good things Regan was supposed to have done was get lots of tax money back to the US by simplifying our tax code. Even though they may have brought their money back from countries with lower tax burdens, it was easier to have it in the US.
There is an opportunity cost to moving your money to another country or using a tax shelter (legal or not). People judge it worth it because of what they have to go through.
If you simply simplify the tax code so it's not so hard to deal with, people will come back. Things have only gotten worse recently with SarbOx. Closing loopholes is trying to tie the arms of suicidal people to beds. It works much better to try to get them to stop being suicidal.
There will always be people who try to cheat the system because they are immoral jerks. But if it doesn't take wealthy people a team of 30 tax attorneys to keep their wealth in line, they're more likely to keep it in the US and avoid the hassle of all the international laws (and spending 183 days of the year out of the country, and blah blah blah). No tax breaks for pork farmers on 17-35 acres in areas that don't observe daylight savings time unless they grow at least 3% barley ethanol using sustainable methods.
The problem is complexity in the tax code, not tax shelters.
Example way to fix things.
Comment forecast: Bits of genius surrounded by a sea of mediocrity.
Roads and firefighters are okay.
Paying farmers to not grow crops, paying millions of people to hassle you with irrelevant paperwork, and then paying them again when they retire at 45 (and for the next 35 years)--not so okay.
Potato chips are a by-yourself food.
Is there some compelling reason to tax corporate profits? How about we adjust the personal income taxes on dividends and capital gains and just do away with corporate taxes altogether?
Nerd rage is the funniest rage.
Most of those Bermuda/Cayman holding companies exist not to avoid taxes entirely, but rather to keep the US from double-taxing profits that have already been taxed once by Europe/Asia, which is what the US does when this offshore trick isn't used.
This is bogus argument. US has tax treaties with most of the rest of the world that prevent double taxation
It seems likely to me that if US companies can't do that any longer, many will cease to be US companies. It's not that hard to move HQ to Ireland or Canada or wherever. Then the US can become a nation of grunt workers while the real power and intellect (and taxable personal income) is abroad.
And where will they go exactly to find regulations and tax system that is more friendly to corporation than US? Canada? Really!?
EU is cracking on tax heavens too and Ireland will not enjoy it's special status much longer.
Inherent in that argument is that maximizing revenue is desirable for the government. Perhaps that is true in a time of war, but government is not a business, minimization, not maximization should be it's goal imo.
Most economists agree, 60% maximum tax rate is the high point of the Laffer curve. Even the lowest estimate puts it at 35%. Lower it any more, and the government is losing money. With all the loopholes, our effective tax rate is around 10% of GDP. The government would make more money by raising taxes, there is absolutely no doubt. Look at any recent studies, you can find dozens of them on the wiki page for 'laffer curve.'
- None can love freedom heartily, but good men; the rest love not freedom, but license. -- John Milton
Corporations can pay taxes too. All I can say is "hello transactional tax" and hopefully (but not likely) goodbye to many other taxes. You can't dodge a transactional tax unless you cease doing business in a country. Considering this would ruin most companies, not having transactions in the US, it would remove any incentive to move headquarters overseas. In actuality every country is slowly going to move towards a transactional tax anyway to stop the, shall we say less than positive intimations (read: Blackmail), companies try to pull now. The funny thing is while the US has a higher tax rate, it has a lower collected rate than most countries.
The plus here is that corporations are the ones that are going to f*ck themselves over. You see they need, and I mean NEED, the government. Yes, the same ebil gubbermint they complain about. China isn't exactly a haven for Intellectual Property (i.e. rampant theft), other countries can't project power to defend the corporations various holdings, other countries lack the legal mechanisms for corporate defense, et al. That's why corporations raise the hew and cry often, but do very little but lobby.
The right keeps using the words "Socialist", "Marxist", and "Fascist" to describe Obama. Those words do not mean what they mean think they mean. I mean, really, Obama is a _______ (fill in the blank)? Obviously the right has ZERO idea of how center-right Obama really is. Heck, in any "Socialist" country, Obama would be seen as a right-winger. Fascist? Yeah, right, let me know what the previous President's wonderful record on the Bill of Rights was, in particular the 4th amendment. Marxist? Puh-lease, let me know when Obama pulls a Reagan and sends troops in somewhere over a labor dispute.
Just goes to show you what a lack of perspective nets people.
End all tax "credits" and "exemptions" (including EITC and Mortgage tax credits) and government handouts to corporations. After 5 years of paying off debt, lower the marginal rate. Remember, no exemptions at all. This would sting at first, in fact it would have to be phased in, but then the country would have a tax system that is as "fair" as taxes can be.
People say the road to hell is paved with good intentions. Why? Is there any shortage of bad ones?
Oddities are still a symptom of fuckedupness, though. If you and I don't have the loopholes (we have to pay taxes that, say, Proctor and Gamble doesn't have to), then we are losing.
Either repeal the taxes or enforce them uniformly without loopholes. If one business gets the loophole by being technically in the Cayman Islands and another business doesn't, then that second business is being punished for not doing absurd things like technically moving their HQ to Cayman Islands.
Loopholes are just special interests crying for a subsidy. They should have lobbied for lower taxes for everyone, instead of obscure exceptions. Then their whining about taxes would have some legitimacy. Right now, they sound about as legitimate as bankers.
"Believe me!" -- Donald Trump
Because manifestly the 'captains of industry' are fucking up on the job and managing companies into the ground. Therefore they are considerably worse at spending that money than the government. Congress is a tiny bit accountable, still. The CEOs of AIG and GM are not accountable, period.
In any case, this is a red herring. We don't want tax revenues to be as high as possible. We want the goddamn budget to fucking balance, thank you. Unless you're planning on eliminating Social Security and Medicare, raise taxes or sit down and shut up.
(Not yelling at you. Yelling at a Republican fantasy that spending fiat money that doesn't exist has no repercussions.)
Actually, wrong. It would lead to more jobs. Why? Let me explain.
Only large companies can afford large scale tax evasion. Because of that smaller local companies cannot compete with large companies (they cannot evade taxes) and go out of business. If large companies cannot evade taxes, smaller local companies suddenly become more competitive and that will actually create jobs.
Small and medium sized businesses are pretty much the backbone of the economy and provide most jobs by percentage, so rising their competitiveness is a very good idea.
"It's such a fine line between stupid and clever" -- David St. Hubbins, Spinal Tap
Oh? Go look at the revenue figures, they disagree. Every time tax rates get cut revenue rises. Every time,
Where are the figures? Lets compare every year and whether there were cuts and what the revenue did. And comparing just cuts to the previous years doesn't work, we also have to compare increases. Where is a place where the tax percent change and change in revenue is correlated in a nice spreadsheet for every year we have numbers? I'd love to look at the numbers, but they aren't presented in ways that are easy to read. So please, lets look at them. Where did you look at them before you posted this assertion? I would love to see for myself.
Learn to love Alaska
Do those taxes need to be levied on the corporation, or can they simply be levied on the owners of the corporation?
Successful investment is going to tend to make the corporation worth more, so it seems like taxing the owners would be perfectly workable.
Nerd rage is the funniest rage.
These multinationals do pay substantial amounts of tax, on their American operations. Obama wants to increase the tax they pay on their operations outside the U.S.
Of course, these companies pay taxes on their foreign operations in the foreign jurisdictions, so this amounts to double taxation on their profits. No wonder they try to reduce what they owe by legally changing their headquarters to a nation like Bermuda that does not tax them twice.
Of course, a U.S. investor in a U.S. multinational ends up getting taxed three times for the same profits, so no wonder that U.S. citizens are leaving too - and they tend to be in the same 5% that pays 80% of U.S. taxes.
The United States government is attempting to commit suicide, and eventually they will succeed.
Can you people possibly be this naive?
Funny, I was going to ask you the same question.
You act like corporations have no profit margins at all. As if every dollar they spend goes directly to labor and expenses.
It's quite simple. Profits from a corporation become the property of the shareholders. Either as retained earnings or dividends. Now, dividends are taxed at a flat 15%. Compare that to what you pay in taxes. If you owned the company, and could receive your pay in dividends, your total tax bill would be 15%.
The other option is to leave the money in the business as retained earnings or to spend it on assets. Want a new 20M aircraft? Instead of taking the money yourself and paying taxes on it before buying the plane, let the company buy the plane and book it as an asset. They get to depreciate it (150% right now thanks to bonus depreciation on aircraft) and not pay any tax on the money used to purchase it. (Simplification, but you get the general idea)
Corporate income tax exists as some kind of a counterbalance to this sort of behavior. It's intended to discourage principals from leaving most of what is really their profits in the company to avoid paying income tax on them. Now if the company is retaining earnings for a legitimate business purpose (saving for assets, rainy day, etc..) then they'll get the taxes back when they actually spend that money. (If they spend a lot, they can even back claim a net operating loss and get back money from previous years)
At the end of the day, this is all about making them accountable for the money they should pay tax on.
It also has NOTHING to do with employees or their ability to hire more. Employees are an expense. Money spent on employees is deductible. If anything, hiring more people would be a good way to AVOID paying the additional tax.
Again, for those of you that are really dense, or have drunk a lot of red koolaid:
CORPORATE INCOME TAX IS A TAX ON RETAINED EARNINGS. RE IS CALCULATED AFTER EMPLOYEE COSTS ARE REMOVED.
Don't let the pundits convince you that it's going to reduce employment. What it will do is force the super-high income bracket that derives most of their income from dividends to pay their fair share.
My effective tax rate was 38% last year, since my company doesn't make enough to pay me mostly through dividends. Most of my customers effective tax rates were less then 20%. On twice or more income, they pay about 5% total tax more then I did.
The usual slashdot meme is RTFA. In this case, read a fscking accounting book, or the 1041 instructions before you start spouting off about corporate income tax and what it does.
How about almost no, or VERY little corporate taxes, with breaks and incentives to employ US citizens
That may be good for the country, but it will be very bad for the government. The government's power comes from the money that taxpayers give to the government. Remove that, and politicians of all sorts suddenly switch from "Irreplaceable Guardians of Treasury" to "Generic Advisers on Public Policy." Which is, actually, what they were supposed to be.
As it stands, the big government can only demand more money at each turn of the wheel; since this chokes the economy, higher taxes are required, which of course further choke the economy, and so on. Ultimately the remnants of the economy will be only sufficient to keep workers alive, with the rest of the money (not much in total anyway) being sent to the government. Oh, by the way, that's exactly how USSR operated.
Anyway, what's so hard about filling out a tax form correctly? How much "careful investigation" does it take?
Quite a bit actually. A couple years back, CNN's Money Magazine did a famous study. They took a regular family's tax information to 49 different firms. Of the 49 not one of them got the same result. According to Money's tax lawyers, all 49 were at least somewhat incorrect. Money then took it to the IRS. About half the time the IRS couldn't even give them accurate advice.
The Gospel according to lolcat