Modern tax systems are diverse by design: sales tax/VAT. Excise/sin taxes, income taxes, CGT, employer taxes, etc. The mix is designed to reduce volatility. It's also designed to max out tax revenue while avoid damaging the economy by discouraging things like labour, savings, or other important activities too much. The effective maximum revenue for a country to collect in taxes appears to be somewhere in the 35%-45% of GDP range. After that diminishing returns on taxes kick in. Most euro countries are taxing (or rather spending) near that max. So, they can't afford to let corporate taxes.
Problem is that corporate tax is unavoidably problematic. Large multinationals can arrange their activities (not just their paperwork) depending on taxes. I doubt an single country want to create a tax the ensures large companies avoid setting up local subsidiaries within their borders. The end result is a different set of rules for the large and/or sophisticated that is more lenient than the rules on small companies.
Personally, I would rather see corporate tax abolished than see it applied in such a way that it discriminates against small companies.
> The only way to really combat it is for different
> countries to collude and perhaps sanction tax havens.
> Even then, I doubt they will be able to raise much tax.
Sounds like textbook prisoner's dilemma -- if they betray each-other then they both lose, but there's still a chance that they could betray their opponent without being betrayed themselves.
It seems to me that international law is riddled with subtleties where the general rule is "cheat effectively" rather than "don't cheat."
It's really hard to properly tax corporations because they have the resources and the motivation to really fight back. But we shouldn't stop trying.
there is the market and acting outside of it and mostly by different rules there are the multinational big enterprises/corporations.
Why should NOT different tax rules apply them?
Is this an idea easily translated into laws? Probably not. Doable for sure.
Btw, please do not "combine" those Mega-Corps with small companies... they are not the same and will not be in the future; it only helps to drive certain unrealistic fears benefiting those lobbying and looking FOR the loop holes around the world.
Naturally I'd assume in that case that dividends would be taxed at the same rate as earned income, and that both would have to rise somewhat at the higher brackets to cover the lost income. But given that is the case, I honestly don't see any downside. Can anyone help?
Hell of a coincidence, mate. They're incorporated in Ireland purely by accident, they would never threaten to leave at the slightest mention of "corporate tax increase", and what they really wanted to do all along was to move to the Scandinavian countries. They should all band together and get a stand-up comedy act going.
Finally governments have noticed that these companies are shuffling money around (between countries normally) and are not paying anywhere close to those rates.
It's very sad that these companies do have a slim chance of fighting this kind of reform. Ideally they should just pull their heads in and concentrate on building wealth under a new slightly more sensible tax regime.
I believe that society benefits far more from a company like Google having and spending the money than any federal government.
Currently Amazon pay very little corporation tax in many of the countries they operate in which gives them an unfair tax advange against local competition. This allows them to set lower prices and trade more efficently..
In Amazon's case it would seem like closing some tax loop holes to get them to pay their share would help level the playing field and potentially increase competition between Amazon and regional stores. This can only be a good thing.
The one worry though would be how changing the tax system would affect smaller tech companies. Companies which serve multiple countries with low staff could be caught out by increased tax or just technical / accounting costs if you suddenly need to track and file taxes for every country you have customers in.
What you want is an "integrated" tax system like Canada has, where individuals receive "dividend tax credits" which are approximately equal to the taxes paid by the corporation.
All of a company's wealth is ultimately destined for somebody's pocket. Why can't we just tax it when it gets there, and abolish corporate taxes?
Compounding investment returns. If I loan you $1000 at 5% interest, I have to report $50/year of interest income on my tax return. Since I pay approximately 40% income tax (federal + provincial), I have an after-tax return of 3% compounding annually. If you abolish corporate income taxes, then I could have my company loan you the $1000 and receive the interest; it would then compound at 5% per year, and I would only pay income tax when the money is paid out to me as a dividend. In effect, you would be turning corporations into tax shelters.
Now, this isn't absolutely insurmountable; in fact, Canada already has different tax rates for "active business income" vs. investment income, and theoretically you could have a 0% rate on "active business income" and a 40% corporate tax rate on investment income (which would then create non-taxable dividends when finally paid out to individuals). But you'd still have the complication that "retain profits" produces a different taxation result than "pay out profits as dividends, then raise more funding a few years later".
Historically taxes were mostly about ease of collection. Putting everything on income would raise the big question of whether wealth not income taxes are fairer.
Right now the big win is massive simplification not changes in tax base.
As to which effect is stronger, I have no idea!
As Google is currently paying almost no taxes, I'm curious that how and how much is Google spending its money to support stuff now supported by the federal government?
For instance, how much is Google paying to people living on federal welfare money, and as the current job markets are what they are, would they have to decide between starving and stealing to survive, or could they still survive with Google handouts?
Military spending is a huge portion of the federal budget. While it is ludicrous how much money is being burned in it, what kind of shape would be military be with the money Google & co are currently spending to support it?
Medicare and Medicaid also are big items in the federal budget. How much is Google spending to offer health care to people who cannot for whatever reason, e.g. disability, cannot pay for it?
Google and companies like it can only exist in the benign environment created by strong-ish national governments. Pretending otherwise is just foolish.
This is pretty much what they do, with legal entities in different jurisdictions. Then they can move money around such that the 'profit' is always made in a low-tax environment. For example, I always found it amusing that the invoices for my Amazon purchases had anything to do with Luxembourg (a country with <600k people), until I learned more about how tax havens work. Especially, about the process of 'capturing the state'.
If anyone would like to read more about Tax Havens (aka Secrecy Jurisdictions) I thoroughly recommend the book Treasure Islands by Nicholas Shaxson [1]. (Disclosure: that's an affiliate link for my college's library).
[1] http://www.amazon.co.uk/Treasure-Islands-Havens-Stole-World/...
Bonus points if you can get to 10 items per entity that comprise at least 20% of either entity's budget.
(To reply to my own snark: "Just cut taxes" sounds great until you realize that SSI, Medicare, and the military are far and away our largest expenditures in at the federal level of the United States. In Texas, health care and education together account for 54% of the state budget. What to cut, indeed.)
Maybe I've seen too much big money fraud, but sometimes the combined weight of a very wealthy and powerful federal government is all we have separating the mostly civil society we have now to one where we are constantly being bilked by what amounts to mobsters.
I'll give you an example. The urine screening industry. Many players in that industry set up labs and then proceeded to give doctors, hospitals and clinics kickbacks for approving 'enhanced' urine tests for thousands of dollars rather than the dozens of dollars they used to cost.
The other players (insurance companies, honest competitors, the government) are slow to realize what's happening. Within a few years these unscrupulous companies have amassed a massive war chest.
Whistle blowers appear. They are sued into submission. Competitors complain. They are sued into submission. Insurance companies start to sue. They are sued in return. State level politicians are brought in as investors or otherwise paid so they can ride the gravy train. This gives insurance companies pause. In the mean time the owners and officers of these companies are still bilking all of us to the tune of hundreds of millions, maybe even billions of dollars.
Only the combined weight of the federal government with essentially all the time and money in the world, which has just now amassed enough evidence to go after some of the worst offenders, pose a threat to these people. Anything else is a mere nuisance.
Sometimes it is very, very good to have a counterweight to the power that can be bought.
From the way I understand it, this is a way to get large companies to pay the same amount of tax as smaller companies.
Never understood why many Americans don't see paying tax as the ultimate act of patriotism, paying for the country they claim to love. They love the country, but resent paying for it. How does that work? Are they the ultimate freetards?
Certainly some companies pay far more and far less than their fair share. I'd wager the tech companies who generally have little in the way of physical presence where they earn revenue, and have towns and cities competing for the chance to host their offices and data centers, probably pay very little relatively.
That logic makes no sense. (If it makes sense to you, please elaborate. How many employees and how many FTEs does one need before this special exemption kicks in, and why that level?)
Now, by "company" I assume you mean "corporation." Corporations form for various reasons, the biggest being liability. Without it, shareholders could be sued individually.
This protection is worth something to the shareholders. I think it's perfectly reasonable that the state, which is the authority that grants companies the right to exist, should be able to extract something from the company - taxes and fees, for example - in order that the company may continue.
Do you think that corporations should exist without paying any fees to the state? If so, why should they get liability protection for free?
If the tax rate is too high, then people could switch from the corporate form of company to a sole proprietorship. A sole proprietor can have employees, and thus "provide jobs for tax payers", even though the business itself is not taxed separately from the proprietor's income.
Now, obviously there's a large set of trade-offs, and the example I gave - a switch to sole proprietorship - is too blunt. My point is that the idea that "provide jobs" necessarily implies "should not be taxed" is so simplistic that it more indicates a lack of understanding of why there are companies in the first place.
I resent paying for foreign wars I don't agree with, for secretive government agencies that unnecessarily pry into our private lives, and for ridiculous departments like the DHS which are largely ineffective and throw money away.
I would love to pay more for public education and a public healthcare system. I would love to pay more for innovative, effective solutions to poverty and homelessness. I'm happy to pay for the maintenance of our roads and for services like police and fire departments and public libraries.
Unfortunately, there's no good way for me to express this preference. All viable political candidates at the national level want to spend money on too many things I do not want for the voting apparatus to be of any help here.
So I sit back and grudgingly pay my taxes, hoping that people of like mind but with more political acumen and drive than I have will be able to make sense of the mess eventually.
Bunk. Being anti-tax has nothing to do with being "right wing" at all. In fact, the entire term "right wing" is 100% meaningless in modern terms.
Plenty of us who oppose taxation ALSO oppose our empire building overseas military operations, and aggressive foreign policy, and want the military rolled back to only what is required for defense of the USA. I for one want the US out of the "world police" role.
Just cutting a huge chunk out of the military budget would be a great start on reducing government spending and decreasing the tax burden.
Never understood why many Americans don't see paying tax as the ultimate act of patriotism, paying for the country they claim to love.
Our country and our government are not the same thing. And Americans have a long history of having issues with excessive taxation by the government.
From an American perspective they are more akin to the Democrats: they support gay marriage, support legal abortion, don't support reintroducing the death penalty, support public health care (to some extent), generally support public education, do at least claim to accept that environmental issues are a concern (although we do have an environment secretary who denies climate changes science…). They support giving benefits to at least certain groups in society (pensioners, land owners) and accept the need to provide some level of support for the disabled, unemployed, single parents and so on. They made commitments to maintaining the level of foreign aid. For all their talk of pulling out of the European Convention on Human Rights they have not actually done so. So they have a lot of policies that your typical Republican would be fairly disgusted by.
I wouldn't vote for them myself of course…
If a party in the UK hinted at dismantling public health care (the NHS) out loud, they'd be lynched (either in the polls or the streets, whichever was more convenient).
In a global economy, where corporations can exist anywhere they like, taxing corporate profits is almost a guarantee that we'll see the same thing that happened to manufacturing jobs happen to corporate headquarters. The corporations will move to countries with lower tax rates because they can and because it will save them billions. I'd move my HQ to keep a billion in the bank instead of giving to the clowns trying to run the country.
You are correct in that it's not "for free", and the corporation is liable. My point is that corporate existence only occurs through state involvement, and there's no obvious reason why the state cannot make money from that.
You follow up with a market reason. Your statement is correct. Companies (and people, and employers) can use tax differences in the world to their advantage. You are free to move your HQ should you wish.
And that leads us to the topic mentioned by the linked-to article. Quoting from the OECD's "About BEPS" page:
> In an increasingly interconnected world, national tax laws have not kept pace with global corporations, fluid capital, and the digital economy, leaving gaps that can be exploited by companies who avoid taxation in their home countries by pushing activities abroad to low or no tax jurisdictions. This undermines the fairness and integrity of tax systems. The project, quickly known as BEPS (Base Erosion and Profit Shifting) is looking at whether the current rules allow for the allocation of taxable profits to locations different from those where the actual business activity takes place and if not, what could be done to change this.
- taxes from their employees
- taxes from their dividends
What if there were no corporation tax - how would revenues be affected?
But I'm not answering your question as you've not answered the ones I posed to you. As it stands, it appears that you don't know much about corporations nor corporate taxation. It seems rather a waste of my time to continue this exchange if I don't think you're making a reasonable effort at it, or tire of weak attacks on my character.
Q: Since your logic is "X provides jobs so X shouldn't be taxed" then I shouldn't have to be taxed if I have any household staff, no? A: Nope, that wasn't my logic.
Q: Do you think that corporations should exist without paying any fees to the state? If so, why should they get liability protection for free? A: Government is for the people, so they pay the tax. Liability protection for shareholders would be covered by dividend tax.
How is that not "X provides jobs therefore X should not be taxed?" Note too my followup: How many employees and how many FTEs does one need before this special exemption kicks in, and why that level?)
You propose an alternative, which is that liability protection is covered by dividend tax.
That's not practical. Google has never paid a dividend, and Berkshire Hathaway has only paid a dividend once since Warren Buffett took over. There are many other companies which don't, or which only rarely, pay dividends.
Why should their shareholders get liability protection when they've never (or almost never) paid said tax?
I see you omitted capital gains tax from your list of two possible tax sources. That of course only applies to companies which make a profit, so shareholders who don't make a profit from their investment (or who never realize their gains over their life) are still getting liability protection for free.
You seem to argue that only the people should pay taxes. That's a perfectly reasonable argument. But as soon as you allow for an entity which is able to control money independent of any person - ie, a corporation - then by definition "any contribution imposed by government [...] whether under the name of toll, tribute, tallage, gabel, impost, duty, custom, excise, subsidy, aid, supply, or other name" is a tax on that entity.
There's no reason for the government to allow a special entity without getting at least something in return. You don't like income tax on corporations. But you haven't explained why you don't like corporate registration fees or the Maryland law which imposes fees based on the number of issued and outstanding shares. For that matter, if a company isn't taxable because it isn't a person, then who pays property tax, payroll tax, customs duties, sales tax, etc?
That is, why is income somehow special from all of the other taxes that a corporation pays?