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What the Top US Companies Pay In Taxes
theodp writes "If you've ever wondered how it's possible that you pay more to the IRS than General Electric, Forbes has an explanation. You, my friend, do not have the tax benefit of overseas operations. Microsoft, for example, has its overseas subsidiaries license software to its US parent company in return for handsome royalties that get taxed at lower overseas rates. Exxon limits its tax pain with the help of 20 wholly owned subsidiaries domiciled in the Bahamas, Bermuda, and the Cayman Islands that shelter cash flow from operations in the likes of Angola, Azerbaijan, and Abu Dhabi. As a result, of the $15B it paid in income taxes last year, Exxon paid none of it to Uncle Sam, and has tens of billions in earnings permanently reinvested overseas. Likewise, GE has $84B in overseas income parked indefinitely outside the US. Now quit your carping and get back to filling out that 1040!"
Good for them. They're maximising what they do with their profits. Giving it to the government means it gets given to banks and incompetent businesses, or the military industrial complex to spend on a war on *insert something here*.
This is one more reason why countries are better than a single global government. If you screw the businesses in one country they can move to another.
We need to switch to a transaction tax like http://www.apttax.com/ This would make sure that corporations like those paid their fair share of the taxs.
Works the same way as insurance I'm betting.
Government wants amount A per year so they tax B dollars per company.
C number of companies don't want to pay it so they create tax shelters. The remaining D companies still need to pay amount A total, so each has to pay more.
And then we have 40% tax rates. As the pool shrinks, they need to leech off more from the smaller amount of people until finally everybody's gone and tax rates are at some ridiculous ungodly amount.
I like the idea of a Value Added Tax over income tax.
Imagine we have two scenarios: The US with a 20% income tax (both personal and corporate) and one with a 20% sales tax (not the same as VAT, but for simplicity sake we will stick with sales tax). In both cases we have a competitor country with a 20% sales tax.
In each scenario, imagine a good that costs $100 to produce in each country if there were no taxes
In scenario 1, an item that would cost $100 to make in the United States costs more as labor costs more due to taxes. It also costs a bit more as there is a tax on the company to make. Now, they ship it overseas were trading partner levies a 20% tax on the consumption of that item.
In the same scenario, foreign trading partner builds the thing for $100, no tax on the company, no tax on the labor. They ship over here for less than the U.S. can sell it for. Basically the trading partner gets a competitive advantage and forces down the price of items sold in its borders. It makes its money off of the US corporation.
In scenario 2, there is equality between the trading partners.
Now, a VAT would have to allow for some type of "kick back" to lower income individuals due to the regressive nature of the tax. But overall, it would go a long way to helping our economy and balancing trade.
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Aside from my reluctance to take financial wisdom seriously from someone who uses "payed" instead of "paid", (sank / sunk notwithstanding) you seem to be forgetting the huge number of corporations who _aren't_ listed on the stock exchange, and who don't pay dividends. Lowering corporate tax rates would take a huge chunk of income away from the US, and do little to encourage companies to move back from... say.. Ireland, with its 12.5% rate.
Oh, and the way most companies avoid paying taxes? They expand. Got 10 million in profit you don't want to pay taxes on? Open some new locations. Do R&D. Hire some more people. Basically incur expenses. That 40% tax rate you disparage so offhandedly is responsible for influencing decisions that generally lead to more jobs.
..."What you tax, you get less of." According to legend, The Zhou Emperor (China, about 1100 B.C.E) laid a heavy tax on salt. Enterprising traders found they could dissolve 20 times the volume of salt in fermented soy. Since there was no tax on liquids, people became more accustomed to salting and preserving their foods in soy. Should the peasants have been "patriotic" and insisted on paying higher prices for the salt?
Lay a tax on items and services, and you will get less of those items and services; lay a tax on businesses and you will get less of those businesses. Yup, they will move to friendlier shores. (For those of you thinking about this, what are the implications for Health Care? Arithmetically, price controls are form of taxation, and the new Health Care Reform imposes both controls and taxes.)
At the present time, Americans in the USA have very favorable prices for petroleum products compared to the rest of the world. What would the cost of gasoline be in the USA if we had to pay taxes on all the oil revenues including the taxes on where the oil is produced? (My estimate is around 9.44 per gallon, YMMV.) Then consider the implications for the Chemical Industry and consumer products.
You want jobs? Jobs are provided by profitable businesses. The more profitable businesses there are, the more jobs available. The more jobs available, the more competition for qualified employees. The more competition for qualified employees, the better the wages, conditions and benefits. There are equilibrium points with in the system, but when non-productivity costs (like taxes) get too burdensome, it makes it profitable for business to put up with the hassles and expense of moving to those friendlier shores.
"The mind works quicker than you think!"
To me, this screams for a simplification of tax law. Here's a thought:
Step 1: Eliminate corporate taxes. (and as another commenter opined, eliminate the ludicrous notion of corporate person-hood while you're at it)
Now, once you've done step 1, guess what? The argument about capital gains being double-taxation disappears. So:
Step 2: Eliminate any distinction between capital gains and any other form of income in terms of taxation. Treat all income as just income.
The big corporations aren't paying corporate taxes anyway, and all it really does is incentivize them to dump their profits into advertising to increase their market cap.
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Given how so many people get riled up over patriotism and the like, why don't we point out that these companies not paying their fair share to help America through what amounts to a shell game undermines all the rest of us. If you've got a group of friends ordering pizza and one guy tells the group that he'd totally be good for it but he doesn't have any money, all his money is being held by an offshore company operated by a wholly owned subsidiary that's completely owned by him, you'd tell him to fuck off and go get his own pizza and stop mooching off everyone else.
A good first step would be to make interest paid by corporations non tax deductible.
There are three ways a company can pay for its capital. It can pay out dividends, borrow and pay interest, or buy back its own stock. All should get equivalent tax treatment.
This would make leveraged buyouts and private equity transactions much rarer, because those are basically equity-to-debt conversions. If the tax advantage of debt payments over dividends went away, we'd see less dept-heavy corporate structures and more dividends. This leads to sounder companies more able to weather bad times.
Lower it to 0% and they'll come running. No reason to tax corporate income at all.
Naively optimistic.
For that matter, no reason to tax income at all.
There are alternatives to be sure but ANY tax scheme you come up with will have trade offs. There is no perfect tax system.
Tax something that can't run to another country like real estate. That'll become a lot more valuable with 0% taxes on income.
Your argument is that we should inflate the price of and tax burden on real estate instead of having an income tax? It would solve some problems but create many more.
Some places do most of their taxation based on real estate. Hong Kong for instance which manages to do it because of their somewhat unique circumstances but not without problems. Problem is you are basically tying your nation's ability to tax to a single cyclical industry (real estate) instead of the entire economy. Works great when the real estate market is hot and tax revenues crater massively when the real estate market cools off. Asset price bubbles become a HUGE problem. Our current fiscal crisis would be FAR worse if the US relied solely on tax revenues from real estate. There is a reason you diversify your stock portfolio and the same thing applies to sources of government revenue. Do you really want to eliminate that much diversification in sources of tax revenues? I think you haven't really thought this through.
Another problem is that it is very easy these days to locate facilities elsewhere. There is a reason not a lot of manufacturing takes place in Hong Kong or Manhattan any more. Price of land is too expensive. Admittedly those are extreme examples but companies will make decisions about where to locate because of a single dollar per square foot in cost. Drive up the price of real estate and companies will locate where real estate is cheap. Companies will decentralize massively if there is enough tax savings to do so. Remember that labor in the US isn't especially cheap either.
Because here in the USA we impose taxes on _earning_ money, no wonder why American businesses large and small are moving both blue-collar and white-collar jobs out of the USA, corporate headquarters included! No wonder why we have problems with unemployment.
Maybe it's time to completely rethink our national taxation system and switch to taxing consumption instead. This is the gist of FairTax (H.R. 25/S. 296--yes, it's a real bill in Congress) that would end all forms of income taxation--along with repealing the 16th Amendment--in favor of a singular 23% consumption tax, with a "prepayment" once a month to every legal household in the USA to pay for the consumption tax up to the Federally-defined poverty level. Note that this tax does not apply to business-to-business sales, sales of used goods (including sales of existing homes), and college tuition.
By eliminating the entire current income tax system in favor of FairTax, we get these huge benefits:
1) We save ourselves somewhere between US$350 and US$500 BILLION per year in income tax compliance costs.
2) Congress can no longer use the income tax code to favor or punish financially even the smallest constituency--the most insidious form of corruption in the USA right now.
3) American residents and businesses will no longer need to hide their liquid assets outside the USA to keep them out of the reach of the IRS. That means the US$2 TRILLION now participating in the illegal cash-only underground economy and US$13 TRILLION in liquid assets sitting in offshore financial centers beyond US borders--both done as income tax dodges--return to the USA, providing a US$15 TRILLION liquidity boost to the US financial system that would start a new economic boom and then some--the world's largest "private bailout."
4) American businesses will no longer need to outsource jobs beyond US borders as a tax dodge. That could mean millions upon millions of jobs return to the USA under better tax circumstances, immediately lowering the unemployment rate.
5) Foreign companies will do a land rush to expand US operations, since the USA is now the world's largest legal income tax haven.
6) Shipping companies would quickly register their ships under the US flag, since there is no more taxes on the income earned from shipping for a US-flagged ship. That could mean hundreds of thousands of new and repatriated blue-collar jobs as new ships are now constructed and repaired at US ports free from income taxation.
So what are we waiting for?