The first proposal of having a minimum corporate tax rate probably doesn't mean a lot because you to then start policing what subsidies governments give to effectively discount below 15%.
The more interesting part is what I hope is the start of serious efforts to tackle profit-shifting, which is a name invented for "transfer pricing" because that is technically illegal. But it's the same thing.
A good starting point is that if you book x% of your revenue in country A then country A should get to tax x% of your profit.
Here's another part of this they should adopt: borrowing money should count as repatriating profits. In the era of zero interest rates debt is used to effectively defer taxes forever. There's no legitimate reason to allow entities to borrow money at near-zero interest rates instead of repatriating retained earnings.
Transfer pricing is an accounting practice that is required by regulations to be computed/stated in many circumstances. Transfer pricing is not on its own an illegal practice as suggested above.
In the UK if an individual gets paid with a loan, then have to repay it within a tax year or otherwise pay tax on it as if it was regular income (disguised remuneration). This has actually been applied retrospectively and drove many people to bankruptcy.
Why this cannot be applied to transfers between companies if they are related?
While it's true that corporate influence over governments may result in subsidies to effectively give a discount - it is less likely than you describe, because the taxation is international.
To illustrate why that is, think about a state like Ireland. So far, Ireland has gotten corporations to be HQ'ed there, or pay taxes there, because the tax rate is only 12.5%. The detriment for Ireland has been minimal, if any, from that corporate presence. It _could_ have gotten more but that's just theoretical.
If this goes into effect, then a corporation will no longer benefit as much from being Ireland-based: It will pay 12.5% corporate income tax annually, but will pay extra in other countries it's active in. Who's going to subsidize the extra 2.5%? Ireland? Technically possible, but it's unlikely for Irish politicians to subsidize the taxes a private corporation pays _elsewhere_. Showering a corporation with money to that extent requires corruption on a whole new level.
It's not like MNCs in Ireland actually pay any tax anyway (various loopholes and agreements provided by the Irish government). To quote from [1] "the revelations shone a fresh spotlight on Irish tax policy that “has been designed precisely to facilitate this kind of avoidance”."
>> The G7 group of advanced economies has reached a "historic" deal to make multinational companies pay more tax
No, it hasn't. Some finance ministers met and talked:
"Finance ministers meeting in London agreed to battle tax avoidance by making companies pay more in the countries where they do business. They also agreed in principle to a global minimum corporate tax rate of 15% to avoid countries undercutting each other."
I have no idea how it works in other countries, but in the US, finance ministers don't have the power to agree to treaties. Treaties in the US require a super-majority (two thirds) vote in the Senate. Unless Mitch McConnell has signed off on this, the G7 group of advanced economies did not reach a deal on anything. I don't even see the word "Senate" in the entire article.
US Treasury Secretary Janet Yellen can tell reporters whatever she wants. Without buy-in from Republicans in the Senate, finance ministers agreeing "in principle" amounts to finance ministers agreeing that if they had ham, they could make ham and eggs, if they had eggs.
You're referring to the process of finalizing a treaty. That would be conceptually similar to "executing" an agreement between parties—the most important step that makes it legally binding!
But "reaching a deal" and "executing the agreement" are often different steps. When we have discussions with a client, and we negotiate on the terms we can reach an agreement on the negotiation before we actually execute the contract.
After reaching satisfactory terms in the agreement, I need to run the agreement by my business partner and ensure he approves. Sometimes the person who actually signs the contract may be a different party that I've never met or talked with during any part of our discussions.
All of which is to say the language here seems appropriate. The G7 has reached a deal—that doesn't mean the deal is now effective or legally binding. Deals that have been reached can still fall through. But the G7 has reached a deal. What they haven't done is yet made it legally binding through a formal treaty process.
Your analogy is flawed because you seem to be assuming that the people with execution authority are the ones who reached an agreement in principle. You’d expect them to succeed in papering it up.
That’s not the case here. The agreement in principle was reached by someone who has no power to do anything with regards to corporate taxes. Congress sets U.S. tax law and agrees to treaties. To do that, you need 60% or 66% of the Senate. It’s like the CFOs reaching an “agreement in principle” to something that requires Board approval—and a big chunk of the Board is hostile to management.
>> After reaching satisfactory terms in the agreement, I need to run the agreement by my business partner and ensure he approves
Do you think Mitch McConnell sees US Treasury Secretary Janet Yellen as his business partner? Or vice versa? That's your perception?
>> The G7 has reached a deal—that doesn't mean the deal is now effective or legally binding
So if I'm negotiating with you and you tell me we have a deal, I should consider that to be something that may or may not happen, may or may not be effective, and may or may not be legally binding?
An agreement can be reached without a treaty. But that's not even super relevant here.
The US doesn't need to change any laws to meet this agreement. We already tax our corporations more than 15%. What the US wants is for other countries to tax that much, to discourage our own multinationals from booking revenue outside the US to avoid US tax. The EU wants companies to book revenue where they make it, which they can do all on their own. They don't need the US for that.
And what makes you think the GOP wouldn't support this? It would give them cover to lower the tax rate to 15% from 21% to "be in line with the rest of the G7". Also, if our multinationals can't avoid tax anymore, there is a good chance they would just book their revenue here in the US, leading to more revenue for the US and less for Europe.
The agreement changes the way a company revenue is recognized and allocated between jurisdictions. I suspect it may require to change the tax treaties between those countries. It's not just changing the corporate tax rate.
"Every journey of a 1000 miles begins with 1 step"
Maybe we should laude and celebrate that at least loads of effort was put into getting all the G7 finance ministers in one place and actually have a discussion + agree to a next step?
Feels unnecessary negative and very arm chair criticism to just hand wave the whole endeavour and say "oh nothing was done and all they did was talk".
I sometimes think people in the last decade are to quick to find faults for every little thing that falls short of a 100% effort (and even that gets criticism) without even considering that they are not the men-in-the-arena [1] doing the hard work.
----
[1] Whenever I think of criticizing something/someone, I always consider Theodore Roosevelt comment on this sort of behaviour where he once said:
"It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat."
> Feels unnecessary negative and very arm chair criticism to just hand wave the whole endeavour and say "oh nothing was done and all they did was talk"
They don't have the authority to negotiate the agreements that were described in the headlines as already being made.
That's called bullshit. Doesn't matter which side politically you are on, it's bullshit. Why is the BBC printing bullshit?
They don't have that authority, the BBC is lying to you, why are they doing that?
I was under the impression that "agreed upon" for international diplomacy was regularly used before ratification by any national government or parliament, because that is usually the required first step. It might still fail later on before becoming law.
I think it is the same for national things as well, e.g., two government parties in a coalition "agreeing" to make a law, even though it was an out-of-parliament discussion and has not been voted on in parliament and might never make it that far.
> Treaties in the US require a super-majority (two thirds) vote in the Senate.
That's misleading, because what are called “treaties” in international law include more than what are called “treaties” in US domestic law, but also “Congressional-executive agreements” and some (but, IIRC, not all) “sole executive agreements.”
Virtually all “treaties” in the international sense that have come into force in US law in recent decades have been Congressional-executive agreements.
Except it doesn't require the status of a treaty for the United States. Since the current corporate tax rate in the US is above the 15% agreed upon, it doesn't really matter if the senate signs on the deal or not. And the senate has little reason, even as republican-majority, not to when it's mostly a deal restricting small countries for offering tax rate too low.
Not every international agreement is a treaty. You're right, though; this is merely an agreement in principle and has no force whatsoever. That doesn't mean it won't lead to actual legal changes, but this article is misleading.
> this is merely an agreement in principle and has no force whatsoever
You mean that it's unenforceable in a court, but that doesn't mean at all that it lacks force:
Court enforcement isn't the the only force. If your boss, client, spouse, etc. pressures you to do something, it can't be enforced in a court, but it can have great force. We all are subject to great social pressure in our behavior, conduct, life choices, etc. - we all generally speak the same language, dress the same, follow the same life and career paths, avoid socially unacceptable things (even those that are unfairly discriminated against), etc. HN mods have great influence here, even though they have no means of court enforcement (in any practical sense).
International relations in particular has no law, in the sense of a court that can make enforceable decisions. In a sovereign legal sense, it's anarchy. There is no international sovereign government (the UN is a conference of sovereign governments). But obviously a great deal is done which has real force. It's actually very interesting to see the creative ways in which 'international law' (again, not the same as a sovereign government's law) is crafted, given that very significant constraint, in order to give it force and effectiveness. Note that the G7 is exceptionally influential despite having no legal power - why do you think these very powerful, busy people are spending their time there?
The President controls the Executive Branch of the U.S. government. Their decisions have great legal force. Politically, those decisions mostly carry forward to future presidents.
In the US, executive orders cannot change tax law, since the "power of the purse" is constitutionally reserved for congress.
If you're thinking of the Iran nuclear deal, that's head-of-state stuff where the president is considered to have more powers (though of course it still was never a treaty, so could be/was scrapped easily by the next administration).
They can make all the agreements they want, but it's not a legal treaty until 2/3 of the Senate agrees, and even then, this stuff requires that laws be passed -- many laws affecting jurisdiction, accounting standards, and the tax laws themselves. None of this can be done with an executive agreement.
And those executive agreements have no binding legal force, and can be broken by the next executive (or even the same executive who made them) on a whim. See, for example, the Iran deal and the Paris climate deal.
Yes it has. Several other comments have pointed out 'reaching a deal' vs. 'it has been enacted everywhere'; I'll just add that it's not at all novel language, e.g. Brexit saw the UK & EU reaching deals before (or without ever) enacting them.
> in the US, finance ministers don't have the power to agree to treaties
The U.S. Secretary of the Treasury speaks for the President; it's a fundamental dynamic of organizations. Otherwise, effectively Yellen wouldn't be Treasury Secretary - Yellen would be powerless and meaningless - and would resign or be fired. Only Trump seemed to ignore this and undermine the people under him. Also, I expect that the Treasury Secretary has great legal authority to make binding decisions for the U.S. government; remember that the American people decided the cabinet members would be separately confirmed by Congress (i.e., the Senate), per the Constitution.
Similarly, if the CFO of Apple makes an agreement, the counter-party assumes they speak for CEO Tim Cook. Otherwise, why talk to this person?
> Treaties in the US require a super-majority (two thirds) vote in the Senate.
Most international agreements are not treaties. The people of the U.S. delegate the power to conduct foreign affairs almost exclusively to the President, again in the Constitution. Only certain actions, such as treaties, require Congressional approval.
> They also agreed in principle to a global minimum corporate tax rate of 15% to avoid countries undercutting each other.
Why? If a country can be more efficient, why must they be penalized by being required to raise taxes? This is the equivalent of a price floor. Why should a country be required to have higher taxes to appease those that make different policy decisions? It should be up to the government (voters) what tax rates work for their country. Why wouldn’t a tax rate ceiling be proposed instead? Why should Ireland raise taxes just because France wants to run huge healthcare deficits or offer extremely generous train worker pensions? Seems like decisions on tax rates should be left to the country. If a country wants a 50% tax rate, that’s their business. If they are economically harmed by someone else having a 10% rate, then the problem isn’t that someone else has a lower cost but that they have too high a cost.
As far as the 2/3 rule for US treaties, that’s a good thing. That ensures that treaties are good for the entire country rather than just a simple majority. I don’t want 51% being able to ignore 49%. If Republicans were in power and proposed a maximum tax rate treaty, those complaining about the 2/3 rule would be singing a different tune. The Constitution was designed specifically to ensure that a narrow majority isn’t able to run roughshod over everyone else. Gridlock is a feature, not a bug. And that feature benefits everyone at different times.
Ireland is part of the EU, so how it taxes corporations is something it has to negotiate with the rest of the EU. That is its problem, not something the G7 care about. Ireland has attracted investment and revenue by undercutting other nations, while providing access to the EU. Not surprisingly, the rest of the EU is not happy about that.
No one is denying nations the right to set their own tax rates for corporations. What has happened here is that a number of nations have come together, negotiated, and agreed that they will each set their lowest rate at 15%.
The reason for that is deliberately to stop countries undercutting each other. They have all agreed that undercutting each other has lead to consequences that have affected them all equally in a "race to the bottom" and of corporate tax avoidance.
> If they are economically harmed by someone else having a 10% rate...
The G7 nations have agreed that they don't want to be economically harmed. Their agreement is to pass laws in each of their environments to stop that. They've also agreed that each of them can tax the profits made locally to them. They agreed to limit that to a maximum of 20% of the corporate's global profits.
As for the 2/3rds rule for US treaties, that's because the Senate, representing the States (not the people), is given a "check" over the President unilaterally making treaties, as far as the United States is concerned, because treaties made in this way are considered equal in power to the Constitution. Each treaty is effectively an amendment to the US Constitution.
So it's not about 51 vs 49%, it's about 2/3rds of the US states, as represented in the Senate, agreeing with a treaty.
They print the money, though! They can force businesses to denominate in dollars, inflate the dollar to construct a 15% tax, and make up the difference for individuals through transfer payments and UBI.
I’m making a rhetorical point here, but this isn’t as far fetched as it might sound at first. When you look at the numbers coming out of the fed, it’s pretty clear who is calling the shots and it’s not the Congress.
I do wonder if we wouldn't be better off eliminating corporation tax entirely.
The revenue of a corporation can, roughly, be:
1. Spent on goods or services from another company (including freelancers, contractors, etc.)
2. Spent on rent
3. Spent on capital purchases
4. Spent on wages
5. Spent on debt repayment or other forms of financing
6. Paid out in dividends
7. Spent on share buybacks
8. Invested in something else
Items 1-5 are all good things that we want companies to do, and corporation tax is normally applied after this spending is accounted for. Items 6 and 7 ought to be taxed, and frequently are (dividends and buybacks create income for individuals who will pay tax on that income). Item 8 is a bit vaguer, but probably shouldn't be taxed in most cases (if we're worried about companies parking cash in very low-risk assets, then super-low yields are effectively a tax on that anyway).
All that the corporation tax adds to this picture is the creation of work in tax avoidance services, and an unjust inequality between those firms that can afford those services and are structured to take advantage of the rules, and those that can not and are not.
It's not obvious to me that corporation tax /can/ be fixed, and so it may be better simply to scrap it and replace it with something more difficult to dodge.
If you’re going down this route, many will argue that all forms of income tax are equally “wrong”.
Henry George - a 19th century political economist - proposed exactly this, and suggested the only thing that should be taxed should be land: impossible to hide from a tax inspector, potentially a waste to the public commons if useful land that could be exploited isn’t and you can even protect land you wish to keep pristine more easily (tax it very, very highly).
His ideas are now considered eccentric, but I do wonder if the World would be a great deal simpler if globally we moved to a Henry George system and stopped trying to tax sales, income and everything else going we do.
> Henry George - a 19th century political economist - proposed exactly this, and suggested the only thing that should be taxed should be land
That may have made sense in the 19th century when agriculture dominated the economy, but it’s irrelevant today.
At scale it becomes a tax on how space-inefficient your business is. Bad news for farmers, great news for the business running a 1000-person operation out of a skyscraper. You could of course start trying to change taxation rates based on various factors to compensate, but those factors reduce to proxies for revenue, which puts us back to square one.
19th venture taxation theories don’t translate to modern multinational trade with digital commerce.
The deadweight loss of taxation is much lower for a land tax than an income tax. The deadweight loss is the economic resources allocated to complying with the tax. The armies of tax lawyers would be able to perform other economically productive activities if they weren't pouring over the tax code.
Pigovian taxation is even better. Taxing gas is a great example. Gas consumers emit carbon which has a cost for society. We should make them pay for this negative externality via a gas tax, so their consumption is economically optimal. This is how to prevent the Tragedy of the Commons.
I'd argue that some taxes are objectively better than others and not all equally wrong.
I remember my economics professor arguing that would be the most efficient tax after he explained how all taxes have the side effect of reducing the thing being taxed.
So taxing something bad like CO2, great idea. Taxing something good like income or creating jobs - bad idea.
Land tax would be simple, and very progressive, the tax rate of most young people renting world now be 0. It's more complex than that because the landlord pays the tax and hikes the rent appropriately. It enforces that land is used efficiently, which is so dysfunctional in many large cities.
It's a great idea in my opinion. You'd solve taxation, eliminate personal accountants as a class, and solve the housing crises with one stroke (there is still zoning, but this makes poorly zoned land undesirable to hold because it bleeds money - creating an incentive for the land owners to vote for zoning the land better). But politicians deal with popular ideas, not smart ideas. The odds of any country trying it seem slim.
George’s ideas are interesting to ponder now and then. I’d definitely want to be a billionaire in that system, though, you’d pay pennies on your penthouses split with everyone living below you. If only taxes were that easy to figure out.
I’d also like to point out that for the longest time the Roman and Byzantine states taxed land and not commerce. It is not a new idea. In some ways it is an ancient idea. Land value and use is dependent on the climate and success of farming. It can be volatile, and while land may have an intrinsic value, the earnings to pay the tax can be highly variable (I.e. a drought).
I don’t think this is the best idea to solve tax issues in the modern world
This is more about corporate activities leading to other kind of taxes. E.g. they pay rent, the landlord pays property tax, they pay salaries, employees pay income taxes, dividends are taxed, capital gains on stock price rises are taxed, etc...
The problem with corporate taxation is that...we really want R&D and employment to be tax deductible for them, but a company like Amazon can just plow all their profits into R&D and focus on growth (even without R&D tax credits, they would still take a loss on earnings due to R&D outlays). Of course, all of that R&D money is still mostly taxed (via tech worker income taxes), so its not like the government isn't seeing any of it. Corporate income taxes really come down hard on a successful company that doesn't have any avenue to grow...maybe they should?
>World would be a great deal simpler if globally we moved to a Henry George system
Yes it would, but you see that will not be popular for many obvious reasons ( less jobs for tax collectors/consultants/auditors etc.) A more non-obvious reason is that the ordinary Joe on the street hates the rich so much that he wants the rich being taxed rather than see the simplicity of taxing no one.
>His ideas are now considered eccentric,
He actually seems a level headed guy to me :)
I would go even one step ahead and say that even land should not be taxed except for the cost of keeping land records.
This system sounds like would be gamed just like how property taxes are now: bogus assessments. At least income and sales have a clear, non-subjective value in dollars.
If you're going to legally treat corporations the same as actual humans - then tax them the same.
We pay taxes for services we expect from governments, defence, policing, justice, water, sewers etc etc I don;t see why corporations that use all these things shouldn't pay their share
But then it's highly unfair to tax humans on revenue, but corporations on profit.
I think the right answer is VAT + externalities taxes (LVT, Cabon tax, etc.) + UBI, which is both very easy to enforce and perhaps net progressive enough. Re "progressive enough": I don't so much care if BWM owners are screwed over relative to private jet owners on paper, I think reducing work hours and propping up demand at the bottom with UBI will have a trickle-up effect.
There might be room for a wealth tax, but I think it might be less loophole-prone and better theoretically to attack that problem more directly and less monetarily in terms of socializing key natural monopolies, promoting coops, etc. Trying to financialize the big question of "who controls the means of production" I think might be just too difficult.
I look forward to the day that we punish corporations by removing their freedom (ability to operate) instead of fining them laughably small percentages of their yearly revenue for serious violations of laws and regulations.
In reality I understand that this would harm the employees and the public to an unacceptable degree so maybe some form of “jail time” whereby all profits go directly to non-executive employees and price discounts would be more effective. Depriving shareholders of dividends may lead investors to “vote with their wallets” and we’d see more of an actual free market instead of what we have today where economy-destroying decisions go effectively unpunished and in some cases are rewarded by bail outs.
Humans are taxed on their income. Corporations are taxed on their profits (they deduct their expenses).
Corporations can be taxed on the money coming in, that would look like a sales tax or VAT. The problem with that tax is it falls on the consumer (since what really matters is which transaction you tax, not which side pays the tax).
But this brings me to a solution to the corporate tax avoidance issue that has already been figured out by economists, but rarely gets discussed.
This is a simplification, but basically corporations have one place money goes in, and two places it goes out, like this:
sales = expenses + profits
If you tax the sales, but deduct the expenses, this leaves the incidence of the tax on the profits. Unlike profits, it's usually much clearer where the sale takes place so it's much harder to avoid than the existing corporate tax. It's called a border adjustment tax. [1]
Where this gets complicated is international trade - how this works is only domestic expenses are deductible. At first glance that seems protectionist, but apparently the currency exchange rates adjust which balances is it out and although it's not obvious it ends up trade-neutral.
It was actually seriously proposed as part of US tax reform in 2017, but some big companies were against it so it got killed.
Exactly this. Imagine a company that has makes X dollars and spends X dollars. So the company pays no tax. What that means is that all the other tax payers pay for all the infrastructure.
And that's fine, but if such a company ever needs to call the police and go to court, etc., they then would have to pay all of that out of their pockets (i.e. the work of the police, the lawyers and judges, and so on).
But they aren't always treated the same as humans. In some cases they are, but it is not a blanket "corporations are people". In order for me to buy an argument like this, you'd need to dig into the specifics of how the ways in which corporations are treated the same as people justifies the argument. And also consider the ways in which corporations aren't treated the same, why they are treated differently, and how that also impacts the argument.
We don't treat them the same, and we shouldn't treat them the same.
Having a multi layered tax policy is complicated and has proved difficult to enforce. Multinational corporations have shown time after time that they are able to get around the first layer of taxation (corporate tax), so why not just eliminate it and put more of the burden on the second layer (income, capital gains, sales tax, etc).
The general idea is not to raise or lower net taxes, in this particular instance we could keep net taxes the same while allowing for less corporate avoidance and more targeted tax collection.
Companies like Amazon historically have minimized their profit to grow revenue, assets and shareholder value. They barely pay corporate tax while profitable small businesses will pay corporate tax plus the second layer.
1 through 6 already lead to taxes being paid - sales/VAT taxes in most places, individual income taxes, employee social security/retirement contributions and so on.
Share buybacks lead to greater stock value and therefore income when sold for the owners, who in term are taxed as individuals.
You theoretically could have a hold Corp that never paid out anything and instead funded the lifestyle of the owners/employees, but I’m sure there are ways to close that and the current 15% min is a far cry from what most people pay.
> If you're going to legally treat corporations the same as actual humans ...
We don't do that, though, not by a long shot. There are some cases where the rules are the same but many, many cases where they are different. So I don't think that can serve as an argument that they should be taxed the same.
This is brought up again and again. You can make similar arguments for every tax. In fact let's look at income tax. The money people spend on income tax they could spend on.
1. Spent on goods or services
2. Spent on rent
3. Spent on capital purchases
4. Spent on debt repayment or other forms of financing
In fact income tax does not have the last two points that you admit are bad, so maybe we should eliminate income tax and use corporate tax only?
The thing is low corporate taxes create an inequality between labor and capital gains. It's already the case that wealth inequality is quite unrelated to income inequality, the highest wealth individuals often don't register in the high income brackets.
Capital gains taxes (paid by shareholders) are completely separate from corporate income taxes (paid by corporations). You're also forgetting (or ignoring) that the legal incidence of a tax and the economic incidence are completely separate. For example, employers and employees are both legally responsible for paying a portion of payroll taxes, but economically speaking that tends to lead to lower wages, making the employer's portion fall at least partially on the employee.
What I generally hear is a wealth inequality frame: raise taxes on the rich so that they won’t accumulate savings so fast. Income inequality is much steeper than consumption inequality, and taxes are proposed at the top end of income, not consumption. So it is already sensitive to this concern, and steering clear of reducing personal spending.
Now it’s true that invested savings become goods and services, capital purchases, etc. for the companies you invest in. But the idea is that government will take over some of that role and invest the taxes collected in more socially beneficial activities, with returns accruing to the public.
Corporate profits are easily reduced to zero by say... Paying fat bonuses to ceos. All high corporate taxes do is encourage companies to dispose of the profits before the end of the tax period.
You’re ignoring that the companies can just keep lots of cash without distributing it to individuals in order to avoid taxation under your system. So for example the company can rent houses, cars, and airplanes for every employee to ensure there is not much money left to be taxed as income. On paper they look like corporate expenses but it’s really just a way to distribute money without it being taxable.
> You’re ignoring that the companies can just keep lots of cash without distributing it to individuals
Nobody benefits from a company growing indefinite wealth without distributing it to actual people.
> So for example the company can rent houses, cars, and airplanes for every employee
If they could do this, all companies would do this already to avoid taxes. In reality, this is dealt with by (in the UK) considering those things "benefits in kind" aka equivalent to cash.
That should be taxable in the hands of the employee, obviously. Estonia seems to be doing well with their tax system, and it's pretty much exactly what is described above.
That problem already exists, and I can't see it getting any worse than it already is. And you solve it the same way that you do now: by regulating which expenses are actually deductible. Basically any benefit that primarily benefits an individual is counted as income to that individual.
What goes away is the incentive to locate all of the company's IP in a subsidiary in the Cayman Islands, and then rent it all back to the subsidiary in New York at wildly inflated prices that ensure that all income is technically earned in the Cayman Islands. Because it would no longer matter where the income was earned, it would only matter to whom it is paid out to. Less protection for billionaires who are primarily interested in asset inflation.
I'm pretty sure this would actually increase total taxes collected because it shifts tax burden away from low and easily avoided corporate taxes, and towards individuals that pay higher income tax rates that are much harder to avoid. But even if it doesn't fully compensate, you can easily adjust top bracket rates to fill the gap, without any worry that it will hurt workers like the corporate income tax does.
Those would be taxable for the employees receiving those perks, giving away shareholders' money to employees to reduce a tax bill is absolutely nonsensical in financial, and if a publicly traded company were to do this for "every employee" (or even just management) there would be an immediate lawsuit.
Here’s a different lens: tax is a mechanism for determining who pays for shared infrastructure and social services.
Any entity that has to pay obviously has other ways they can more productively (as seen from the entity level) deploy the cash.
But ideally we are not optimizing for a single entity or class of entity, we’re trying to optimize at the societal level.
We know that corporations can bear some burden, because we are taxing profits. I couldn’t tell you whether this is an optimal place to tax, but it intuitively feels reasonable - corporations are large non-governmental concentrations of wealth and power. This seems like a valid pool to tap for funding the state, and better than many alternatives (e.g. taxing the poor and powerless).
All taxes are avoided (or illegally evaded) to some degree, and the most taxed (i.e. the wealthiest people and firms) will always have the largest incentive to avoid taxes. To reduce the incentive to avoid taxes, countries often tax capital (or labor) at multiple stages but with lower rates (e.g. a corporate tax, dividend tax, and sales tax). As you point out, the corporate tax is redundant to other forms of taxation, but the redundancy lowers overall taxation rates and hence tax avoidance. So it's a feature not a bug of modern taxation.
Some interesting alternatives to corporate taxation have been proposed[1][2], and I think they merit consideration for their potential to remove disincentives to invest or hire labor. I personally like Michael Pettis's argument that continued economic growth depends on increasing economic demand through redistributing wealth from capital (or more generally the wealthy) to labor [3], so I am skeptical of reforms that stop taxing capital.
> I personally like Michael Pettis's argument that continued economic growth depends on increasing economic demand through redistributing wealth from capital (or more generally the wealthy) to labor [3], so I am skeptical of reforms that stop taxing capital.
This is an important point, and is misunderstood in (US) politics and deabtes, IMHO. Supporting capitalism and taxation aren't mutually exclusive positions. Well thought out taxation is crucial to balance the inherent network effects of large corporations. There's huge network effects, especially in tech [1], that leads to less ability for smaller firms or new players to compete. If anything, I'd wager that appropriate taxation of network effects is crucial to a well functioning capitalist society, especially as so much of success is due to luck and network effects in addition to hard work and talent [2].
Just because you have capital doesn't mean you have capitalism, where most any individual(s) can access capital to bring about new companies and products. The trick is defining empirically and scientifically sound taxation measures rather than giving into simplistic models of Socialism or Reganism.
1, 2, 3, 5, 8 also apply to normal people so why not get rid of income tax? The point of tax is for the government to gain money to spend on public services and what not, what you’re suggesting keeps money private.
No. We would not be, just as we would not benefit from taxing corporations at 100% either.
There is a sweet spot, where the amount we tax generates more than it costs, this is known as the "fiscal multiplier." Tax breaks are among the worst incentives ever to exist and have the lowest net-return to society. A corporation paying no taxes, is then completely freeloading off of the countries they operate within. Tax breaks are handouts, full-stop. Tax breaks ONLY increase deficits by necessarily decreasing input (tax revenues) without a corresponding decrease in costs or increase in output. It's literally saying "you don't have to pay your share of taxes because you already make so much money." This is the precise reason Republicans run up the deficit. No one realizes tax breaks are a fucking hand out, we have a budget. "Tax breaks" are just the same kind of spending as food stamps, except they provide a negative return where as food stamps provides a positive one with something like a 1.73 multiplier (which is fucking awesome[1]). If we were taxing multinational corporations at a 70% tax rate, sure, then maybe a tax break might actually help stimulate some growth... but we sure as shit ain't even close yet.
The corporate tax rate should be something like 35% in the USA, but if you do the math it's closer to 17.5% on average that's paid (or was when I checked a couple years ago, I can't imagine it has improved). I can promise all of you, that the overwhelming majority of corporations aren't able deploy international tax avoidance strategies (and are paying really close to that 35%). So... then, 'cuz like averages, 'n' shit, that means (did I get a pun?) a handful of extremely large players are likely paying literally nothing in taxes to get the USA's average rate down to 17.5%.
It's pretty easy to go calculate these numbers for yourself, and to look into what things actually cost. I'd recommend anyone and everyone go take a gander at https://www.bea.gov/ and actually go do it.
Salaries come out of pre-tax revenue, any corporation can reduce their tax liability to about zero by handing out cash to their employees, yet that (almost) never happens.
Same goes for financing, while dividends can only be paid out from post tax profits loan payments and even stock buybacks can be structured in a very tax efficient manner. Yet that doesn’t happen that often either.
This is the case with any form of government financing - taxes, deficits, and inflation all introduce market distortions where they reduce productive activity. This is inherent to economics, because a basic principle is that there is no free lunch: if you are going to spend resources on spending, those resources have to come from somewhere else, and the private sector by definition is the "not public sector".
But if you don't accept these deadweight losses, which means that there is no way of funding a government, which means that the essential services a government provides - notably a monopoly on violence and a peaceful way of adjudicating disputes - no longer exist. This is more damaging to businesses - when business every business needs to hire a protection racket to avoid being ripped off and killed, productive activity tends to come to a halt.
This is really a case of 8. I doubt that Apple has an account full of US dollars, and I mentioned that low yields on safe investments is already a way of “taxing” this money in order to encourage spending or riskier investment.
> ...dividends and buybacks create income for individuals who will pay tax on that income)
This is an important point people miss. The owners of those companies eventually pay taxes on the profits, so a corporate tax is a double tax.
There are a lot of things that get taxed: property, income, sales, corporate profits. You can vary these rates and still come up with a viable government revenue model. Oregon doesn't have a sales tax; Washington state doesn't have income tax. The only problem, and it's what this deal is about, is when these varying policies interact, or one jurisdiction does something very different from others.
What you end up taxing is a social policy lever, but it's otherwise not all that important. The important part is getting some degree of alignment so you don't encourage people to live in Vancouver, WA, but buy everything in Portland.
> The owners of those companies eventually pay taxes on the profits, so a corporate tax is a double tax.
Will they? Countries have a wide set of positions from "tax only corporate income" to "tax only dividends", with a lot of them sizing both taxes taking the other one into account.
I agree about the "corporate tax creates work in tax avoidance", but if corporate taxes are abolished, wouldn't it drive more individuals to incorporate their own businesses?
The tax avoidance industry now shifts to servicing individuals, and again we find ourselves with inequality between individuals who can afford those services and those who cannot.
An alternative way to tax would be to simply raise interest rates, and discourage capital from not being deployed productively.
that is an idea that I've been floating for a while, unfortunately people who don't understand economics and rely mostly on their feelings don't approve, and those are the majority of votes hence the politicians don't want to commit political suicide by promoting something like that.
Think about it, a no tax corporate tax, yet taxing the recipients of dividends and distributions would:
* eliminate tax heavens
* foreign companies would come to the US
* stimulate the economy
* benefit the shareholders at large
Of course the shareholders would pay taxes, and distributions to foreign entities could be taxed at the source.
This is how corporate taxes work in Estonia. There is no income tax, but dividends/distribution is taxed. I think it's great overall.
However there are some loopholes that companies still figure out. In Estonia's case we have big international banks that found a juicy loophole. The local Estonian branches pay no corporate tax, but they also never pay dividends. Instead they give out a no interest loan to their foreign mothership and have no intention of ever getting it back. This loophole has since been patched, but it shows that companies will still hire teams of lawyers to find new loopholes to not pay a single cent.
Corporations pass the tax expenses on to consumers as higher prices of produced goods, lower wages to employees, and lower returns to owners that supply capital. These taxes are all paid by us but they are largely invisible and justified to the voters as making corporations “pay their fair share”.
These taxes are paid by various stakeholders and entities around the business. The public gets the tax income and uses it for services to allow the business to operate.
Do you feel the cost/value of having the ability to a call a number and have a well trained team put out a fire in minutes that could ruin your business is 0 or free? What about rules/services that allows your business to have an advantage over another in a different region?
Taxes need to be paided by everyone. Corporations use more services than you would think and rely on a stable government that they need to contribute to.
Corporate tax, as a share of total taxation in the US, has dropped from 30% to 10% since the 50's ... yet wages have been pretty stagnant since the 80's (in real terms).
Corporate taxes are not expenses. An expense is the cost of operations that a company incurs to generate revenue, either on cost or accrual basis. Corporate taxes are based on declared profits, gross revenue net of these expenses.
Furthermore, these taxes are not paid by all of us. They are paid by the owners of the corporation who and which receive considerable benefit from the government services they are paying for.
Consider corporate taxes, if you will, as use taxes for using the economy.
One problem is that this would effectively distribute tax revenue from a company by the citizenship of the owners (6 and especially 7) but most countries think they are entitled to some tax revenue from companies operating in their nations even if the company is wholly owned by foreigners.
That’s usually the case of any kind of operation, no? If you use the infrastructure and services of a particular country its seems reasonable to pay taxes on your profits there.
> ... but most countries think they are entitled to some tax revenue from companies operating in their nations even if the company is wholly owned by foreigners.
Any individual in the EU buying anything from a foreign company operating in their EU nation pays the VAT on the good or service. That's usually 21% and up to 25%. And that's not on the profits.
9. Buying and controlling media for desired political outcomes.
10. Astroturfing
As different sectors of business have different structures
of material costs, labor costs, profit and investing. Maybe
having at least some kind of equal corporate tax can be seen
as being fair across different types of businesses.
Additionally many forms of business have externalities which
are negative for the rest of the humanity. Often it has been
the public sector which has to pick up the slack or clean up
the mess.
Also most people agree that there exist at least some forms
of infrastructure which are best managed publicly and are
difficult organize privately in a way that encourages
competition. Also corporations often directly benefit from
different forms of public infrastructure, so in this sense
it can be seen as fair to directly tax them.
The problem I don't see addressed is that no/low corporate tax leads to bad market incentives. It is more efficient for my company to buy me things than for me to buy me things. But my company will inevitably buy inoffensive/cheap things that appeal to all employees rather than what I really want. This is most often implemented as a food perk or car perk, but obviously extends to almost any consumable purchase.
This does not address the issue this new tax agreement is supposed to tackle: that big companies produce income in country X but shift profit to country Y where it is taxed less, effectively extracting wealth from the first.
If you only taxed dividends the problem would not go away.
How would it not go away? If there's no corporate tax then the profit is going to be taxed at 0%. Moving that money around won't help you. But if an investor wants to personally use that money, then they'll have to pay personal income tax in the country he's in or is a citizen of.
Ending corporate tax would be an interesting proposition and it would be interesting to study the possible effects of that
However I think the main downside on the abolition of corporate tax is that companies are hiring even fewer people with time (automation, subcontracting, etc) so the taxation "opportunities" are reduced if you only have "payroll"/income taxes and sales taxes.
The current situation leads to things like Starbucks having an exaggerated advantage over local cafes for example, since they 1) pay much lower effective tax 2) can have more advantageous rental agreements which leads to some ridiculous situations where one Starbucks is visible from another.
(Though yes, governments do overtax people and companies IMHO)
I love the imaginary world where people debate this based on hand waving and I suppose emotional feelings and how it literally contradicts recent memory[0]. The debate is over, just like for trickle-down economics because the results have long been in, so at this point the only reason I can surmise is people who make this argument are either ignorant or selective of the facts they use, are disingenuous, or are just too high on their own supply to really interrogate it.
"All that the corporation tax adds to this picture is the creation of work in tax avoidance services, and an unjust inequality between those firms that can afford those services and are structured to take advantage of the rules, and those that can not and are not."
This already exists in the United States.
An "S-Corp" is a passthrough corporate entity wherein the corporation (or partnership) is not taxed at all and all profits flow to the owners of the entity who are then bound to pay the taxes on their personal returns.
Almost all small businesses incorporated in the US are such entities. It is not exotic in any way and is totally accepted and normal.
The trick is ...
With some minor exceptions, all of the profits need to flush out of these passthrough entities every year. You can't just keep piling up untaxed profits in the company bank account. The corporation is required to disburse the profits and create taxable income for the owners.
Big coporations which are not passthrough entities can keep the money and do not have to disburse it ... but they have to pay taxes on it.
So there are pros and cons to these structures.
I personally feel that passthrough corporate entities are much simpler, much more comprehensible and do not have the societal inefficiencies (pursuing tax avoidance strategies, for instance) that you mention. But at the same time I think we're asking for trouble if we let (big multinationals) just pile up bigger and bigger mountains of cash in their bank accounts, untaxed.
So, in absence of a better solution, taxing non-passthrough entities seems like the least worse solution ...
I don't think corporate taxation has always been this bad, so there's no reason why is should be impossible to return. To something reasonable.
And while 1-5 are good, they don't pay for the massive infrastructure and other investments that governments have made the enable corporations to do business in the first place. Those resources have to come from somewhere. I don't see it likely, for example, for dozens of corporations to come together and fund interstate highway and bridge maintenance.
I might agree with you more if corporate profits were plowed back into higher pay or better benefits for employees, significant voluntary investment back into society, etc. But benefiting from government investments in their ability to do business without paying taxes essentially means they are extracting their profits indirectly from all individual tax payers whether or not they are even customers.
I do #1, #3, #4, #5 and I'm still expected to pay taxes.
>they don't pay for the massive infrastructure and other investments that governments have made the enable corporations to do business in the first place
Firstly, that infrastructure is for everyone to use and I think it's semi-useful to view private business as infrastructure as well. They exist to provide goods and services to the people.
Second, it seems obvious to me that you'd simply increase other taxes to make up the deficit. The impulse to create special taxes is a bad one, imo. It only serves to complicate the tax code, obfuscate how much we're actually paying in taxes and makes it more difficult to actually provide incentives when they are needed.
Why should a corporation not pay taxes to support the infrastructure they use (which is paid for by taxpayers) to undertake their business. Amazon ship a lot of goods, that is a lot of road miles. I pay toward the upkeep of the roads and I get considerably less use out of them than Amazon do, in fact they are vital in order for Amazon to do business, so they should be willing to support it. The only reason they dont (support it) is because they are rich enough to argue with the government over it, and that argument is not due to ideological reasons, rather it is because arguing (in court) is cheaper than paying the taxes. So it is just because it is financially beneficial, even if the net effect is negative to society.
The main issue tackled here is that multinational corporations operate across borders, and thus create problems of capital flight out of a country. Thus, even if the economic activity is almost entirely happening within a country (e.g. a local shop uses locally targeted online ads, sold by a sales team working out of a local call center, to attract neighborhood customers), the profits could be captured somewhere else, like an Irish subsidiary handling profits from continental Europe. Even if those profits get reinvested or distributed to shareholders, they might not get reinvested or distributed in that country where the revenue was generated.
One thing to keep in mind is the non-monetary side of taxes: they are used to influence behavior. Offering employee benefits (healthcare, retirement, etc.) is incentivized by US tax code thus influencing more companies to do so.
I'm not saying that corporate behavior becomes uninfluencable when profit taxation is removed, but rather that it will require a different incentive mechanism. That is assuming that we still want to influence corporate behavior through government without legislating it.
Here’s an idea, let’s charge tax on revenue and it can just be the cost of doing business. Small businesses get a tax holiday for the first few years. Problem solved.
Taxes on revenue create strong incentives for vertical integration and consolidation (because there are fewer links in the chain to be taxed).
If one entity owns the farm, the food distribution, and the grocery store, they have one revenue transaction to be taxed. A small farmer selling their eggs to a distributor who sells them to the grocer who sells them to you is taxed three times on what amounts to same activity.
Most countries on earth--US being a notable exception--have a better version of this: the VAT.
It's a very elegant tax on paper, but significantly complicated from an accounting POV. It's one of those areas where there are huge gains to be had from digitizing financial records, and countries that have succeeded in this (like Mexico) create a very powerful revenue source.
Hmm, insightfully looking but profoundly ignorant.
Take a look at the history of tax. And make a judgement on the necessity of tax yourself. Stop wasting time coming up with some seemingly clever explanation of things.
People's attitude towards Amazon is the biggest counterexample of this. They have avoided a lot of taxes not through nefarious means, but by constant reinvestment (items 1-5). At some point, when a company is bringing in enough revenue, a lot of public attitude seems to be that it should be paying taxes regardless of whether it's investing that revenue in things that we generally see as positive.
Buybacks to a large degree end up not being taxed or only much later. Most people are holding on to stock for long periods now. Behavior can also often be easily be adjusted to capital gains tax. Extreme example is Larry Ellison buying in island with a loan backed by his stock rather than selling the stock and buying the island from that directly.
Why not just tax buybacks? When a company buys its own stock, it pays a tax on the value of that stock to the government.
Sure, this makes stock prices lower. But it encourages dividends by comparison, which is probably a good thing, or at least everyone seems to think it is, and then these are taxed as regular income (not usually subject to gains rate).
Not only is this massively regressive, it ignores how much of our public infrastructure is built to support the economy. This proposal would effectively allow shareholders to turn infrastructure tax dollars into shareholder money without having to kick a single dime into the bucket. That’s absolutely nuts.
The economy is part of the infrastructure. That's why governments go to extreme lengths during economic problems. If the only store in the village shuts down it sucks for the store owner, but it sucks even more for the villagers who now have no access to the goods.
Wouldn’t that exacerbate the tech giant problem? Currently their war chests only get opened to vulture up fledgling companies. I’m not saying it can be instantaneously transmuted into gold if the government tried to take more, but I can’t see your proposal alleviating that problem.
How is that functionally different than how tax works now?
Ownership gives you two things. It's a right to future profits, and the ability to resell that right to someone else. Company tax gives the government a percentage of the profit, and capital gains tax gives them a percentage when the shares are sold.
The only thing your proposal would do is delay when the government gets it's slice because the company doesn't have to pay a dividend right away.
This would make total sense if the entire world were under one tax system. Taxing corporations is a way of of taxing the dividends of shareholders outside your country, whose income you can't tax individually.
Are you kidding me? All of modern history points to the money being spent on only one thing: executive compensation. You really things the wealth of the world should prioritize Zuckerberg buying another island in Hawaii??
This is not about fairness nor liberty. It's about control; incentives and subsidies, made to keep the big bosses in check, and also about making sure they don't get undue competition, since taxation like that makes it harder to compete with the giants, by both outsiders and by smaller companies since margins are lowered. In short, it's about stability and keeping up the status quo of the too big to fail.
i really don’t get why people get upset over share buybacks but not dividends. they’re literally the same thing.
as a stock holder there’s no difference between the stock going up 10 cents from a buyback versus me getting a 10 cent dividend. other than the fact that i can have more control as a shareholder in the buy back
Dividends lower stock price by moving cash from company to owner, buybacks increase stock prices[1] by de-diluting, so only one of those is evidence of the CEO (whose compensation is often tied to stock price) acting on his own interests. Also taxation is different.
When companies generate more profit they very rarely do any of the things you mention, why would they start doing it if they didn't have to pay taxes at all? In reality when a company gets to generate more profit the result is an even bigger gap between C-levels and normal employees salaries.
Here is a better idea: companies should be the only entities paying taxes in a capitalist society. If you think about it it really makes perfect sense :) since they already do all the boring accounting stuff and with the power of their lobbies they could make tax law simpler and more efficient (something that normal citizen will never be able to push forward).
> when a company gets to generate more profit the result is an even bigger gap between C-levels and normal employees salaries.
This is #4 "spent on wages" no?
We already tax wages. A graduated income tax targets specifically the problem you are flagging here. Taxing corporations exclusively would do away with this.
If you're making an equity argument, why not argue for the opposite of what you're saying: reduce corporate taxes to zero, then make up for it by taxing only the highest earners' wages? Not advocating for a policy position here, just pointing out that the argument in the GP post is precisely that they lack of those granular policy levers is a drawback of taxing corporate income. Policy levers which could be used to nudge the income gap down by taxing the "excessive" executive comp at a higher rate, for example, don't work if you collect that tax revenue as a monolithic corporate profits tax.
I’m of the opinion that there should only be income tax (paid as a function of standard deviations from from the mean wage on the logistical curve). And all personal profits should be considered income, including sold shares, paid dividends, earned interest, etc.
However I can see how that system would be abused. E.g. instead of buying that yacht from your personal money (which you need to pay 70% tax on when you transfer it from the company) you simply have the company pay for it and say this is a company yacht. Then I can see how people would continue to hide their wealth in off shore shell companies that they never have to pay a tax on. So even with this scheme it is still ripe for tax havens.
This seems sensible to me, so long as I’m allowed to use corporate personhood to tax a company’s income under this scheme.
If your money counts as speech because you have first amendment rights, then your income counts as income because you have IRS obligations.
I’m 100% over letting corporations pick some of the benefits of citizens but skate away from all the obligations. If you want the rights, you get the obligations. If you don’t want the obligations, you don’t get the rights.
How about the self-sustaining farmer who doesn't need to work in society? Completely capable individual, has a certain way of life, and suddenly they don't need to contribute?
How about the person who has so much wealth that they will never need to work in their life?
Government is labor that benefits the people. The only way an individual can escape the duty is if they are incapable or if society deems that they deserve a break.
In other words, US is the #1 backer if imaginary assets which are also the best trick used by major multinationals to shift their tax burden. In order to solve this problem US does not get rid of imaginary assets but raises the tax on the world.
Sure, so the competitive advantage of poor countries will be what -- low wages?
It could be worse. If these doesn't exclude small time exporters, and they need to report to foreign tax bureaus; I can see them having trouble doing any exports or having to go through intermediaries who will make additional charges.
This reminds me of Ken MacLeod's Descent [0]. It's a great hard SF book, mainly about UFOs, governments and conspiracies, but in a typical MacLeod style it covers plenty more subjects. I can't recommend it enough, and I definitely can't do it justice in a HN comment.
Anyway... there's a sub-thread in the book about how things got really bad economically for the population, about a brewing revolution, and how governments around the world have struck a deal to 'defuse a hidden time-bomb under the world economy'. This was known as the Big Deal. It was tried many times before, but failed. So no one took it very seriously this last time. Except, this time there was a military crackdown on tax havens (except Switzerland): France took over Monaco, Belgia over Luxembourg, US over Panama, Russia over Dubai etc.
This time, it did work. There's a funny and sad moment when a student receives a letter from the 'student loan company', informing her that her loan was suspended, but she should apply for a grant, instead. And it took her a moment to remember what a grant even is.
This is a G7 agreement, so it seems the success of the policy will depend how much sway this will have with G20 countries. If it doesn't get the G20's agreement, what stops multinationals from simply domiciling themselves in another country like South Korea or Australia? It's currently done in Ireland, so this isn't a big jump.
Also, there are countries that are not in the G20 that could quite easily undercut an agreement, notably, Switzerland. It already acts as a tax haven for personal income (and corporate income), so an expansion of this haven seems forseeable.
Despite this, I don't think this is a reason to not act. There will be reasons why multinationals will not want to be domiciled in Switzerland.
It doesn't matter where they are "domiciling themselves". If the company is international and does buisness in any of the G7 countries, than those countries will collect the tax difference between 15% and whatever they are paying in Switzerland.
"The rules on making multinationals pay taxes where they operate - known as "pillar one" of the agreement - would apply to global companies with at least a 10% profit margin. "
Tying tax rate to profit margin sounds like a loophole. For example - Hollywood Accounting[1]
Is this really about taxing multinational companies or is this about establishing a "minimum 15% corporate tax rate" for every SME and mom and pop shop?
TFA says that Ireland is going to accept the change: atm they've got a 12.5% tax rate.
What about Hungary? Corporate tax rate at 9%.
Once this shall be in place, the one sure thing is this "minimum 15%" is only ever go up, never down. There won't be any incentive ever to make it go down as there won't be the risk of companies moving abroad to pay less corporate taxes.
And this says nothing about dividends or income taxation, so you'll end up with SME owners paying "minimum 15% corporate tax" and then on top of that 34% dividend tax, for example.
I really wouldn't be surprised if this was sold as "tax the FAANG" while ending up trouncing the SMEs owners a bit more.
That's the whole point of this agreement, it doesn't matter what Hungary does. I mean, if a business wants to only sell in Hungary, sure, but what this agreement does is prohibit multinationals that want to sell in any of these G7 nations from cooking up the corporate fiction where a company is "headquartered" in a low tax jurisdiction, and then the "real" company pays all of their income to this shell corp in "licensing fees".
Readit News
The more interesting part is what I hope is the start of serious efforts to tackle profit-shifting, which is a name invented for "transfer pricing" because that is technically illegal. But it's the same thing.
A good starting point is that if you book x% of your revenue in country A then country A should get to tax x% of your profit.
Here's another part of this they should adopt: borrowing money should count as repatriating profits. In the era of zero interest rates debt is used to effectively defer taxes forever. There's no legitimate reason to allow entities to borrow money at near-zero interest rates instead of repatriating retained earnings.
Why this cannot be applied to transfers between companies if they are related?
To illustrate why that is, think about a state like Ireland. So far, Ireland has gotten corporations to be HQ'ed there, or pay taxes there, because the tax rate is only 12.5%. The detriment for Ireland has been minimal, if any, from that corporate presence. It _could_ have gotten more but that's just theoretical.
If this goes into effect, then a corporation will no longer benefit as much from being Ireland-based: It will pay 12.5% corporate income tax annually, but will pay extra in other countries it's active in. Who's going to subsidize the extra 2.5%? Ireland? Technically possible, but it's unlikely for Irish politicians to subsidize the taxes a private corporation pays _elsewhere_. Showering a corporation with money to that extent requires corruption on a whole new level.
[1] https://www.theguardian.com/world/2021/jun/03/microsoft-iris...
No, it hasn't. Some finance ministers met and talked:
"Finance ministers meeting in London agreed to battle tax avoidance by making companies pay more in the countries where they do business. They also agreed in principle to a global minimum corporate tax rate of 15% to avoid countries undercutting each other."
I have no idea how it works in other countries, but in the US, finance ministers don't have the power to agree to treaties. Treaties in the US require a super-majority (two thirds) vote in the Senate. Unless Mitch McConnell has signed off on this, the G7 group of advanced economies did not reach a deal on anything. I don't even see the word "Senate" in the entire article.
US Treasury Secretary Janet Yellen can tell reporters whatever she wants. Without buy-in from Republicans in the Senate, finance ministers agreeing "in principle" amounts to finance ministers agreeing that if they had ham, they could make ham and eggs, if they had eggs.
But "reaching a deal" and "executing the agreement" are often different steps. When we have discussions with a client, and we negotiate on the terms we can reach an agreement on the negotiation before we actually execute the contract.
After reaching satisfactory terms in the agreement, I need to run the agreement by my business partner and ensure he approves. Sometimes the person who actually signs the contract may be a different party that I've never met or talked with during any part of our discussions.
All of which is to say the language here seems appropriate. The G7 has reached a deal—that doesn't mean the deal is now effective or legally binding. Deals that have been reached can still fall through. But the G7 has reached a deal. What they haven't done is yet made it legally binding through a formal treaty process.
That’s not the case here. The agreement in principle was reached by someone who has no power to do anything with regards to corporate taxes. Congress sets U.S. tax law and agrees to treaties. To do that, you need 60% or 66% of the Senate. It’s like the CFOs reaching an “agreement in principle” to something that requires Board approval—and a big chunk of the Board is hostile to management.
It's not even that. Most international agreements are executed without a treaty.
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Do you think Mitch McConnell sees US Treasury Secretary Janet Yellen as his business partner? Or vice versa? That's your perception?
>> The G7 has reached a deal—that doesn't mean the deal is now effective or legally binding
So if I'm negotiating with you and you tell me we have a deal, I should consider that to be something that may or may not happen, may or may not be effective, and may or may not be legally binding?
Which car company do you work for?
The US doesn't need to change any laws to meet this agreement. We already tax our corporations more than 15%. What the US wants is for other countries to tax that much, to discourage our own multinationals from booking revenue outside the US to avoid US tax. The EU wants companies to book revenue where they make it, which they can do all on their own. They don't need the US for that.
And what makes you think the GOP wouldn't support this? It would give them cover to lower the tax rate to 15% from 21% to "be in line with the rest of the G7". Also, if our multinationals can't avoid tax anymore, there is a good chance they would just book their revenue here in the US, leading to more revenue for the US and less for Europe.
Maybe we should laude and celebrate that at least loads of effort was put into getting all the G7 finance ministers in one place and actually have a discussion + agree to a next step?
Feels unnecessary negative and very arm chair criticism to just hand wave the whole endeavour and say "oh nothing was done and all they did was talk".
I sometimes think people in the last decade are to quick to find faults for every little thing that falls short of a 100% effort (and even that gets criticism) without even considering that they are not the men-in-the-arena [1] doing the hard work.
----
[1] Whenever I think of criticizing something/someone, I always consider Theodore Roosevelt comment on this sort of behaviour where he once said:
"It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat."
They don't have the authority to negotiate the agreements that were described in the headlines as already being made.
That's called bullshit. Doesn't matter which side politically you are on, it's bullshit. Why is the BBC printing bullshit?
They don't have that authority, the BBC is lying to you, why are they doing that?
I think it is the same for national things as well, e.g., two government parties in a coalition "agreeing" to make a law, even though it was an out-of-parliament discussion and has not been voted on in parliament and might never make it that far.
That's misleading, because what are called “treaties” in international law include more than what are called “treaties” in US domestic law, but also “Congressional-executive agreements” and some (but, IIRC, not all) “sole executive agreements.”
Virtually all “treaties” in the international sense that have come into force in US law in recent decades have been Congressional-executive agreements.
You mean that it's unenforceable in a court, but that doesn't mean at all that it lacks force:
Court enforcement isn't the the only force. If your boss, client, spouse, etc. pressures you to do something, it can't be enforced in a court, but it can have great force. We all are subject to great social pressure in our behavior, conduct, life choices, etc. - we all generally speak the same language, dress the same, follow the same life and career paths, avoid socially unacceptable things (even those that are unfairly discriminated against), etc. HN mods have great influence here, even though they have no means of court enforcement (in any practical sense).
International relations in particular has no law, in the sense of a court that can make enforceable decisions. In a sovereign legal sense, it's anarchy. There is no international sovereign government (the UN is a conference of sovereign governments). But obviously a great deal is done which has real force. It's actually very interesting to see the creative ways in which 'international law' (again, not the same as a sovereign government's law) is crafted, given that very significant constraint, in order to give it force and effectiveness. Note that the G7 is exceptionally influential despite having no legal power - why do you think these very powerful, busy people are spending their time there?
The President controls the Executive Branch of the U.S. government. Their decisions have great legal force. Politically, those decisions mostly carry forward to future presidents.
If you're thinking of the Iran nuclear deal, that's head-of-state stuff where the president is considered to have more powers (though of course it still was never a treaty, so could be/was scrapped easily by the next administration).
The U.S. Secretary of the Treasury speaks for the President; it's a fundamental dynamic of organizations. Otherwise, effectively Yellen wouldn't be Treasury Secretary - Yellen would be powerless and meaningless - and would resign or be fired. Only Trump seemed to ignore this and undermine the people under him. Also, I expect that the Treasury Secretary has great legal authority to make binding decisions for the U.S. government; remember that the American people decided the cabinet members would be separately confirmed by Congress (i.e., the Senate), per the Constitution.
Similarly, if the CFO of Apple makes an agreement, the counter-party assumes they speak for CEO Tim Cook. Otherwise, why talk to this person?
> Treaties in the US require a super-majority (two thirds) vote in the Senate.
Most international agreements are not treaties. The people of the U.S. delegate the power to conduct foreign affairs almost exclusively to the President, again in the Constitution. Only certain actions, such as treaties, require Congressional approval.
"The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises"
Crystal clear.
Why? If a country can be more efficient, why must they be penalized by being required to raise taxes? This is the equivalent of a price floor. Why should a country be required to have higher taxes to appease those that make different policy decisions? It should be up to the government (voters) what tax rates work for their country. Why wouldn’t a tax rate ceiling be proposed instead? Why should Ireland raise taxes just because France wants to run huge healthcare deficits or offer extremely generous train worker pensions? Seems like decisions on tax rates should be left to the country. If a country wants a 50% tax rate, that’s their business. If they are economically harmed by someone else having a 10% rate, then the problem isn’t that someone else has a lower cost but that they have too high a cost.
As far as the 2/3 rule for US treaties, that’s a good thing. That ensures that treaties are good for the entire country rather than just a simple majority. I don’t want 51% being able to ignore 49%. If Republicans were in power and proposed a maximum tax rate treaty, those complaining about the 2/3 rule would be singing a different tune. The Constitution was designed specifically to ensure that a narrow majority isn’t able to run roughshod over everyone else. Gridlock is a feature, not a bug. And that feature benefits everyone at different times.
No one is denying nations the right to set their own tax rates for corporations. What has happened here is that a number of nations have come together, negotiated, and agreed that they will each set their lowest rate at 15%.
The reason for that is deliberately to stop countries undercutting each other. They have all agreed that undercutting each other has lead to consequences that have affected them all equally in a "race to the bottom" and of corporate tax avoidance.
> If they are economically harmed by someone else having a 10% rate...
The G7 nations have agreed that they don't want to be economically harmed. Their agreement is to pass laws in each of their environments to stop that. They've also agreed that each of them can tax the profits made locally to them. They agreed to limit that to a maximum of 20% of the corporate's global profits.
As for the 2/3rds rule for US treaties, that's because the Senate, representing the States (not the people), is given a "check" over the President unilaterally making treaties, as far as the United States is concerned, because treaties made in this way are considered equal in power to the Constitution. Each treaty is effectively an amendment to the US Constitution.
So it's not about 51 vs 49%, it's about 2/3rds of the US states, as represented in the Senate, agreeing with a treaty.
I’m making a rhetorical point here, but this isn’t as far fetched as it might sound at first. When you look at the numbers coming out of the fed, it’s pretty clear who is calling the shots and it’s not the Congress.
The revenue of a corporation can, roughly, be:
1. Spent on goods or services from another company (including freelancers, contractors, etc.)
2. Spent on rent
3. Spent on capital purchases
4. Spent on wages
5. Spent on debt repayment or other forms of financing
6. Paid out in dividends
7. Spent on share buybacks
8. Invested in something else
Items 1-5 are all good things that we want companies to do, and corporation tax is normally applied after this spending is accounted for. Items 6 and 7 ought to be taxed, and frequently are (dividends and buybacks create income for individuals who will pay tax on that income). Item 8 is a bit vaguer, but probably shouldn't be taxed in most cases (if we're worried about companies parking cash in very low-risk assets, then super-low yields are effectively a tax on that anyway).
All that the corporation tax adds to this picture is the creation of work in tax avoidance services, and an unjust inequality between those firms that can afford those services and are structured to take advantage of the rules, and those that can not and are not.
It's not obvious to me that corporation tax /can/ be fixed, and so it may be better simply to scrap it and replace it with something more difficult to dodge.
EDIT: formatting
Henry George - a 19th century political economist - proposed exactly this, and suggested the only thing that should be taxed should be land: impossible to hide from a tax inspector, potentially a waste to the public commons if useful land that could be exploited isn’t and you can even protect land you wish to keep pristine more easily (tax it very, very highly).
His ideas are now considered eccentric, but I do wonder if the World would be a great deal simpler if globally we moved to a Henry George system and stopped trying to tax sales, income and everything else going we do.
That may have made sense in the 19th century when agriculture dominated the economy, but it’s irrelevant today.
At scale it becomes a tax on how space-inefficient your business is. Bad news for farmers, great news for the business running a 1000-person operation out of a skyscraper. You could of course start trying to change taxation rates based on various factors to compensate, but those factors reduce to proxies for revenue, which puts us back to square one.
19th venture taxation theories don’t translate to modern multinational trade with digital commerce.
Pigovian taxation is even better. Taxing gas is a great example. Gas consumers emit carbon which has a cost for society. We should make them pay for this negative externality via a gas tax, so their consumption is economically optimal. This is how to prevent the Tragedy of the Commons.
I'd argue that some taxes are objectively better than others and not all equally wrong.
So taxing something bad like CO2, great idea. Taxing something good like income or creating jobs - bad idea.
Land tax would be simple, and very progressive, the tax rate of most young people renting world now be 0. It's more complex than that because the landlord pays the tax and hikes the rent appropriately. It enforces that land is used efficiently, which is so dysfunctional in many large cities.
It's a great idea in my opinion. You'd solve taxation, eliminate personal accountants as a class, and solve the housing crises with one stroke (there is still zoning, but this makes poorly zoned land undesirable to hold because it bleeds money - creating an incentive for the land owners to vote for zoning the land better). But politicians deal with popular ideas, not smart ideas. The odds of any country trying it seem slim.
I frequently come to a conclusion personal income tax should be abolished as it punishes work.
CIT, VAT, capital gains and inheritance taxes should be enough to sustain a budget. These are all unrelated to performed work.
I don’t think this is the best idea to solve tax issues in the modern world
The problem with corporate taxation is that...we really want R&D and employment to be tax deductible for them, but a company like Amazon can just plow all their profits into R&D and focus on growth (even without R&D tax credits, they would still take a loss on earnings due to R&D outlays). Of course, all of that R&D money is still mostly taxed (via tech worker income taxes), so its not like the government isn't seeing any of it. Corporate income taxes really come down hard on a successful company that doesn't have any avenue to grow...maybe they should?
Yes it would, but you see that will not be popular for many obvious reasons ( less jobs for tax collectors/consultants/auditors etc.) A more non-obvious reason is that the ordinary Joe on the street hates the rich so much that he wants the rich being taxed rather than see the simplicity of taxing no one.
>His ideas are now considered eccentric,
He actually seems a level headed guy to me :)
I would go even one step ahead and say that even land should not be taxed except for the cost of keeping land records.
What if we got rid of all taxes, and the only thing the govt. could do was print money at some fixed %GDP rate to induce inflation.
Then everyone would try to spend faster than inflation and the velocity of money could be quite fast (to increase GDP and spending, etc.)
Maybe a flywheel-economy?
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We pay taxes for services we expect from governments, defence, policing, justice, water, sewers etc etc I don;t see why corporations that use all these things shouldn't pay their share
I think the right answer is VAT + externalities taxes (LVT, Cabon tax, etc.) + UBI, which is both very easy to enforce and perhaps net progressive enough. Re "progressive enough": I don't so much care if BWM owners are screwed over relative to private jet owners on paper, I think reducing work hours and propping up demand at the bottom with UBI will have a trickle-up effect.
There might be room for a wealth tax, but I think it might be less loophole-prone and better theoretically to attack that problem more directly and less monetarily in terms of socializing key natural monopolies, promoting coops, etc. Trying to financialize the big question of "who controls the means of production" I think might be just too difficult.
In reality I understand that this would harm the employees and the public to an unacceptable degree so maybe some form of “jail time” whereby all profits go directly to non-executive employees and price discounts would be more effective. Depriving shareholders of dividends may lead investors to “vote with their wallets” and we’d see more of an actual free market instead of what we have today where economy-destroying decisions go effectively unpunished and in some cases are rewarded by bail outs.
Corporations can be taxed on the money coming in, that would look like a sales tax or VAT. The problem with that tax is it falls on the consumer (since what really matters is which transaction you tax, not which side pays the tax).
But this brings me to a solution to the corporate tax avoidance issue that has already been figured out by economists, but rarely gets discussed.
This is a simplification, but basically corporations have one place money goes in, and two places it goes out, like this:
sales = expenses + profits
If you tax the sales, but deduct the expenses, this leaves the incidence of the tax on the profits. Unlike profits, it's usually much clearer where the sale takes place so it's much harder to avoid than the existing corporate tax. It's called a border adjustment tax. [1]
Where this gets complicated is international trade - how this works is only domestic expenses are deductible. At first glance that seems protectionist, but apparently the currency exchange rates adjust which balances is it out and although it's not obvious it ends up trade-neutral.
It was actually seriously proposed as part of US tax reform in 2017, but some big companies were against it so it got killed.
[1] https://en.wikipedia.org/wiki/Border-adjustment_tax
And that's fine, but if such a company ever needs to call the police and go to court, etc., they then would have to pay all of that out of their pockets (i.e. the work of the police, the lawyers and judges, and so on).
Having a multi layered tax policy is complicated and has proved difficult to enforce. Multinational corporations have shown time after time that they are able to get around the first layer of taxation (corporate tax), so why not just eliminate it and put more of the burden on the second layer (income, capital gains, sales tax, etc).
The general idea is not to raise or lower net taxes, in this particular instance we could keep net taxes the same while allowing for less corporate avoidance and more targeted tax collection.
Companies like Amazon historically have minimized their profit to grow revenue, assets and shareholder value. They barely pay corporate tax while profitable small businesses will pay corporate tax plus the second layer.
Share buybacks lead to greater stock value and therefore income when sold for the owners, who in term are taxed as individuals.
You theoretically could have a hold Corp that never paid out anything and instead funded the lifestyle of the owners/employees, but I’m sure there are ways to close that and the current 15% min is a far cry from what most people pay.
We don't do that, though, not by a long shot. There are some cases where the rules are the same but many, many cases where they are different. So I don't think that can serve as an argument that they should be taxed the same.
1. Spent on goods or services
2. Spent on rent
3. Spent on capital purchases
4. Spent on debt repayment or other forms of financing
In fact income tax does not have the last two points that you admit are bad, so maybe we should eliminate income tax and use corporate tax only?
The thing is low corporate taxes create an inequality between labor and capital gains. It's already the case that wealth inequality is quite unrelated to income inequality, the highest wealth individuals often don't register in the high income brackets.
https://voxeu.org/article/effects-employer-payroll-tax-cuts
Now it’s true that invested savings become goods and services, capital purchases, etc. for the companies you invest in. But the idea is that government will take over some of that role and invest the taxes collected in more socially beneficial activities, with returns accruing to the public.
Nobody benefits from a company growing indefinite wealth without distributing it to actual people.
> So for example the company can rent houses, cars, and airplanes for every employee
If they could do this, all companies would do this already to avoid taxes. In reality, this is dealt with by (in the UK) considering those things "benefits in kind" aka equivalent to cash.
there's already laws in the books today that those are taxable as in-kind compensation
What goes away is the incentive to locate all of the company's IP in a subsidiary in the Cayman Islands, and then rent it all back to the subsidiary in New York at wildly inflated prices that ensure that all income is technically earned in the Cayman Islands. Because it would no longer matter where the income was earned, it would only matter to whom it is paid out to. Less protection for billionaires who are primarily interested in asset inflation.
I'm pretty sure this would actually increase total taxes collected because it shifts tax burden away from low and easily avoided corporate taxes, and towards individuals that pay higher income tax rates that are much harder to avoid. But even if it doesn't fully compensate, you can easily adjust top bracket rates to fill the gap, without any worry that it will hurt workers like the corporate income tax does.
https://taxfoundation.org/labor-bears-corporate-tax/
Any entity that has to pay obviously has other ways they can more productively (as seen from the entity level) deploy the cash.
But ideally we are not optimizing for a single entity or class of entity, we’re trying to optimize at the societal level.
We know that corporations can bear some burden, because we are taxing profits. I couldn’t tell you whether this is an optimal place to tax, but it intuitively feels reasonable - corporations are large non-governmental concentrations of wealth and power. This seems like a valid pool to tap for funding the state, and better than many alternatives (e.g. taxing the poor and powerless).
Some interesting alternatives to corporate taxation have been proposed[1][2], and I think they merit consideration for their potential to remove disincentives to invest or hire labor. I personally like Michael Pettis's argument that continued economic growth depends on increasing economic demand through redistributing wealth from capital (or more generally the wealthy) to labor [3], so I am skeptical of reforms that stop taxing capital.
[1] https://cdn.americanprogress.org/wp-content/uploads/issues/2... [2] https://taxfoundation.org/value-added-tax-revenue-neutral-al... [3] https://foreignpolicy.com/2020/09/29/capital-flow-united-sta...
This is an important point, and is misunderstood in (US) politics and deabtes, IMHO. Supporting capitalism and taxation aren't mutually exclusive positions. Well thought out taxation is crucial to balance the inherent network effects of large corporations. There's huge network effects, especially in tech [1], that leads to less ability for smaller firms or new players to compete. If anything, I'd wager that appropriate taxation of network effects is crucial to a well functioning capitalist society, especially as so much of success is due to luck and network effects in addition to hard work and talent [2].
Just because you have capital doesn't mean you have capitalism, where most any individual(s) can access capital to bring about new companies and products. The trick is defining empirically and scientifically sound taxation measures rather than giving into simplistic models of Socialism or Reganism.
1: https://medium.com/@nfx/70-of-value-in-tech-is-driven-by-net... 2: https://arxiv.org/abs/1802.07068
There isn’t a clear equivalent where if you ditched income tax some other tax would make up for it.
There is a sweet spot, where the amount we tax generates more than it costs, this is known as the "fiscal multiplier." Tax breaks are among the worst incentives ever to exist and have the lowest net-return to society. A corporation paying no taxes, is then completely freeloading off of the countries they operate within. Tax breaks are handouts, full-stop. Tax breaks ONLY increase deficits by necessarily decreasing input (tax revenues) without a corresponding decrease in costs or increase in output. It's literally saying "you don't have to pay your share of taxes because you already make so much money." This is the precise reason Republicans run up the deficit. No one realizes tax breaks are a fucking hand out, we have a budget. "Tax breaks" are just the same kind of spending as food stamps, except they provide a negative return where as food stamps provides a positive one with something like a 1.73 multiplier (which is fucking awesome[1]). If we were taxing multinational corporations at a 70% tax rate, sure, then maybe a tax break might actually help stimulate some growth... but we sure as shit ain't even close yet.
The corporate tax rate should be something like 35% in the USA, but if you do the math it's closer to 17.5% on average that's paid (or was when I checked a couple years ago, I can't imagine it has improved). I can promise all of you, that the overwhelming majority of corporations aren't able deploy international tax avoidance strategies (and are paying really close to that 35%). So... then, 'cuz like averages, 'n' shit, that means (did I get a pun?) a handful of extremely large players are likely paying literally nothing in taxes to get the USA's average rate down to 17.5%.
It's pretty easy to go calculate these numbers for yourself, and to look into what things actually cost. I'd recommend anyone and everyone go take a gander at https://www.bea.gov/ and actually go do it.
[1] https://en.wikipedia.org/wiki/Fiscal_multiplier
People love to tax companies, because they think it's "someone else" paying those taxes.
Maybe there is also some anthropomorphising going on where you think of the company as another person who is much wealthier than you.
I think you can very safely generalize this to "people are always in favor of more benefits for themselves that they don't have to pay for".
https://en.m.wikipedia.org/wiki/Corporate_personhood#Case_la...
Same goes for financing, while dividends can only be paid out from post tax profits loan payments and even stock buybacks can be structured in a very tax efficient manner. Yet that doesn’t happen that often either.
But if you don't accept these deadweight losses, which means that there is no way of funding a government, which means that the essential services a government provides - notably a monopoly on violence and a peaceful way of adjudicating disputes - no longer exist. This is more damaging to businesses - when business every business needs to hire a protection racket to avoid being ripped off and killed, productive activity tends to come to a halt.
For instance, land value tax has no dead weight loss. Corporate tax has one of if not the highest dead weight loss.
But the very reason they didn't repatriate it and spend it in the US is the corporate tax the GP is arguing against.
This is an important point people miss. The owners of those companies eventually pay taxes on the profits, so a corporate tax is a double tax.
There are a lot of things that get taxed: property, income, sales, corporate profits. You can vary these rates and still come up with a viable government revenue model. Oregon doesn't have a sales tax; Washington state doesn't have income tax. The only problem, and it's what this deal is about, is when these varying policies interact, or one jurisdiction does something very different from others.
What you end up taxing is a social policy lever, but it's otherwise not all that important. The important part is getting some degree of alignment so you don't encourage people to live in Vancouver, WA, but buy everything in Portland.
Will they? Countries have a wide set of positions from "tax only corporate income" to "tax only dividends", with a lot of them sizing both taxes taking the other one into account.
The tax avoidance industry now shifts to servicing individuals, and again we find ourselves with inequality between individuals who can afford those services and those who cannot.
An alternative way to tax would be to simply raise interest rates, and discourage capital from not being deployed productively.
I guess one solution could be to classify various types of corporations and tier them. And then tax rules change accordingly.
Similar to how tax breaks are given to startups.
Think about it, a no tax corporate tax, yet taxing the recipients of dividends and distributions would:
* eliminate tax heavens * foreign companies would come to the US * stimulate the economy * benefit the shareholders at large
Of course the shareholders would pay taxes, and distributions to foreign entities could be taxed at the source.
Easy, smart, logic.
However there are some loopholes that companies still figure out. In Estonia's case we have big international banks that found a juicy loophole. The local Estonian branches pay no corporate tax, but they also never pay dividends. Instead they give out a no interest loan to their foreign mothership and have no intention of ever getting it back. This loophole has since been patched, but it shows that companies will still hire teams of lawyers to find new loopholes to not pay a single cent.
Do you feel the cost/value of having the ability to a call a number and have a well trained team put out a fire in minutes that could ruin your business is 0 or free? What about rules/services that allows your business to have an advantage over another in a different region?
Taxes need to be paided by everyone. Corporations use more services than you would think and rely on a stable government that they need to contribute to.
Furthermore, these taxes are not paid by all of us. They are paid by the owners of the corporation who and which receive considerable benefit from the government services they are paying for.
Consider corporate taxes, if you will, as use taxes for using the economy.
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Any individual in the EU buying anything from a foreign company operating in their EU nation pays the VAT on the good or service. That's usually 21% and up to 25%. And that's not on the profits.
That's already quite something.
10. Astroturfing
As different sectors of business have different structures of material costs, labor costs, profit and investing. Maybe having at least some kind of equal corporate tax can be seen as being fair across different types of businesses.
Additionally many forms of business have externalities which are negative for the rest of the humanity. Often it has been the public sector which has to pick up the slack or clean up the mess.
Also most people agree that there exist at least some forms of infrastructure which are best managed publicly and are difficult organize privately in a way that encourages competition. Also corporations often directly benefit from different forms of public infrastructure, so in this sense it can be seen as fair to directly tax them.
But your 9 and 10 are captured by the income tax of the people tasked with executing these operations.
If you only taxed dividends the problem would not go away.
However I think the main downside on the abolition of corporate tax is that companies are hiring even fewer people with time (automation, subcontracting, etc) so the taxation "opportunities" are reduced if you only have "payroll"/income taxes and sales taxes.
The current situation leads to things like Starbucks having an exaggerated advantage over local cafes for example, since they 1) pay much lower effective tax 2) can have more advantageous rental agreements which leads to some ridiculous situations where one Starbucks is visible from another.
(Though yes, governments do overtax people and companies IMHO)
[0] https://apnews.com/article/438fae12f9204b1fbd8e8b1985ae554f
This already exists in the United States.
An "S-Corp" is a passthrough corporate entity wherein the corporation (or partnership) is not taxed at all and all profits flow to the owners of the entity who are then bound to pay the taxes on their personal returns.
Almost all small businesses incorporated in the US are such entities. It is not exotic in any way and is totally accepted and normal.
The trick is ...
With some minor exceptions, all of the profits need to flush out of these passthrough entities every year. You can't just keep piling up untaxed profits in the company bank account. The corporation is required to disburse the profits and create taxable income for the owners.
Big coporations which are not passthrough entities can keep the money and do not have to disburse it ... but they have to pay taxes on it.
So there are pros and cons to these structures.
I personally feel that passthrough corporate entities are much simpler, much more comprehensible and do not have the societal inefficiencies (pursuing tax avoidance strategies, for instance) that you mention. But at the same time I think we're asking for trouble if we let (big multinationals) just pile up bigger and bigger mountains of cash in their bank accounts, untaxed.
So, in absence of a better solution, taxing non-passthrough entities seems like the least worse solution ...
And while 1-5 are good, they don't pay for the massive infrastructure and other investments that governments have made the enable corporations to do business in the first place. Those resources have to come from somewhere. I don't see it likely, for example, for dozens of corporations to come together and fund interstate highway and bridge maintenance.
I might agree with you more if corporate profits were plowed back into higher pay or better benefits for employees, significant voluntary investment back into society, etc. But benefiting from government investments in their ability to do business without paying taxes essentially means they are extracting their profits indirectly from all individual tax payers whether or not they are even customers.
I do #1, #3, #4, #5 and I'm still expected to pay taxes.
Firstly, that infrastructure is for everyone to use and I think it's semi-useful to view private business as infrastructure as well. They exist to provide goods and services to the people.
Second, it seems obvious to me that you'd simply increase other taxes to make up the deficit. The impulse to create special taxes is a bad one, imo. It only serves to complicate the tax code, obfuscate how much we're actually paying in taxes and makes it more difficult to actually provide incentives when they are needed.
I'm not saying that corporate behavior becomes uninfluencable when profit taxation is removed, but rather that it will require a different incentive mechanism. That is assuming that we still want to influence corporate behavior through government without legislating it.
Trickle up economics, right?
Now make a list of all of the things the money could do if it is taxed and gets to the government. Schools, roads, etc.
I don’t see the problem.
If one entity owns the farm, the food distribution, and the grocery store, they have one revenue transaction to be taxed. A small farmer selling their eggs to a distributor who sells them to the grocer who sells them to you is taxed three times on what amounts to same activity.
It's a very elegant tax on paper, but significantly complicated from an accounting POV. It's one of those areas where there are huge gains to be had from digitizing financial records, and countries that have succeeded in this (like Mexico) create a very powerful revenue source.
Take a look at the history of tax. And make a judgement on the necessity of tax yourself. Stop wasting time coming up with some seemingly clever explanation of things.
https://en.m.wikipedia.org/wiki/Tax#:~:text=The%20first%20kn....
I think the attitude you are talking about is largely driven by media.
Sure, this makes stock prices lower. But it encourages dividends by comparison, which is probably a good thing, or at least everyone seems to think it is, and then these are taxed as regular income (not usually subject to gains rate).
* Property tax is 1 obvious place, you want the land in this country? You pay the tax for it.
* VAT is another obvious one. You want to sell in this country? You pay the tax.
There are plenty of things that can be taxed which are undodgeable, we just have to be creative.
Not only is this massively regressive, it ignores how much of our public infrastructure is built to support the economy. This proposal would effectively allow shareholders to turn infrastructure tax dollars into shareholder money without having to kick a single dime into the bucket. That’s absolutely nuts.
The idea is that if you want to tax rich people do it directly. Don't make it complicated.
Like Apple likes to do: https://www.cnbc.com/2020/10/29/apple-q4-cash-hoard-heres-ho...
Forget tax, but if I want access to the Canadian grant ecosystem they take 7%.
I want Delaware Chancery courts the U.S takes 8%
Swedish bank secrecy, 6%
And we access states more like VCs and their value add.
Obviously all numbers are made up
Ownership gives you two things. It's a right to future profits, and the ability to resell that right to someone else. Company tax gives the government a percentage of the profit, and capital gains tax gives them a percentage when the shares are sold.
The only thing your proposal would do is delay when the government gets it's slice because the company doesn't have to pay a dividend right away.
as a stock holder there’s no difference between the stock going up 10 cents from a buyback versus me getting a 10 cent dividend. other than the fact that i can have more control as a shareholder in the buy back
Dividends lower stock price by moving cash from company to owner, buybacks increase stock prices[1] by de-diluting, so only one of those is evidence of the CEO (whose compensation is often tied to stock price) acting on his own interests. Also taxation is different.
[1] https://www.investopedia.com/articles/active-trading/073015/...
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Here is a better idea: companies should be the only entities paying taxes in a capitalist society. If you think about it it really makes perfect sense :) since they already do all the boring accounting stuff and with the power of their lobbies they could make tax law simpler and more efficient (something that normal citizen will never be able to push forward).
This is #4 "spent on wages" no?
We already tax wages. A graduated income tax targets specifically the problem you are flagging here. Taxing corporations exclusively would do away with this.
If you're making an equity argument, why not argue for the opposite of what you're saying: reduce corporate taxes to zero, then make up for it by taxing only the highest earners' wages? Not advocating for a policy position here, just pointing out that the argument in the GP post is precisely that they lack of those granular policy levers is a drawback of taxing corporate income. Policy levers which could be used to nudge the income gap down by taxing the "excessive" executive comp at a higher rate, for example, don't work if you collect that tax revenue as a monolithic corporate profits tax.
However I can see how that system would be abused. E.g. instead of buying that yacht from your personal money (which you need to pay 70% tax on when you transfer it from the company) you simply have the company pay for it and say this is a company yacht. Then I can see how people would continue to hide their wealth in off shore shell companies that they never have to pay a tax on. So even with this scheme it is still ripe for tax havens.
If your money counts as speech because you have first amendment rights, then your income counts as income because you have IRS obligations.
I’m 100% over letting corporations pick some of the benefits of citizens but skate away from all the obligations. If you want the rights, you get the obligations. If you don’t want the obligations, you don’t get the rights.
How about the person who has so much wealth that they will never need to work in their life?
Government is labor that benefits the people. The only way an individual can escape the duty is if they are incapable or if society deems that they deserve a break.
Taxing only income misses the mark by a bunch.
It could work but where do royalities fit in? Estate taxes?
Sure, so the competitive advantage of poor countries will be what -- low wages?
This is nothing more than ladder pulling.
Anyway... there's a sub-thread in the book about how things got really bad economically for the population, about a brewing revolution, and how governments around the world have struck a deal to 'defuse a hidden time-bomb under the world economy'. This was known as the Big Deal. It was tried many times before, but failed. So no one took it very seriously this last time. Except, this time there was a military crackdown on tax havens (except Switzerland): France took over Monaco, Belgia over Luxembourg, US over Panama, Russia over Dubai etc.
This time, it did work. There's a funny and sad moment when a student receives a letter from the 'student loan company', informing her that her loan was suspended, but she should apply for a grant, instead. And it took her a moment to remember what a grant even is.
[0]: https://www.goodreads.com/book/show/20618981-descent
Also, there are countries that are not in the G20 that could quite easily undercut an agreement, notably, Switzerland. It already acts as a tax haven for personal income (and corporate income), so an expansion of this haven seems forseeable.
Despite this, I don't think this is a reason to not act. There will be reasons why multinationals will not want to be domiciled in Switzerland.
Tying tax rate to profit margin sounds like a loophole. For example - Hollywood Accounting[1]
[1]https://en.wikipedia.org/wiki/Hollywood_accounting
Still, this would catch them.
TFA says that Ireland is going to accept the change: atm they've got a 12.5% tax rate.
What about Hungary? Corporate tax rate at 9%.
Once this shall be in place, the one sure thing is this "minimum 15%" is only ever go up, never down. There won't be any incentive ever to make it go down as there won't be the risk of companies moving abroad to pay less corporate taxes.
And this says nothing about dividends or income taxation, so you'll end up with SME owners paying "minimum 15% corporate tax" and then on top of that 34% dividend tax, for example.
I really wouldn't be surprised if this was sold as "tax the FAANG" while ending up trouncing the SMEs owners a bit more.
That's the whole point of this agreement, it doesn't matter what Hungary does. I mean, if a business wants to only sell in Hungary, sure, but what this agreement does is prohibit multinationals that want to sell in any of these G7 nations from cooking up the corporate fiction where a company is "headquartered" in a low tax jurisdiction, and then the "real" company pays all of their income to this shell corp in "licensing fees".
Other countries are pissed at Google charging for day Adverts but paying no tax in there country on services they sell.
A compromise was made.