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Tax Peculiarities Mean Facebook Paid No Net Taxes For 2012
Frosty Piss writes "Despite earning more than $1 billion in profits last year, social media juggernaut Facebook paid zilch when it came to federal and state taxes in 2012. In fact, the website will actually be getting a refund totaling $429 million thanks to a tax reduction for executive stock options. In the coming years, Facebook will continue to get monster tax breaks, totaling about $3 billion. 'The employees cash in stock options, and at that point there is tax deduction for the company,' Robert McIntyre, of watchdog group Citizens for Tax Justice, said. 'Because even though it doesn't cost Facebook a nickel, the government treats it as wages and they get a deduction for it.'" (That's not to say that Facebook employees' salaries didn't get taxed.)
This is normal - the rich don't pay tax.
Korma: Good
... would mean that there are less things which need cutting from the federal budget.
... wait, what?
Whenever such stories pop up I wonder how much it would cost your average worker to get the same effect.
How big is the overhead for setting up a few shell companies to outsource your job to yourself and move your contracor fee (formally known as salary) to Ireland and back into a non-profit with the sole profit of providing for you?
Of course when you do it as an indivual, it's tax fraud, but where's the point where it turns into SOP? Can you get together with a thousand people, set up a bogus company, Random Stuff Inc., everybody still does their old job but you all pay zero taxes? Ten thousand?
The article should be: "Clueless lawmakers who have never done and honest day's work and are clueless as to how businesses actually operate wrote laws so bad and full of holes that Facebook posts billions in profits and payed zero taxes."
Please. Quit blaming the companies. They do exactly what they are supposed to do. It is 100% the fault of the lawmakers.
When you see wind farm tax breaks, do you get upset about wind power generation companies taking advantage of tax laws? All companies try to take advantage of all tax breaks. That is the way the world works. It is a fundamental truth. The tax code is somewhere in the neighborhood of 70,000+ pages. Larger companies have larger budgets for tax planning and have a greater ability to take advantage of tax breaks.
Simplify the tax code. Life for everyone will become easier. You'll put 100,000 tax consultants out of work. Perhaps they will go off and build something instead of making lots of money helping companies minimize taxes.
When corporations keep record profits internally and pay their people minimum wage, we scream that it's not fair and they need to pay their employees more. When they pay no taxes because they paid their employees with large stock options, they aren't paying their fair share, even though the marginal rate for employees is typically higher than the tax rate of a corporation. And contrary to the implications of the article, stock options do cost the company something, they cost the company the future ability to use those shares of the company to raise investor funds.
This all said, I do agree there's an inherent unfairness to small businesses who can't easily utilize international laws to move profits to a location where corporate income isn't taxed. But unless you're trying to move more business out of the US, I don't agree that the right answer is to force companies to pay taxes on foreign income. Rather, we should be doing more to eliminate red tape and other barriers to entry faced by people that want to start a company and hire people.
This is normal, only in places where capitalism has gone wrong.
Yes, also where I live.
The lobbying powers of whatever entity have to killed entirely.
The government needs to serve the people and nobody else.
And companies are not people.
First, when the employees cash in their stock options, they become liable for tax on the profits. The article doesn't mention that, which would only be slightly misleading, but that little comment at the end ("That's not to say that Facebook employees' salaries didn't get taxed.") implies that only their salaries got taxed, which is not true.
Second, the employee stock options did cost the company money--although there is no direct expense, that dilution of stockholder equity reduces the stock price. Not only today, but it was most certainly a factor when the IPO was priced.
Third, if they're getting a refund of $429 million, I'm pretty sure that's money that they overpaid and are getting back, whereas the summary is worded in a way to try make you think they never paid anything at all in 2012, and now the feds are handing them a check for $429 million.
Fourth, if you read the article instead of just the summary, it gets even worse. Facebook had a billion $ profit in 2012, after years of large losses which have been carried forward. This year they applied a billion of the accumulated prior losses in order to pay tax on $0. They have $3 billion in those prior losses still, so the article states that's $3 billion in taxes they won't pay, which is a bald-faced lie--that's $3 billion on which they will pay no tax, not $3 billion in taxes they won't pay.
EIC isn't a tax benefit. It's a welfare program for people that make so little they would be homeless otherwise. Most EIC recipients are getting more than they're paying in. It's a counterweight for massive unemployment and wage suppression brought on by huge increases in productivity and lost manufacturing jobs.
Health care deductions are similar. The insane cost of health care necessitated massive subsidies in the form of tax subsidies. Companies benefit more from those subsidies then middle income earners ever will. But again, it's a form of indirect socialism meant to prevent large social upheavals.
Now take a billionaire. He's actually the poorest man on earth. That's because he claims virtually no income. Instead, he uses his connections with banks and the US Treasury (staffed almost exclusively by former employees of Goldman Sachs, google it) to get loans at below market rates (4, 3, even 2 %). He then lives off these loans until the day he dies and wills his estate out. This is how the 1% avoid taxes by and large. Everything else is nickle and dimes.
The money is moved overseas (cayman islands) not so much to avoid taxes (they've already done that), but to make sure American don't realize why the "Greatest Nation on Earth" is suddenly broke (hint: it's not welfare, food stamps 1/1000th of our deficit, let alone our budget. Again, google it). The money can't be left sitting in American Banks because it becomes too obvious where it went. Conservative estimates put the figure at 10 Trillion, could be as high as 30 Trillion. We could pay off our national debt with that, let alone our meager deficit.
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The taxes are pushed off to the employees and it is there problem. What bothers me about income tax is when people Ike Steve Jobs got paid $1/year on the books and lived off their stock (I'll honestly admit I don't know how that works). So I'm for shifting away from just taxing income to taxing more in sales tax because the rich tend to have fine tastes.
Chewbacon
The Bible is like Wikipedia: written by a bunch of people and verifiable by questionable sources.
I don't know the US legal system nor it's taxation, however I do know the Australian system.
For comparison, if you were doing that in Australia, particularly if you described it the way you have, you would easily fall under the Income Tax Assessment Act of 1936 Part IVA--Schemes to reduce income tax. At which point they would use section 177F to remove the affects of any benefit you're creating for yourself, tax you on the new amount, and depending on the severity of the situation, there could be fines and even jail time.
The difficulty in Australia is that to figure out this can take quite a lot of time and money, however the ATO has special divisions that target the ones they will get the most gain from. One of my lecturers at university was one of the people who worked at the ATO on high net worth individuals to try and figure out if they were dodging tax. He had a lot of insight on methods used to find people who were living off of loans from corporations which they themselves controlled or owned, such that they were re-classifying their income as expenses. It's actually really interesting how they go about it.
While I know the US is very different in this regards, I'd be somewhat surprised if something like this didn't exist in the US.
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