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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."
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.
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.
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
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
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.
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