How Google Avoided Paying $60 Billion In Taxes

bonch writes "Google only pays a 2.4% tax rate using money-funneling techniques known as the 'Double Irish' and the 'Dutch Sandwich,' even though the US corporate income tax is 35%. By using Irish loopholes, money is transferred legally between subsidiaries and ends up in island sanctuaries that have no income tax, giving Google the lowest tax rate amongst its technology peers. Facebook is planning to use the same strategy."

Comments

Headline Is So Very Wrong

[eldavojohn]

How Google Avoided Paying $60 Billion In Taxes

Yeah, unless you read the article that says:

Such income shifting costs the U.S. government as much as $60 billion in annual revenue, according to Kimberly A. Clausing, an economics professor at Reed College in Portland, Oregon.

That's $60 billion total per year. Not just from Google but from every American business using these tax loopholes (Microsoft and Facebook included). The article clarifies:

Google Inc. cut its taxes by $3.1 billion in the last three years using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda.

Emphasis mine. So you can see that it's on average a billion a year that Google saves doing this. Not $60 billion. Do I still feel like they're shafting me? Yes. But not 15% of their stock market worth. That's just unimaginable. Here's a bigger survey of companies using these loopholes with more details.

Re:Headline Is So Very Wrong

[Pojut]

The widespread use of loopholes by companies/"rich" people always really pissed me off. They constantly complain so much of their wealth is being taken, yet they pull crap like this.

I would bet you that if my wife and I tried to do something similar, we would almost certainly be "caught". I don't know if loopholes are due to the complexity of the system, or because the big guys can afford to pay folks who know how to exploit them...but regardless of the reason, it's fucked up.

Re:Headline Is So Very Wrong

[XanC]

The US is one of the few countries, maybe the only one, which charges domestic taxes on income earned overseas. Everywhere else, that money is taxed only once, but here we expect it to be taxed twice.

It's like the politicians are trying to get them to play accounting games, or simply pick up and leave, in order to have something to decry.

What a ridiculous system. It's a wonder we have any multinationals based here at all.

Re:Headline Is So Very Wrong

[bladesjester]

Who's "they"? And, assuming you're referring to google, how are they shafting you?
It's not your money.

I disagree. The taxes they are avoiding paying would be used to pay for infrastructure, services, etc, so, in a very real way, it *is* his money because without those taxes, the system is not as well funded and projects/services/infrastructure have to be cut

Re:Headline Is So Very Wrong

[Flipao]

Yes, and a good chunk of them are rallying on the streets every day to try and keep it that way.

Bless'em

Re:Headline Is So Very Wrong

[interval1066]

I never felt very good about paying into a system that requires me to either be an expert in that system, which would mean spending the equivalent time to get at least a two year degree, just to pay my taxes, or hiring an expert to do them for me. If I am required under penalty of imprisonment to pay taxes, its galling to me that I must also hire an expert to do them for me. Its a ridiculous, and unsustainable, situation that needs to change.

Re:Headline Is So Very Wrong

[spiffmastercow]

The problem is, what has the government done that entitles themselves to Google's income?

You mean besides building the internet in the first place?

Re:Headline Is So Very Wrong

[TheRaven64]

(and yes, rich people will still pay more in taxes. Even if they just put the money in the bank, it will be spent eventually.)

More in absolute terms, but proportionally much less. Sales taxes are regressive - they make poorer people pay a greater percentage of their income as tax. A poor person can't afford to save, they spend everything that they earn on essentials. A rich person has numerous investments and savings that would not be taxed - they spend a much smaller proportion of their income.

Re:Headline Is So Very Wrong

[ptbarnett]

Only poor people pay taxes.

Oh, BS. This meme is stupid, and can be disproved in moments with the US Government's own publications:

http://cbo.gov/publications/collections/tax/2010/all_tables.pdf

That's the Congressional Budget Office's compilation of effective tax rates and percentage of taxes paid by the various income quintiles in the US from 1979 to 2007. They also provide numbers for the top 10%, top 5%, and top 1%.

The effective individual income tax rates for the lowest 40% has been negative since 2002, as the methodology includes low-income tax credits. However, once you add in the other types of federal taxes, it's no longer negative, but the lowest quintile's share of total federal taxes was less than 1% in 2007.

In contrast, the top 10% of taxpayers paid 55% of total federal taxes in 2007. The lower 90% of taxpayers paid the other 45%.

Re:Headline Is So Very Wrong

[Maxo-Texas]

The average person starts off with a base non federal (mostly state) tax rate of over 10%. That ignores state income tax- its just school tax, gas tax, cigarette tax, phone tax, car license tax, toll road fees.

That tax rate is fixed (if you have a cell phone, your taxes are about $30 regardless of if you are rich or poor).

That means the effective tax rate on the wealthy is .03% for the same taxes.

After that you have social security tax. 7.5% on people making up to about $100k. (but a "hidden additional 7.5% you don't see). Not paid by the wealthy again.

This means people making $50k to $100k pay a higher portion of their income in taxes than people making much more. Federal income tax is just a red herring. but even there, the wealthy can structure their "income" as "dividends" and other tax advantaged income and pay a much lower rate on their income than everyone else.

It's broken. The top .5% are getting about 20% of the income and have about 40% of the wealth. They should be paying about 20% of the income taxes and 40% of the property taxes.

When you include the tiny amount for the bottom 20%, the wealthy should probably pay a little bit higher taxes than that too. They don't.

Re:Headline Is So Very Wrong

[blueg3]

Just so you know, a tax rebate is simply when tax paid is greater than tax owed. Most tax filers who get rebates are getting back some fraction of the money that they already paid through withholding.

The income at which a family can manage to pay zero tax (that is, their rebate is equal in size to the total withheld) is roughly the same as the median income (which in turn is about twice the poverty level). About 36% of income tax filers paid zero or less tax, although of course there are many cases where you are not required to file income tax forms at all.

Re:Headline Is So Very Wrong

[clarkkent09]

Poor people currently pay either no taxes at all or very low taxes as proportion of their income. Bottom half pays no income tax at all: http://finance.yahoo.com/news/Nearly-half-of-US-households-apf-1105567323.html?x=0 How does calling for less taxes overall in your opinion translate to "wanting to keep poor people as the only ones who pay taxes"? It doesn't make any sense at all.

Re:Headline Is So Very Wrong

[Rob the Bold]

The real question you should be asking yourself is; why do we (and I mean everyone, rich and poor alike) need to pay so much to a government that simply wastes that money, for the most part.

But is that really true, the government wasting most of it? OK, no organization can be perfect. I accept that. But if there were no government spending on promoting the "general welfare", you might actually be less prosperous than you are now, despite your lower tax burden.

This may seem counterintuitive. Governments, at various levels, can provide roads and an educated populace, to name just a few of the more apparent benefits. These work to increase the value of the people's labors. When you can sell your widgets across the state, the nation and even the world, then you can potentially sell more widgets. When you can hire employees that already know how to read and you don't have to teach them, that's a direct benefit to your business.

But you don't have to believe me or even accept my explanation that taxes collected and spent reasonably actually increase prosperity. Look at data from the World Bank, or the CIA Factbook, or the WTO or wherever you like. Compare the GDP per capita of nations to their effective tax rate. Notice that once your tax rate gets outside the approx. 20-45% range your GDP per capita drops. (There are exceptions to this, of course. Countries with huge resources w.r.t. the size of the population do just fine at any tax rate -- Kuwait's a good example of a country with low tax rate due to their large oil wealth.)

Re:Headline Is So Very Wrong

[Theaetetus]

The widespread use of loopholes by companies/"rich" people always really pissed me off. They constantly complain so much of their wealth is being taken, yet they pull crap like this.

I would bet you that if my wife and I tried to do something similar, we would almost certainly be "caught". I don't know if loopholes are due to the complexity of the system, or because the big guys can afford to pay folks who know how to exploit them...but regardless of the reason, it's fucked up.

This is why need to scrap the entire tax code and replace it a federal sales tax. This shifts the taxes not on what people make, but what they spend. Suddenly everyone would pay taxes including the rich, poor, illegal whoever. No one would be taxed for money saved or invested.

Of course, there would still be loopholes. Medicine, unprocessed food, children's clothes etc can be made tax exempt as to not tax what people need to survive. All other "loopholes" and complexities would disappear instantly. No more extraordinarily wealthy people claiming everything as a loss or business expense in order to avoid taxes on it. If it's purchased, it's taxed.

(and yes, rich people will still pay more in taxes. Even if they just put the money in the bank, it will be spent eventually.)

That is quite possibly one of the most stupid and naive things I've ever read. However, as a person whose household income is over $250k, I'd like to thank you for your efforts to make me wealthier. As you note, I'll put all that money I save in the bank, and then it will be spent eventually when I retire in Europe. Spent in Europe, that is. Resulting in 0 sales tax in the US. Cheers.

Re:Headline Is So Very Wrong

[Polumna]

Speaking of stupid memes (reference to your other post) what on Earth do you believe the relevancy of the percentage of total tax revenue to be?

6th grade math: if the tax rate on rich people goes down and the percentage of total income tax revenue from them goes up, what does that imply about the relative worth of all groups? The rich are getting richer. A LOT richer. Despite all this economic downturn I've heard so much about.

1st grade logic corollary: given that money is an imaginary metric with a constantly changing but constantly FINITE global quantity, the lower and middle classes are paying for it.

Raising the tax rate on the rich would not be starting a class war. It would be the bottom 90% finally getting around to fighting the class war that the rich started long ago. I know, I know, I'm a heretic, Reagan was the best president ever, and deregulation makes everything all better.

Re:Headline Is So Very Wrong

[spun]

Who gets back more money than they paid? Certainly, when I was young and poor, I got money back at the end of the year, but never more than I had paid in withholding. I see people make this claim all the time, that poor people get more money back than they pay in taxes, and I just want to know, uh, how do they do it?

No one I know vilifies the rich for being successful. In fact, people tend to idolize successful achievers. IF they deserve that success. People love it when smart, plucky, hard working go-getters make it big, but they hate it when conniving sociopathic weasels do. And quite frankly, for every one upstanding rich man who made it big without stepping on anyone along the way, there are ten selfish, amoral pricks who fucked anyone and anything that got in their way. It's not the bad apple that spoils the rich bunch, it is the one lone good apple that somehow resists the all encompassing rot.

Now look at the people who really make a difference, the scientists and engineers who actually make the world a better place. Despite the fact that there work is infinitely more important than that of so called 'industrial leaders' who are mere paper pushers adding nothing of benefit to human society, these scientists and engineers are almost never rich, unless they come from a rich family, or happen to be sociopathic enough to stab their friends in the back when the time comes.

Remember, if you are making a quarter of a million dollars nowadays, you are barely upper middle class. "Rich" doesn't start until you hit eight figures. I know a lot of middle class Americans think they might become rich someday. They won't.

Re:Headline Is So Very Wrong

[Red Flayer]

The tea party is a name for the majority of americans who oppose the wasting of over 3 trillion dollars now by our government. It's not an organized group. There is no leadership. People in the tea party are just as angry at Republicans as they are Democrats, just the Dems more so since they are the ones responsible for the stimulus wastes.

Puh-lease. The tea party is the name for a group of people who have been led by the nose by millions and millions of dollars poured into "grassroots" network efforts by the extremely wealthy people who stand to benefit most from the anti-regulatory, anti-tax policies the tea party supports.

Please explain why you support the government wasting over 3 trillion dollars of borrowed Chinese money, and then please explain why people opposed to that make you so angry.

No need, as I don't believe the money is wholly wasted. What makes me angry is the 4-7 trillion dollars we've spent and have accrued liability for with pointless boondoggles in Iraq and Afghanistan, and the people who blindly support those "wars". But that's beside the point.

The simple fact of the matter is that spending and tax reduction during economic downturn has been shown to be ineffective at best (the Hoover presidency shows how bad it can be). If you cut spending on programs that have domestic impact, you end up *further reducing* government revenue due to contraction... which makes the deficit even worse. Stimulus spending is an investment. Properly done ( national infrastructure, aid to local and state governments), stimulus spending, even if financed by debt, is the right course of action.

People who advocate government austerity in the face of a deep recession are asking for the recession to deepen, and for the deficit to get worse.

Re:Headline Is So Very Wrong

[Hatta]

the top 10% of taxpayers paid 55% of total federal taxes in 2007. The lower 90% of taxpayers paid the other 45%.

In 2007, the top 10% of the population owned 73% of total assets and 83% of financial wealth in the US. If they're only paying 55% of the total taxes than the adage that "only the poor pay taxes" does in fact ring true.

Re:Headline Is So Very Wrong

[DeadCatX2]

We don't mean "eat shit out of the garbage" poor. More like "living hand-to-mouth" poor. "Paycheck to Paycheck".

Also, try looking at all the other taxes besides income taxes. Like payroll taxes...that are capped once you earn so much.

And that "bottom half pays no income tax" crap? You're full of it. I'm right around the median income in the US and I most certainly pay a significant income tax.

Re:Headline Is So Very Wrong

[Red Flayer]

Hate to break it to you but the tea party formed way before any politician or media outlet even knew what it was

But not before people of extreme wealth were funding groups intended to spark something like the tea party. These are the elites who instigated and control (inasmuch as there is control) the tea party.

You're deluded if you think the tea party is pure grassroots. It's not. And if you consider yourself a tea partier, please ask yourself why people like the Kochs are willing to spend millions astroturfing a group you consider yourself a member of.

And as for the banning of Republican speakers... did that ont serve its intended purpose? Making the Republican party go hard right economically, to the eventual benefit of people like the Kochs?

Re:Headline Is So Very Wrong

[Anonymous Coward]

For the most part, it is very obvious what is illegal and what is not. Many of the complications are there to ensure that the punishment is just. You would not like a system that was teachable to high school students in a semester.

Re:Headline Is So Very Wrong

[pnuema]

They may have paid 44.3/61% percent of the taxes, but THEY CONTROL OVER 90% OF THE WEALTH. The way I'm looking at it, I'm still getting screwed. They have 90% of the money, they should pay 90% of the taxes. Hell, I'd be satisfied to go back to the way it was under Reagan, when they paid 70%. But this 44% is bullshit.

Re:Headline Is So Very Wrong

[gorzek]

It sure is convenient to forget the existence of sales taxes, state income taxes, and the various payroll taxes that everyone collecting a paycheck pays. Poor people actually pay quite a bit in taxes, and it tends to hit them a lot harder.

Re:Headline Is So Very Wrong

[Anonymous Coward]

THE TAX SYSTEM EXPLAINED IN BEER

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100 If they paid their bill the way we pay our taxes, it would go something like this

The first four men (the poorest) would pay nothing. The fifth would pay $1. The sixth would pay $3. The seventh would pay $7.. The eighth would pay $12. The ninth would pay $18. The tenth man (the richest) would pay $59.

So, that’s what they decided to do..

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20”. Drinks for the ten men would now cost just $80.

The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. But what about the other six men? The paying customers? How could they divide the $20 windfall so that everyone would get his fair share?

They realised that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer.

So, the bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay. And so the fifth man, like the first four, now paid nothing (100% saving). The sixth now paid $2 instead of $3 (33% saving). The seventh now paid $5 instead of $7 (28% saving). The eighth now paid $9 instead of $12 (25% saving). The ninth now paid $14 instead of $18 (22% saving). The tenth now paid $49 instead of $59 (16% saving).

Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.

“I only got a dollar out of the $20 saving,” declared the sixth man. He pointed to the tenth man,“but he got $10!” “Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar too. It’s unfair that he got ten times more benefit than me!” “That’s true!” shouted the seventh man. “Why should he get $10 back, when I got only $2? The wealthy get all the breaks!” “Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!” The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and government ministers, is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.

Re:Headline Is So Very Wrong

[argStyopa]

I'd love it if I was only taxed twice.

1) I get paid, they take taxes.
2) I buy something like a house, I pay sales tax.
3) Then continuing to own that house, I pay a % of value on that house as a tax every year.
3.5) if I sell the house, and make a net profit over what I paid, I pay a tax on that profit as income"
4) if it's a valuable house/property, if I will it to my children on my death, they get hit with a massive estate tax.

It's a great system....if you're a government.

I sell my hammer to my neighbor, according to the government I should be paying taxes on that transaction. Why, again, are they entitled to that?

Re:Headline Is So Very Wrong

[TheTurtlesMoves]

You forgot the part where everyone but the richest guy is working for a living, and the richest guy doesn't, since he gets a cut off of everyone else's work.

I hear this a lot. Can you back it up. And no Bill Gates and co don't count. These guys worked bloody hard and took big risks to get their respective companies started and keep them going. They didn't just sit around collecting everyone else's "tax".

I think its just jealously. You think you deserve to be "rich" more than the next fellow. Well you don't. Some are rich because they worked hard and got a little bit lucky, some are rich because they got lucky and some are rich cus daddy was lucky. But that makes them no less deserving of wealth than you.

Re:Are you going to say they're just being smart?

[Rary]

What if it was Microsoft?

It is. They're mentioned in the article as well.

TFS is misleading even outside the headline

[DragonWriter]

TFS says "Google only pays a 2.4% tax rate"

TFA says "Google’s income shifting [...] helped reduce its overseas tax rate to 2.4 percent"

Re:Technically Legal

[dachshund]

Technically Google has committed no crime, and their tax avoidance is entirely legal. While it is normal to feel a moral outrage, I think your anger should be focused on those who created the loopholes in the first place. Washington.

Technically Washington has committed no crime, and their acceptance of massive quantities of cash in exchange for favorable tax legislation is entirely legal. While it is normal to feel a moral outrage, I think your anger should be focused on those who paid for the loopholes in the first place. Google. And Microsoft. And a few hundred other large corporations.

http://techcrunch.com/2010/04/20/google-spends-1-38-million-on-lobbying-in-q1-up-57-percent-from-last-year/

Re:Corporations shouldn't pay any taxes.

[atfrase]

If corporations were not recognized as individuals in a number of other annoying contexts (political contributions, "personal" rights, etc) then I *might* be inclined to agree. But as it stands, they've got the best of both worlds; no meaningful taxation like individuals are burdened with, but all the same protections and "rights" as well.

Re:Technically Legal

[Abcd1234]

Absolutely agreed. The anger toward tax evasion is entirely misdirected. If you want to point fingers, you can aim them straight at the supreme court, who made the decision that money == speech, and therefore bribary == simply exercising one's rights, and then proceeded to rape the corpse of the American system of democracy in their "Citizens United v Federal Election Commission" ruling.

2.4% is incorrect

[atticus9]

Google on average pays 20% in taxes, as stated in their earnings. Which is still pretty low, but nowhere near the 2.4% in the article.

Tax the rich. (The rich say so.)

[shmlco]

"... but I do begrudge people from demanding that the rich pay even more taxes.'

Warren Buffett himself says that the rich do NOT pay enough taxes, and that the taxes on the rich should be higher.

"Speaking at a $4,600-a-seat fundraiser in New York for Senator Hillary Clinton, Mr Buffett, who is worth an estimated $52 billion (£26 billion), said: “The 400 of us [here] pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter. If you’re in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent.”

"Mr Buffett said that he was taxed at 17.7 per cent on the $46 million he made last year, without trying to avoid paying higher taxes, while his secretary, who earned $60,000, was taxed at 30 per cent."

http://www.timesonline.co.uk/tol/money/tax/article1996735.ece

Income taxes != taxes

[David Jao]

As the article itself points out, poor people still pay Social security, Medicare, state taxes, and consumption taxes. These represent a far bigger proportion of a poor person's income than a rich person's income.

In addition, the article is about the 2009 tax year. During the 2009 tax year, Obama's Making Work Pay tax credit disproportionately benefited the poor. That tax credit is now expired, and (unlike with the Bush tax cuts) there is absolutely zero discussion in Washington about extending it.

Anyone who supports extending the Bush tax cuts but fails to support extending the Making Work Pay tax cut is doing exactly what we are accusing you of doing, namely, wanting to keep poor people as the only ones who pay taxes. Presumably this is your stance as well, since I see you favor extending the Bush tax cuts, but not the Making Work Pay tax cut. If this assessment of your position is wrong, please feel free to correct it.