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?
I’m not sure what you mean. Transfer pricing does happen within a tax year.
A gizmo is 95% assembled in Country A with 50% tax rate. Company wants to sell that 95% gizmo for 10% of the actual price to their subsidiary in Country B with a 5% tax rate. Finish the product there then book 90% of the revenue in the low tax country.
That’s transfer pricing. There are account regulations that define how that price is set. That said it’s hard with IP and other assets with less tangible value.
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 top 10 corporate tax payers, including Pfizer, Apple and Intel made up 50% of all corporate tax revenue in Ireland, $6B.
Ireland has 4M people, that means the top 10 companies contribute $1500 for every man woman and child in Ireland. That’s a hell of a deal for the country.
Oh, well, that's worse than I thought, but I think it basically bolsters my argument: A subsidy for them could not even be checked off against their tax contributions to the state's economy.
>> 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.
1. The finance ministers reach an agreement. This is what has happened.
2. A treaty is written and signed, normally by the head of state, but sometimes by the head of government (for the US in both cases the President). At this point the treaty in not yet legally binding, although according to international law the signatory country has an obligation "to refrain, in good faith, from acts that would defeat the object and the purpose of the treaty."[1]
3. The parliament (for the US the Senate) ratifies the treaty, making it binding.
4. The parliament (House and Senate in the US) creates the necessary national legislation to implement the provisions of the treaty.
5. The government creates the secondary legislation for the application of the national legislation created at 4.
Usually after 2. the other steps follow more or less smoothly, but there are some high profile cases where the ratification never happened (e.g. the Kyoto protocol).
> 3. The parliament (for the US the Senate) ratifies the treaty, making it binding.
Under international law, ratification happens when a state’s international representatives (head of state, ministers, ambassadors) formally lodge instruments of ratification with the depositary. (See Article 2(1)(b), Vienna Convention on the Law of Treaties.) When the US Senate "ratifies" a treaty, that is not ratification under international law, that is a domestic legislative procedure which confusingly happens to have the same name.
Under international law, legislatures are not involved in ratification, only the state's international representatives are (which almost universally belong to its executive). Domestic law may require those representatives to consult or seek approval from the legislature, but international law mostly (but not entirely) doesn't care about those requirements.
I would quibble that the name collision of the US Senate's "ratification" power is intentional and not confusing. When the Senate votes to "ratify" a treaty, it is authorizing the US government to perform the international act of ratification.
i.e. US domestic law governs the procedures by which the state can perform the internationally-recognized act of treaty ratification.
To be strict about it, the Senate never votes to ratify a treaty. It votes to give its "advice and consent to the ratification". The actual ratification is done by the Executive not by the Senate. But the Senate's advice and consent is popularly called "ratification" even though it isn't.
And the Senate's consent is not required to ratify a treaty. Ultimately the Executive decides whether to classify something as a "treaty" or an "international agreement". By classifying a treaty as an "international agreement", the Executive is allowed to ratify it without the Senate's consent. Such a ratification without the Senate's consent counts as "ratification" under international law but not under US domestic law. And that's why it is confusing, the meaning of the term "ratification" under US domestic law is a subset of its meaning under international law.
The Senate's consent is required to ratify certain treaties.
It all depends on what the treaty's terms require the government to do. If the terms can be fulfilled by executive power, the executive can sign and ratify on its own (executive agreement). If the terms need the force of congressional legislation to implement, it can be ratified on a regular legislative vote of both houses of congress (executive-legislative agreement).
The ones that require a Senate supermajority are the ones that "legislate" in areas outside of Congress's normal jurisdiction. e.g. the US Congress probably can't pass a law prohibiting states from using the death penalty, but with a 2/3 Senate vote it could sign a treaty banning it.
(Another advantage of going "up" a level is that repealing or withdrawing from a treaty is more difficult the higher you go, generally requiring a similar authority to withdraw as was used to ratify.)
> The ones that require a Senate supermajority are the ones that "legislate" in areas outside of Congress's normal jurisdiction. e.g. the US Congress probably can't pass a law prohibiting states from using the death penalty, but with a 2/3 Senate vote it could sign a treaty banning it.
It isn't clear that is actually true. Yes, the 1920 case of Missouri v. Holland appears to say that treaties ratified by the Senate can bind the states in ways that Acts of Congress cannot, but a number of legal scholars think there is a decent chance that SCOTUS would overturn that precedent if the issue came before it – see for example https://doi.org/10.2307%2F1123464
Suppose that, somehow, Democrats manage to gain control of both the Presidency and a two-thirds majority in the Senate. They then use that majority to ratify the Second Optional Protocol to the International Covenant on Civil and Political Rights, and then argue that the ratification outlawed the death penalty nationwide. A retentionist state goes to SCOTUS to challenge the treaty. If we assume the current conservative SCOTUS, I think a majority would likely overturn Missouri v. Holland and rule that the treaty is unenforceable as beyond the federal government's power. However, I doubt they'd rule that the legislative act of the Senate giving advice and consent, or the executive act of depositing instruments of ratification, was unconstitutional, merely that the treaty was not legally enforceable against the states. It is worth noting such a decision would not invalidate the ratification of the protocol under international law, and the US would still have an international legal obligation to obey it (unless and until they denounced it), even though the federal government would be legally powerless (under US constitutional law) to fulfil that obligation. (See also Medellin v. Texas.)
> The Senate's consent is required to ratify certain treaties.
In legal systems which adopt the dualist approach to international law, the international act of submitting the instruments of ratification of a treaty, and the domestic legislative acts necessary to enforce it, are two different things. Although the second act normally precedes the first, there is no requirement for such an ordering under international law. And I think it is very likely that SCOTUS would consider the executive act of submitting the instruments of ratification for a treaty to be beyond its power to judicially review; SCOTUS will confine its role to deciding what the legal consequences of that act are under domestic law. It may in some cases rule the executive act legally ineffective in creating domestic legal obligations, but in doing so it is not passing judgement on the constitutionality of the executive act itself. Suppose some President decided to ratify a treaty first, and hope to get legislation implementing it through Congress second. A risky move, in that if the legislation cannot be passed, the US could be left with international legal obligations which are impossible under domestic law to fulfil. But I don't see any evidence such a risky act would be either unconstitutional under domestic law or invalid under international law.
> (Another advantage of going "up" a level is that repealing or withdrawing from a treaty is more difficult the higher you go, generally requiring a similar authority to withdraw as was used to ratify.)
The President has unilateral discretion to withdraw from any treaty, irrespective of whether it is a treaty to which the Senate gave advice and consent, a congressional-executive agreement, or a sole executive agreement. So which type is used makes no difference to the President's power to withdraw. That was the effective holding of SCOTUS in the 1979 case of Goldwater v. Carter.
Now, the President does not have unilateral discretion to repeal a congressional-executive agreement insofar as it forms part of domestic US law, and the same may be true of a treaty to which the Senate gives advice and consent. But the President's inability to repeal the domestic legal effects of the treaty doesn't make any difference to the international legal effects of withdrawal – once the withdrawal is completed, it is no longer binding on the US under international law, even if some of its provisions continue to be binding under domestic US law.
I don't agree that domestic law always wins. It all depends on the situation.
If a country's domestic law violates international law, the extent to which that country gets away with it depends a lot on how powerful that country is. Great powers have much more ability to violate international law with impunity than small countries do.
And in this particular case, it is not that US law and international law are actually in conflict. It is just they assign different meanings to the same words. Even the US government generally accepts the internationally standard meanings in international fora.
Nations are sovereign they can do what they want. Short of going to war its hard to force a country todo something it does not want too. Although if you pull out of agreement don't expect the other country to continue following it.
Also there are other countries not part of this talk nothings stops a company from setting up there and doing the same tax games. So i dont see how this idea does anything
> Nations are sovereign they can do what they want. Short of going to war its hard to force a country todo something it does not want too
In today's world economic pressure is a much bigger factor than war. If you upset enough countries, they can all start imposing trade and financial sanctions on you, which then ruins your economy. International law is a useful (even though of course not always perfect) guide in answering the question "is doing X going to upset a large number of countries?"
> Also there are other countries not part of this talk nothings stops a company from setting up there and doing the same tax games.
Most of these companies are actually headquartered in major economies – US, the EU, etc. What they've been doing is exploiting complex loophole interactions between the tax laws of those major economies and the tax laws of small countries with favourable tax regimes. If the major economies close those loopholes, they can stop most of this. The small countries only get away with it because the major economy tax law loopholes let them. Most of the time, companies don't want to move their actual headquarters to these small countries due to the negative consequences
In international law, this is known as monism vs dualism.
Monism says that international law and domestic law form a single cohesive whole. International law automatically applies domestically, and domestic law which contradicts international law is automatically invalid.
Dualism says that international law and domestic law are two independent systems. International law only applies domestically if domestic legislation is passed or amended to make it applicable. Domestic law and international law can contradict each other, and in cases of contradiction the domestic courts will follow the domestic law and ignore international law.
Some legal systems have adopted monism and others dualism. And yet others, like the US, are actually a hybrid – US law is mostly dualist but with a few monist elements.
Yes, I gave a quick overview of the main steps, with minor inaccuracies to keep it simple.
Ratification itself is not required unless the treaty itself requires it. Countries do form agreements with “signed” but not “ratified” treaties. Sometimes even “exchanges of notes” can be binding.
> At this point the treaty in not yet legally binding, although according to international law the signatory country has an obligation "to refrain, in good faith, from acts that would defeat the object and the purpose of the treaty."
International "law" is always entertaining like this: Who enforces this "obligation"?
> The agreement in principle was reached by someone who has no power to do anything with regards to corporate taxes
I think you are considerably understating the power of the G7 finance ministers including the US Secretary of the Treasury. Sure, they can't ratify a treaty without the cooperation of congress. They're still extraordinarily powerful individuals and have loads of direct authority to shape tax policy.
My analogy is really just a reference to what "reached a deal" colloquially means.
"reached a deal" doesn't mean the deal absolutely 100% will be implemented. It means, the referenced parties have reached an agreement to something.
In this case, the leaders of the G7 countries have reached an agreement among themselves to have a minimum corporate tax rate. Note that the United States has no obligation according to this deal—only Joe Biden has agreed the deal. And Joe Biden has no legal obligation under the deal, he merely has a reputational one.
Since the agreed minimum corporate tax rate is 15%, and the United States corporate tax rate is 21% there's literally nothing Joe Biden needs to do in order to meet the terms of the deal he made with the other G7 leaders.
If they want to turn this into an international treaty, absolutely, GOP Senate votes will be needed (though, given that the treaty would create a floor that's 6 percentage points below our current tax rate, I would imagine those would be attainable votes—if the GOP created a global floor that was lower than our tax rate, they could use it to argue for lowering our corporate tax rate).
> It's not even that. Most international agreements are executed without a treaty.
Only in the US (and possibly a handful of other countries which copy the US approach). Under international law, all legally-binding international agreements are treaties. What the US calls "international agreements" are treaties from the non-US point of view.
> I would think a treaty requires all parties to it to think it's a treaty.
Well, even the US agrees that "international agreements" are "treaties" in the international law sense, despite not being "treaties" in the US domestic law sense.
> Any idea where I can read a bit more about the fundamentals
Unfortunately it isn't easy to get your hands on. You can buy a hardcopy for US$173 plus shipping. Or you can do what I did, and read it for free in a university library. (It is also included in Westlaw subscriptions, but unless you already have access to one, buying the hardcopy would probably be cheaper.)
> That term has a different, and as I understand, more nebulous meaning under international law?
The most common way to make an international agreement not legally binding is to put a clause in there explicitly stating that it isn't legally binding. When the agreement explicitly states it isn't legally binding, then it clearcut isn't.
If an agreement is in the usual written form of a finalised formal agreement, it is generally going to be assumed to be legally binding unless it explicitly states it isn't.
Generally speaking, to be binding under international law, the parties have to have "international legal personality". That basically means the parties must be the national governments of sovereign states, or international organizations established by treaty. An agreement involving private corporations, private individuals, subnational governments, non-governmental organisations, etc, generally isn't going to be legally binding under international law, even if it also includes national governments among its parties. Occasionally, dependent territories are granted power by the national government to sign legally binding international treaties on certain topics (such as Hong Kong and Macau), but that is an exception to the general rule.
There are grey areas which lawyers and scholars will debate, but it rarely turns into a live issue in practice.
I used to want to be a lawyer. I even applied to law school once but didn't get in. Probably if I kept on trying I would have gotten in eventually but just decided to stick with software engineering instead.
>> 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?
Assume we’re going back and forth in negotiations. After a few back and forth a, with small changes each time, I send you over some language and you say: “That’ll work, I’ll draw up a contract and send it over to you”.
At that point, I would tell people internally to my company that we have a deal with that client.
But we don’t count on that revenue arriving, until we have a signed contract in place. Anything can happen between the negotiation and the contract being signed. The client could come back to us and say “there’s been a sudden change in priorities on our end, and we’re cancelling the project”. Or they might come back with any other change that they want “when I sent this to my VP, he said the top line number wouldn’t work, and we need to move it again, I’m so sorry!”
Yes, we don’t consider anything to be legally binding until the contract is signed. We “had a deal”, but deals can fall through.
If you deal in any contract worth more than a few hundred dollars, I really recommend you take the same attitude: everything is provisional until the final agreement is written down and signed.
> Which car company do you work for?
Was that necessary? Really? You can make your point without attempting to attack people.
> > "The G7 group of advanced economies has reached a historic deal to make multinational companies pay more tax"
> Is that true?
Yep! Because a "deal" can be something that is provisional. "Reached a deal" to me doesn't in any way mean that the deal has been executed, finalized and is legally binding. It means the first step of negotiations has been completed and all parties are agreeing to the terms of the deal.
Look, we're just arguing about the semantics of how final "reached a deal" is. I think it's not very final (especially when discussing large multiparty negotiations like the ones described here). You seem to think it refers to an absolutely final step. That's fine! English is messy and we can disagree about what specific phrases mean. I'll just caution you that most of the world will use the phrase "reached a deal" to refer to negotiations that are preliminarily complete, but the terms not having been formally adopted or legally finalized.
That's totally fair! I don't disagree that people who reach a deal shouldn't change the deal after that point (though the UK government seems to think it's fine).
But, suppose the following events happen:
- we reach a deal on some cool project
- reporters announce that we have a deal on the cool project
- I decide to back out of our agreement and not go forward with the cool project
- reporters announce that I backed out of our agreement
- You condemn me for my treachery, and tell everyone that I'm a backstabbing two-faced used-car dealer
- reporters announce that you have condemned me
The reporters aren't wrong at any step in this! We did have a deal, and it's correct to report on it and correct to say we had a deal. Even if the deal ultimately fell through to my used-car treachery.
I'm not saying people shouldn't hold to the deals that they make (though you seem to think that's my argument, so I must've made my point poorly somewhere along the way). 100% of my point is "reached a deal" doesn't mean it's final, and it's OK and even correct to say that a group of people have reached a deal—even if you don't think that deal is feasible.
Another example: Let's say that I form a deal with 10 investors that I will guarantee them a risk-free 50% annual return on their investment. You would be absolutely correct to say that I was probably lying! You would be correct to say it's clear that malfeasance exists! But you would be wrong to say that we didn't reach that deal. We did reach that deal, even if you think there is a 0% chance that the deal will actually be accomplished in the real world.
>> 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?
I hope you don't touch contracts in your job. Until a contract is signed nothing is official.
There's all sorts of outcomes here. While you may be right that the US will not sign on to the deal it might still have to deal with some consequences. E.g. while Yellen may not have the ability influence US tax laws there are also foreign tax laws that are part of this over which McConnell has no control. Let's say the rest of the G7/G20/OECD changes the way they tax global companies, if the US doesn't ratify their side there's still plenty of real world consequences. I think Yellen's agreement does count as in this is the US's (sort of foreign policy?) position, i.e. the rest of the world can proceed to make changes based on that agreement even though Yellen does not have the authority to commit to changing US tax laws.
>> I think Yellen's agreement does count as in this is the US's (sort of foreign policy?)
No it doesn't work like that.
To get anything done, you need Republican votes. I have no idea, I haven't checked this afternoon, how many Republican votes do you have for a minimum corporate tax?
That's what I want to know, I'm guessing it is zero, but let me know what the number is.
I'm not sure why Canada imposing a tax on Google's revenue in Canada requires US Republican votes? Or what the Republicans would do about it? So seems like we can get a lot of things done without those votes. Most of these companies are US based and they are effectively dodging taxes in other countries, it's not the US tax laws that impact those for the most part.
But it could be an informal agreement between the leaders of these countries, that they will all pass such laws. In that case, passing a law that changes the corporate tax rate would fit into a reconciliation package with no issues.
Though, if it’s an informal agreement then no such law even needs to be passed, since our corporate tax rate is above the agreed minimum.
Offhand, does someone know which countries that belong to the G7 and made this "historic agreement" have higher tax rates than that agreed upon?
Edit
In an alternate universe I wish the title was"G7 agrees to carbon tax" that would certainly level the playing field...I mean surely intrinsically FANG's are highly carbon intensive if you took into account the pollution they help generate through added energy usage (delivery trucks every day, lots of packaging, server farms etc) and the highly paid jobs which fuel inflation, consumption and speculation...(p.s. please don't feel ruffled)
> Isn't ratifying a treaty something completely different?
Sure, but there is a distinction between treaties in international law and those under the Constitution; by far the most common way for treaties in the international law sense to be adopted in tbe US in the last several decades is as Congressional-executive agreements, which are, procedurally, either normal legislation submitted after an executive-negotiated agreement or an executive-negotiated agreement under authority granted by normal legislation.
To be clear, Constitutionally the United States Senate only needs a majority to pass a law that changes the Taxes collected from corporations.
The Senate Filibuster which requires a 60-vote majority is not a Constitutional provision, and you wouldn't strictly need a Treaty for this agreement, if all the countries simply adopted the same tax provisions.
So, if the Democrats had the vote for it, they could pass this law with 0 Republican votes. In fact, since raising taxes is a budgetary measure, they could absolutely pass the corporate tax increase on reconciliation and do it with 0 Republican votes and without touching the filibuster. So, it seems quite plausible to me that this will happen.
Reconciliation is a process within Congress by which the Senate does not impose its not-Constitutionally-required supermajority requirement to certain budget-impacting measures.
So, no, its use doesn’t bypass Constitutional powers (not rights, which are not attributes of government bodies) of Congress, it is a means by which Congress has chosen to exercise them.
You don't need to ratify a treaty through reconciliation. There's no need for this to be done with a formal treaty. It could simply be each of the nations passing laws that do the same thing.
If the Senate passes a law that changes the corporate tax rate to a certain amount, that is a budgetary measure that could absolutely be passed with reconciliation.
Yes, this law wouldn't be a treaty, but it could have a similar effect.
> If the Senate passes a law that changes the corporate tax rate to a certain amount, that is a budgetary measure that could absolutely be passed with reconciliation.
If it was revenue-neutral, sure. That is unlikely to be the case with changes to corporate tax rates. And even then, you are going to have a hard time getting even 50 votes.
No, revenue-neutrality doesn't weigh in favor of being eligible for reconciliation; a measure must principally address either spending, revenue, or the debt limit to be eligible for that process.
That’s an incorrect description of the budget reconciliation process.
One of the budget reconciliation categories is explicitly for revenue, which means being revenue-neutral would make it harder to pass under reconciliation.
Being an aspect that explicitly impacts revenue makes it much easier to pass under the revenue reconciliation process. In fact, adjusting those rates would be a pretty straight-down-the-middle use of reconciliation.
> You are not going to ratify a treaty with the required 2/3 votes in the Senate via reconciliation
Which is among the reasons this won’t technically be a treaty in US law (even if it is in international law), but a Congressional-executive agreement [0].
The US corporate tax rate is 21%, above the 15% minimum that was proposed. Furthermore, it was the Trump administration who introduced GILTI and BEAT, both measures aimed at taxing foreign profits in low wage and low tax countries. Now, of course, republicans are probably loathe to give the White House any "wins", so that might throw a spanner in the works, but republicans don't have any love for tax havens.
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.
From what I can tell with what's out there on there internet, the main change is allowing local jurisdictions to tax a company on the money they make in that country, even if they have no presence there.
So again, it would just increase revenue for the US, and I see no reason they wouldn't agree to it.
At the end of the day, I don't think the US had to compromise here. I think it's universally better for the US government, just not US based companies, but it gives the GOP enough air cover to agree to it anyway.
It mostly benefits the European countries that are missing their tax revenue.
It will also massively increase the complexity of doing taxes for smaller businesses. It wouldn't surprise me if it lead to even more websites going "sorry, we value customers from your country, but we cannot serve this content to you".
Imagine running a small business and somebody from Algeria wishes to purchase your software. Is the $5 you make worth having to file Algerian taxes?
I mention this, because this is something that happened with YouTube this month. Content creators have to give their tax info to YouTube because the US is now charging taxes from creators outside the US on money they made on US customers.
Edit: as was pointed out - there's a minimum $10 million threshold. That makes it far more reasonable.
Ah, I missed that part. You're right in that case! I'm just so used to the EU coming up with new rules without reasonable exemptions that I assumed the same here.
Sorry, I missed where this was mentioned in the article. Can you supply a link to the reference if it is not in the article?
I did see the following quote:
> 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.
"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?
No, as has been pointed out to you - multiple times - reaching a deal is not equivalent to a deal being legal.
> The BBC is not lying
No, just the status quo BBC propaganda. Let's review some quotes.
> the arrival of the Biden administration in the US, created a moment of opportunity.
> A minimum corporation tax rate of 15% is rather low
> European finance ministers succeeded in including the phrase "at least 15%", which offers a path to get that number higher.
> Tech firms say they welcomed the move.
> A process has begun, a precedent has been set. It may or may not end up being transformative, but this moment is historic.
This last quote is the BBC admitting to painting this as if it was a contract being signed.
Let's continue.
> more tax revenue would be raised from large multinationals and would help pay for public services.
Only public services? Not military? Salaries? Government contracts? etc., etc.? Well, this IS historic!
> Ms Yellen said there was an understanding that national digital services taxes such as those levied by the UK and EU countries would be scrapped and replaced by the new agreement. Such taxes are regarded by the US as unfairly targeting American technology giants.
So, the tech giants get a new tax standard that benefits them over the existing standard?? Funny, this really does go along with the previous quote:
> Tech firms say they welcomed the move.
And here is another interesting quote to focus on:
> Paolo Gentiloni, the EU commissioner for the economy, described Saturday's agreement as a "big step... towards an unprecedented global agreement on tax reform"
It sets a precedence that nothing about what is being done could even be remotely criticized except for it possibly not being enough.
It's laughable. How anyone does not see this as North Korean Kim Dynasty style propaganda is beyond redemption and likely has a double digit IQ.
Then the article ends with three quotes from Amazon, FB, and Google.
Gee, I wonder who sponsored this article (and possibly helped coordinate this meeting).
It couldn't be techopolies trying to cozy up with existing government officials in the hopes of securing an agreement that is mutually beneficial for everyone.
But, paying more money is never beneficial for a company. So, game-theoretically, and thus purely mathematically-speaking: what benefit could these tech companies be receiving from this new arrangement?
Hmm ... surely, in our modern crony capitalist system, it wouldn't be anything corrupt in nature?
Classic HN, two downvotes and no one is capable of providing a counter-argument. The unintelligent flourish far too easily here. They should have more demanded of them. There are no clear incentives to not just throw a punch and run away like a coward on this site.
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.
> They can make all the agreements they want, but it's not a legal treaty until 2/3 of the Senate agrees
That's not true under international law. The confusing thing here is that "treaty" means different things under international law and US law.
Under international law, any legally binding agreement between two countries is a treaty.
Under US law, there are three types of agreements between the US and foreign states (or international organizations): treaties, congressional-executive agreements, and sole executive agreements. The first are approved by two-thirds vote in the Senate, the second by an ordinary Act of Congress, the third by the President acting alone (without Congressional involvement.) But all these three are considered equally to be treaties under international law. The distinction between the three is purely a US domestic law distinction. Article 46 of the Vienna Convention on the Law of Treaties says that domestic law does not determine the validity of treaties under international law unless the violation is manifest, which means that for most purposes the rest of the world can just ignore this US-internal distinction.
The authority to ratify treaties, in the international law sense of "ratify" and "treaties", solely belongs to the President (and the Secretary of State, and ambassadors, acting on the President's behalf). When the US constitution speaks of "ratifying" a treaty by the Senate, that is not ratification under international law. That's actually a domestic US legislative procedure which confusingly happens to have the same name.
> many laws affecting jurisdiction, accounting standards, and the tax laws themselves. None of this can be done with an executive agreement.
In practice this will likely be done by an ordinary Act of Congress (a "congressional-executive agreement") which only requires an ordinary (not two-thirds) vote in the Senate.
However, one needs to understand that ratifying a treaty under international law, and passing domestic legislation to implement it, are independent things. Under international law, the President or Secretary of State can legally submit the instrument of ratification for the treaty even if Congress hasn't passed any implementing legislation. International law doesn't care about implementation legislation, that's a domestic law concern. Now in practice the President or Secretary of State wouldn't do that, because that is not the traditional practice of the US. But other countries in the world do sometimes ratify treaties before the implementing legislation is passed. That generally happens in systems – whether Westminster democracies or non-democracies – in which the executive can be confident they'll get the implementing legislation passed.
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.
I agree with your main point but I wouldn't say executive orders lack binding legal force. They derive binding legal force from congress or the constitution first telling the executive branch "you go figure out the details here."
Foreign policy.
The SEC.
Heck, the emancipation proclamation was an executive order. Everyone knew Lincoln and his contemporaries wanted to abolish slavery, but Lincoln was absurdly careful at the time to frame the proclamation as a wartime measure aimed at crippling the south's economy. He went out of his way to appeal to existing commander-in-chief powers in order to make it lawful.
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.
There is far more to U.S. government than the Constitution, which is only a framework. There are an enormous body of law, court precedents, institutional customs, federalized government, and of course public opinion.
Among that body of law are existing tax rates, which are currently over 15% for corporations. Under the Constitution, the President must agree to changes in tax rates unless their veto is overridden.
You're right that Congress theoretically could violate the agreement, but in practice, it's almost irrelevant. They could theoretically pass a bill tomorrow that eliminates every tax and every law in the U.S.
Could you provide something to backup your statement?
As further examples of my point, beyond the laws, legal precedents, customs, and institutions mentioned above: None of the executive branch departments (State, Justice, Defense, Treasury, etc.) are mentioned in the Constitution. No federal court besides the Supreme Court is mentioned. Even specific laws are only loosely defined; for freedom of speech, no provision is made for slander, fraud, harassment, government secrets, etc.; for the right to bear arms, nothing defines what 'arms' are (and I don't suggest we try to define them here). The filibuster and other Congressional rules are not defined. Etc.
Exactly Zero of anything you have just said negates the point that was made.
Let's reiterate:
> Here's what it says in the Constitution:
> "The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises"
> Crystal clear.
Anything that is not explicitly defined in the Constitution is certainly left up to the interpretation and decisions (within their constitutional authorizations) of the three branches of government.
However, anything that is explicit in the constitution cannot be overturned without a constitutional amendment.
Based on experience in Internet forums, I believe we either need to be in a 'curious state' or the conversation isn't worthwhile - in fact, it's a negative - and I think when someone says 'Exactly Zero' of my comment has value, they aren't curious.
> 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.
Evidently you know little or nothing about the EU. Taxation by member states of the EU is a sovereign national competence and the Irish have both a veto over change and a likely requirement to hold a national referendum over any change.
If you do some research you'll find that there is zero evidence of any EU countries shifting profits to Ireland. Almost all of the profit shifting which Ireland is blamed for facilitating is undertaken by a handful of US MNCs enriching their shareholders at the expense of US taxpayers via mechanisms enabled first and foremost by the US govt
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.
Land taxes are based on the value of the land, not the size of the land. The property tax system already performs land value assessments.
Land taxes are highly progressive.
Note that land taxes are only assessed on the value of the land, not the value of any buildings on the land. This incentivizes land owners to put the land to its highest and best use.
> Note that land taxes are only assessed on the value of the land, not the value of any buildings on the land. This incentivizes land owners to put the land to its highest and best use.
Doesn't it incentivize them to put land to the use that generates the most revenue? I don't see how that is necessarily the "best" use.
There will almost always be a way that a yard or garden could make more revenue, for example, such as by letting a bunch of advertisers put up billboards on it or letting someone use it for storage.
Is it really best to make it so that only the wealthy can afford to use land in a way that they enjoy rather than as an asset to be exploited for maximal revenue?
Do you think that's a problem with existing property taxes?
The main difference between property and land tax is that with a land tax, the structure isn't taxed. So you can build up "for free" wrt taxes, which encourages more density on the most valuable land.
E.g. land in the middle of downtown San Francisco that's currently rented out as a flat parking lot, could instead be built up into multi level parking or housing instead. Whereas the current tax structure would punish such developments by increasing the tax (which is why it's still a flat parking lot).
San Francisco is an interesting case cause they used to have a land tax and economists argued that's what cause San Fran to be quickly rebuilt after it was burned to the ground in 1906. Land owners were still taxed the same, even though their building was gone. They'd have to either sell or rebuild.
Contrast that with New Orleans after Hurricane Katrina. Property owners had their buildings destroyed, so taxes went to zero (taxes based on the property value, not the land value). This incentivized property owners to wait and see if their neighbors would rebuild rather than take immediate action.
> San Francisco is an interesting case cause they used to have a land tax
Property taxes on land aren't unique to San Francisco. It's basically standard practice in most cities to have one tax for property and one tax for improvements.
> Contrast that with New Orleans after Hurricane Katrina. Property owners had their buildings destroyed, so taxes went to zero (taxes based on the property value, not the land value)
New Orleans has separate property taxes on land and structures, so property taxes did not go to $0 after Katrina.
Overall property tax rates went up because income from taxes on structures went down, but unimproved lots still get a tax bill.
Most serious study on this suggests it would have the opposite effect: make it harder for the wealthy to horde land in the form of low density residences in prime locations where townhomes and apartments would be a much better economic outcome enabling many more people to live affordably in close proximity to their jobs.
I don't buy that. If there's one party benefitting from such tax, it's big players who can afford tighter margins. It's a play that mostly favours monopolists, who can also afford to have "serious studies" made.
Maybe in the 19th century, where this idea originated. Economics of business have changed too significantly to use it as a one size fits all taxation scheme.
It may have made sense when revenue was somewhat proportional to the amount of land a business occupied, but that no longer holds true in the age of skyscrapers and digital revenue generation.
An internet company in a 10-story building would love this scheme, though, because they could generate billions in revenue but be taxed at the same rate as a local neighborhood of people who owned their homes for a few decades.
Land-only taxes may have been an interesting idea in the 19th century, but they aren’t relevant to a modern economy.
>>An internet company in a 10-story building would love this scheme, though, because they could generate billions in revenue but be taxed at the same rate as a local neighborhood of people who owned their homes for a few decades.
That's irrelevant, because the ultimate owners of the corporation - the shareholders - will always be in demand of land. Real estate explains most of the growth in wealth inequality in the US over the last 60 years:
yes but the majority of wealthy people would be satisfied with few million of real estate for personal use. RE investing would drastically change if incentives change
Fair point. I'd be satisfied nonetheless, because the land-ownership component of real estate investment is rent-seeking, that gains the holder value without generating value for society at large. If investment was redirected from land buying to purchasing other types of assets, it would lead to the production of more value in the economy, as unlike land, most asset classes involve man-made resources in which rising demand leads to rising production.
For example, if fewer wealthy individuals bought sprawling estates, and more bought high-rise apartments, we'd see more production of the latter, which would increase housing concentrations in high-productivity urban areas, and in doing so, apply downward pressure on rental rates in areas which offer the most economic opportunities.
The presence of skyscrapers indicates a strong economic region, which makes the value of the underlying land orders of magnitude more valuable - the taxes would increase under LVT. Not sure if enough to account for the discrepancy in productivity, however.
> Land-only taxes may have been an interesting idea in the 19th century, but they aren’t relevant to a modern economy.
This is basically saying real estate isn't relevant to a modern economy for tax policy. Broadly true in 19th century United Kingdom in the midst of the Industrial Revolution [1]. Disputed by many millionaires today in the US [2]. Another way to track the relative weighting of land in wealthy portfolios is by aggregate measures.
The wealth of the US 1% grew 2.22X from 2005-2020 [3]. During the same period, the value of land held by the US 1% grew from $3,176,274 million to $4,607,729 million, 1.45X [4]. Not a proportional tracking of wealth increase, but I wouldn't call it "not relevant"; this is hardly rounding error territory where I would dismiss it for tax policy purposes. The sample period is also during an ahistorical secular trend when held across decades when securities were and are quite strong compared to real estate assets, so I don't know what a broader and more granular analysis would reveal, but my cursory glance across a one-generation span would make me hesitate to strongly take the "aren't relevant to a modern economy" position with our current set of policies.
The global urban real estate market so severely punishing younger generations for so long with such high prices relative to income and income precarity indicates some severe secular rent-seeking / gatekeeping taking place at an ahistorically wide scale, scope and duration. I have no dog in that hunt; I was purely lucky by timing to not live in that cohort, but I share their hostility to the status quo. If you favor the "modern economy making real estate not relevant" position, then tax, monetary, finance, social and industrial policies like LVT (though LVT is not without its challenges [5] [6]) that disincentivize such rent-seeking and favor a more efficient allocation of limited capital away from real estate towards such modern industries would be welcome, to the point that aggregate measures show little to no correlation between wealth concentration and real estate instead of our current situation.
I'm personally in favor of more metropolitan transit authorities consciously and deliberately using public transportation corridors as part and parcel of an explicit industrial policy that drives down residential costs over time. Residential development is planned more along Singaporean public housing lines with a goal of ever-decreasing DTI ratios (possible with more modern construction techniques like Lstiburek'ean Perfect Walls and Passive Net Zero in structures that last centuries, and co-operative financial organizational structures), than open market operations in the US. This doesn't have to come at the expense of open market operations; they're free to syndicate their own transit networks and monetize those networks. I'm advocating the free market advocates in US real estate becoming even stronger in the global market by practicing true free markets instead of relying upon the crutches of publicly-funded infrastructure to break the capital ground in front of them.
I say the land value tax (LVT) is best grouped with Pigouvian taxes; as PP says, normal property tax relatively incentivizes holding undeveloped land, which is like charging a higher carbon tax if your car has a better MPG.
One one hand, we can also do a VAT in developed countries --- perhaps more feasible than in the 19th century and making more sense if we are no longer rapidly developing and reliant on private investment to foster those changes --- on the other hand in big closed economies we can also just print money quite safely, so Henry George is quite right to focus Pigouvian taxes when "taxation for the revenue" is far less important than curbing bad material outcomes.
(I only suggest VAT with a UBI to make it no longer regressive.)
It's the proximity to Google's economic activity that makes the land valuable. A plot of land right next to the Googleplex that has nothing on it is immensely more valuable than an equally sized plot of land in the middle of the Nevada desert.
Sure this is true, but this also one of things Georgism seeks fix (land speculation.) A georgist LVT appraises land based on the intrinsic value of the resources it contains and not what is build on it. In fact it seeks to fix “land hoarding” to incentivize productive land. Under a proper LVT it would be really expensive for e.g. one person to own 100 acres of land they aren’t utilizing to it’s true economic potential.
It’s bad news for farmers that are farming in the middle of a city, yes. But farms in rural areas will hardly get taxed at all, because the land couldn’t be used for much else, so has very little intrinsic value.
Land value taxes adjust based on how desirable a plot is: basically, you get to keep any value you generate above and beyond the value the society surrounding the land gave it. If you leave a plot of land empty in downtown, you’re preventing someone else from using that plot productively, and adding a net negative cost to the surrounding properties. So you should be taxed accordingly.
I’m wondering how this is supposed to interact with zoning? There is a lot of agriculturally-zoned land in California that would turn into housing developments pretty quick if it weren’t illegal. It’s typically in a nice-looking area near some water or a park, not in the middle of a city.
If you keep the zoning then maybe the land isn’t worth that much, but if property taxes were based on the “true” land value then it would mean farmers sell out faster to create sprawl.
There is no actual tradeoff between availability of food and availability of skyscrapers. Even if we actively tried, we couldn’t run out of agricultural land in the US by building on it.
The only reasonable way to account for zoning would be to require the zoning board to actually buy the property and pay the associated taxes. Then they can lease out their own property with whatever restrictions they want. Without the benefit of subsidies or eminent domain, naturally—if they want to expand their reach they'll need to raise that money through the revenues from leases (less income tax and other overhead), with restrictive zoning rules limiting their revenues.
This would prevent me, an individual inventor of (I'll claim) non-ridiculous inventions, from monetizing my efforts. The monetary barriers to patent protection and enforcement are already significant to me. I can't be the only one in this circumstance.
Taxation of your intellectual property rights would cause you to seek out the best use of those rights.
If you have a good idea and patent it, then taxation of that patent right would force you to license it or lose your monopoly protection granted by the government.
If you have a good expression of an idea and copyright it, then taxation of that copyright would force you to license it or lose your monopoly protection granted by the government.
Either way, you are still granted the IPRs, on a "pay for it" basis that captures some of that value back.
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.
As an Australian who moved to Sweden, I was amazed at how efficient the Swedish income tax process was. The government already knew everything they needed to calculate your return, and gave it pre-filled. There were not endless exemptions. Nobody at my work used an accountant, most approved their tax with a few clicks and were done. So much more efficient than in Australia!
In the UK if you're in full time employment and only have one job, then there's literally nothing to do. Not even clicking somewhere to approve your tax return - your employer does it all for you. I know people who are literally unaware when the tax year ends because they never in their entire adult lives had to do anything with the tax return - it's just completely irrelevant to a normal working person. And on the ocassion that you have to fill one out for whatever reason, most of it is already prefiled from the information HMRC holds about you already.
It's even better - they work out if you paid too much automaticallly and send you a check in the mail. Had 3 checks over the past decade or so from having time off between jobs but paying full rate for the remaining time. Nothing quite so satisfying as a £1000 check from HM Revenue and Customs!
I'd argue about the "very easily" point for IT workers in the UK, as 100k+ salaries are very rare, and if you get shares instead of cash it's still taxed as income and doesn't trigger a self assessment. Only if you hold onto them and only if you make more than the capital gains threshold, you have to fill out a self assessment.
But in either case - sure, but the system means absolutely no worries about your tax return for 90% of British employees.
I've received shares several times from the company where I work in the UK and every single time they have been taxed as income. If you are just given shares straight up then yes, they are subject to income tax on their worth at the time of acquisition.
I'm not sure what you mean? At the point of acquisition if you are given shares worth say £10k, it's the same as being given £10k cash, or £10k gift of some sort - you pay income tax based on the value of what you were given. It's different if you were given options - then the difference between your purchase price and sale price is taxed as capital gains with separate rules.
Because while I work for a British company the shares are awarded by our French HQ, so unfortunately none of those share planes are available in this case. The company employs 50k+ people globally and only HQ awards shares.
Also I'm not sure how much tax this would actually save - you can only get £3600 worth of shares tax free per year on the employee incentive plan(which seems closest to what I'm getting, flat number of shares after 4 years). That's a very....low amount.
The American tax system is similarly frustrating. I’m a senior engineer and I have a hard time navigating tax forms even with the help of Intuit, and it frustrates me that I have to pay Intuit (or someone else) to help me do taxes which are complicated in large part because Intuit et al lobby for complex tax codes and against the sort of Swedish model you describe.
Worse, when I moved to Chicago the state of Illinois wouldn’t even accept my taxes electronically because their form required one of a handful of authentication methods—the only one of which that ought to have worked for me was to use my Illinois driver’s license number—a 12 digit sequence; however, their form only permitted 8 digits. It was a significant hassle just to get them to take my money.
I’ve also had difficulties figuring out how much to withhold. In the US they give us a form that calculates “allotments” (or something—I forget the term) but it’s unclear whether more of those correspond to more or less withholdings and in any case the form computed incorrectly for me for several years (I’m sure it was user error somehow and senior engineers are just not reliably smart enough to figure it out, even with the help of HR) and I would end up owing thousands in taxes as well as a separate penalty for not withholding enough.
It’s maddening that our government makes it so difficult for earnest people to pay their taxes.
It's because they're trying to give people breaks on what they owe. The more money you make (and the more ways in which you make it), the more exemptions and breaks you tend to be eligible for, so the more complicated your taxes tend to be. A realistic simplified tax code would probably mean you, as a senior engineer, would pay much more in taxes, which would be fine with me! A properly-funded government can be a great boon to society. But you might not feel the same way, so be careful what you wish for.
Governments that can print money don’t need taxes to be funded, they can just print money. Taxation is more useful for redistribution, incentivizing behavior, and controlling the money supply/inflation - not funding the government.
> I’m a senior engineer and I have a hard time navigating tax forms even with the help of Intuit, and it frustrates me that I have to pay Intuit (or someone else) to help me do taxes which are complicated in large part because Intuit et al lobby for complex tax codes and against the sort of Swedish model you describe.
I don't think Intuit has anything to do with why the tax code is complex. Their lobbying is for making filling out the forms complicated, such as by stopping the IRS from pre-filling forms with the information they already have.
The tax code complexity almost all stems from people not wanting to pay tax. That complicated the code in two ways. First, it means that we get exceptions and special cases written into the code either because people that want to pay less tax convince Congress to make a special case for them or Congress takes advantage of the desire to pay less tax to provide exceptions to motivate people to change behavior.
Second, it means that if there is any ambiguity or wiggle room in interpreting something, someone will exploit that to pay less tax than Congress intended them to pay. The tax code gets patches to fix that, usually resulting in an increase in complexity.
A great example of the later was that a long time ago a big company was going to give shareholders a dividend. This would be taxes as ordinary income to the shareholders.
Someone came up with an idea to turn that into capital gains instead. Rather than give a divident, the company first did a stock split, say 100 for 99. So each 99 shares each stockholder held became 100 shares. This is not a taxable event.
Then the company did a stock buyback, 1 out of every 100 shares. That decreased each stockholders holding by 1%, so every 100 shares a stockholder held became 99, and the stockholder got some cash. That is a taxable event, but it is capital gains.
Net result: every stockholder ended up with the exact same percentage of the company that they started with, with some cash from the company, and got to pay the lower capital gains tax on that cash instead of the higher income tax.
The tax code was patched to fix that. Buybacks became ordinary income. But it didn't end there. Consider a family owned business owned by four members of the same family. One of them is moving away and will not be participating in the business. The company wants to buy him out. It was generally agreed that this was not a buyback to dodge taxes--it is a legitimate buyback and should get capital gains treatment.
And so the patch to fix the buyback tax dodge needs an exception to try to recognize "legitimate" buybacks. It ends up having a formula that involves looking at the distribution of ownership before and after the buyback and having several criteria for recognizing when the distribution change signifies a legit buyback that should get capital gains treatment.
This was a fairly simple instance, so it only added maybe a few paragraphs to the tax code, plus some more to the regulations.
But that sort of thing is all over the code, sometimes just adding a few sentences, and sometimes pages.
However, what are you missing is that there are exemptions available to you.
You could choose to use them (for example, the self education one) and get SEK5000-SEK10000 (~€500-€1000) BUT then you would have to fill out a tax return.
That is just one exemption. Another one relevant for our field is working from home. Similar amount.
In order to claim those, though, you will need to file a tax return. If you do not consider that money to be worth the time, then not filing one is a good choice.
The Australian system - which could definitely be improved by at least pre-filling things - forces you to actively choose to leave the money behind. The default in the UK, Europe and the Nordic countries is that the money is kept by the taxaxtion office.
Defaults are powerful. And they thank you for entrusting them with your extra SEK that you do not want to claim.
I’m pretty sure the system we have here in the US is designed to be complicated to encourage us to rely on tax filing companies. Also, a more complicated system is easier to game. Makes it easier for the rich to take advantage of loopholes.
I think a lot of it is the nudging that the US does with tax incentives. Taxes are often used as a way to economically nudge society toward desired outcomes.
Think tax breaks for solar panels or even just getting insulation added to your home. There are thousands of this type of tax break available to nudge people to move toward the gov's goals.
> Taxing gas is a great example. Gas consumers emit carbon which has a cost for society.
This isn't even why gas is tax heavily in developed economies. First, gas taxes pay for roads. Second, the negative externality that Europe, at least, is trying to reduce is dependency on Middle Eastern oil, since that opens a huge can of worms with respect to world stability. If they really cared about air pollution, they wouldn't have pushed diesel so much.
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.
I actually love this idea, although I would just do a wealth tax. Anyone who owns wealth gets taxed a bit. If you only taxed land, then lots of people would just move all their assets into stocks instead of land.
Someone still has to be owning the land though, and paying taxes on it in proportion to its value. In most cases that’s going to be corporations. If I own stock in a corporation that owns land and the tax burden shifts from corporate income taxes to land taxes, on the whole this isn’t much different except for rewarding corporations that make efficient use of land and punishing ones that make inefficient use. Similarly, if I sell my land to a corporation, everyone who collectively owns the corporation is now paying what used to be my land taxes.
Seems like the price of land would drop and the price of stocks would rise such that the yield on improved land (after taxes and mutatis mutandis) would match that of stocks.
Yes that sounds right: everyone should probably be given a ration for a guaranteed allotment food each month. In NYC during the pandemic they opened up free meals for everyone, regardless of income. A society where enough food is provided by default seems like a more humane society to me.
I mean, socialism for basic needs and capitalism for status symbols is a pretty nice system. No problem doling out status symbols for productivity improvements which benefit basic needs production.
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.
Middle class families in single family homes are hoarding a scarce and essential resource. Billionaires in high rises aren’t. The idea is to punish bad behavior and reward good behavior, not to cut down the tall poppies.
In urban area's sure, but I don't think it's fair to call it hoarding in suburban or rural areas. There's tons of land in the US, it's just that there are no homes _right_ next to jobs and restaurants and the culture people want to live in.
Now that I'm remote, I plan to move to a rural area and grow some of my own food in a single family home. I don't think that should be considered hoarding.
Where there’s tons of land, it’s not that valuable. LVT would be low. It would only be punitive to people with a lot of land (per person) in those spots that are valuable because of those restaurants, culture, jobs, etc. nearby.
I don't really disagree with the LVT tax idea, I just want people to be clear about hoarding and single family homes. In regards to pushing single family homes out of high value areas, then LVT does make sense.
That said, I'm a crazy pro individualism and no tax no government guy, so I have no real place in this thread. : p
If you move rural you're not hoarding. If your holding a small single family home in the core of a dense city where lots of jobs are, you are hoarding.
That land would probably serve society better if it had more than a single family dwelling on it, you could have 10 families in walking distance of their jobs rather than one, and 9 families commuting via car.
Well, the hope would be that you would have never become a billionaire in the first place because somewhere along the line that wealth was predicated on holding cheap real estate and collecting rents.
Now, that argument doesn't help with switching too an LVT, but there are other reasons to be optimistic. Taxing Jeff Bezos at any level is worthless in comparison to a) Paying enough UBI that the warehouses would unionize, b) directly expropriating the warehouses into the postal system. (post : IP :: warehouse sku system : content-address based networking).
Basically, trying to account for the power of billionaries and mega corps in monetary terms is a dangerous exercise where they can probably out-loophole you.
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 is very similar to Modern Monetary Theory, which views taxation as a means to control inflation rather than a source of funds for a sovereign government. Maybe only applies to a country whose currency is the reserve currency of the world tho…
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.
Gaming of tax systems by large capital players is a big challenge. I have wondered whether bogus assessments could be mitigated through some kind of open market price discovery with unlevered, unencumbered cash with full party disclosure.
Make residential, owner-occupied homes and special categories (like public transit-related or infrastructure-related improvements like healthcare/power/water/waste/telecomms/etc. property) exempt. All other property post their assessments at tax jurisdiction's office. Anyone, at any time, can post to that office cash that is 10% more than the assessment upon the property. If the owner does not challenge the cash assessment, they must accept the cash offer within 180 days or are evicted. The catch is, that cash must be absolutely unlevered and unencumbered, the property is carried on everyone's books as a cash asset of the prospective new owner, and the property cannot be pledged as collateral, for the next 21 years (with an upward adjustment for deep-pocketed backers of offers) or until the property is sold, whichever comes first. The offering party must provide full disclosure and auditability of the source of the cash and the "Source Of Truth" controlling interest, no shell games. The legal jurisdiction enforces this transactional structure by refusing all cases entangling the property.
The owner can respond to the price discovery cash offer by paying the tax jurisdiction the "back taxes" implied by the cash offer, back to the last time the property transacted on the open market. No penalty. If the owner can deliver proof that the offering party hid their ties to deeper (ultimate beneficial controlling interest) funding sources, then the entire offer is forfeit to the owner.
This creates an incentive to discover badly out-of-alignment prices, but the intention is to gate out anyone playing financialization games or asymmetrically deep pockets parking cash badly distorting a small player-dominated market's historic valuations.
If "bogus assessments" lead to an incentive to declare a low value for your land, then that will be caught if and when you try to sell it or rent it out for a higher price. So if people just stick with a low valuation to pay less land tax, this will have the effect of greatly decreasing land prices, which are the principal cause of housing unaffordability, which seems like a good thing to me.
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.
> But then it's highly unfair to tax humans on revenue, but corporations on profit.
Wow, it's a good thing we don't do that. Good news, the income you spend to further your business is deductible. We include a personal exemption for generic costs, child exemptions, mortgage exemptions, healthcare cost exemptions, retirement savings exemptions, and numerous others.
Additionally, the whole concept behind a progressive income tax is to tax people in a similar way to taxing them on profit. After all, percent of income spent on necessary goods goes down as income goes up.
But I don't think anyone wants a system where this is done by itemized receipts instead of with generalizations.
Huh?
How is it not unfair that, for example I can’t deduct rent from my income? A company would be able to do that.
What about amortizing the cost of my domicile over 30 years?
The personal exemptions are a sham and do not reflect the reality of high cost of living areas.
> How is it not unfair that, for example I can’t deduct rent from my income?
Tax policy isn't set by moral arguments, it's set by government need for revenue which is then tweaked by political pressure groups.
The reason why you can deduct mortgage interest but not rent has nothing to do with fairness, which is undefined and a massively ambiguous term, but because banks, which are the primary beneficiaries of mortgage subsidies, have a lot more political power in Washington than landlords, who would be the primary beneficiaries of national rent subsidies.
For states like the USA that print their own currency and enjoy tremendous global demand for their currency, taxes are less about revenue and more about controlling behavior and unemployment outcomes. Some argue that taxes are just a way to force demand for a currency the government has a monopoly on to ensure it always has _some_ value.
(Note: this is a rather polarizing theory and still somewhat young. The US Fed pulled off printing trillions last year and things haven't gone to hell yet do there's something there )
I get a tax rebate for rent. Maybe it depends where you live.
For a house, your net worth hasn't decreased by the cost of the house. A company wouldn't be able to deduct that. They can deduct for assets that depreciate.
A company cannot depreciate land, but they can depreciate the value of the buildings on top of it over a fixed period of time. So in addition to writing off the mortgage as an expense, you can also amortize it since the value of additions (not the land) decreases.
I'm not sure what you mean here. You can't write off a mortgage. You could write off interest, but not the value of the mortgage.
Real estate tends to appreciate in value, especially in cities. The company would have to get unlucky with their real estate to be able to write off a loss. Buildings don't usually depreciate.
They could allow their buildings to fall into a state of disrepair, hoping it would lower their value. But why would they? The can deduct the repairs. It's a legitimate expense.
As a business I can take out a mortgage and give you a rental for the exact same price. The income and “expenses” cancel out, so the profit of your business is zero. Since this rental is an income producing activity the IRS (and other tax bodies) allow you to depreciate (https://www.irs.gov/publications/p946) the value of additions on the land (I.e the building) on a straight line over a 28 year period. The basis of the depreciation is the value of the property, so you divide that over 28 years and can take that away from the income as well. Now I can transfer that cost to you in rent and the profit of my business is still zero. This is a benefit that is generally only available to corporations. Then there is prop 13 which is yet another mess.
I’m not an accountant, but I’ve studied enough of it in University to be dangerous.
It's fair that you don't pay tax when don't make a profit after taking depreciation into account.
Depreciation isn't a cheat code that lets you avoid tax on profit. If you depreciate the building more than its actual market value depreciation, you owe back what you deducted when you sell the building.
Yeah the whole US mortgage interest exemption is a special US thing, not a natural tax exemption available worldwide
Here in NZ there are NO tax exemptions for normal humans (well there is one single one for low income families with small children) - it means that our taxes are incredibly easy to file - if you have one employer you probably don't need to file at all, if you want to it's 2 pages on a web form, if you don't file and the IRD owes you money they'll probably pop it in your bank for you.
Oh, and our high marginal tax rates are ~10% lower than I was paying in California, and that includes free public healthcare
VAT + LVT + misc. pigeovian taxes probably wouldn't be enough to power society as is, let alone fund a UBI. You could maybe replace income tax with a progressive consumption tax or a wealth tax, but you'd need to replace it with something.
Yeah not sure what GP is saying. VAT can absolutely suck up a huge amount of money. The UBI makes it far less regressive, basically to the point I no longer care.
(VAT + UBI is great for everyone but those 90th percentile luxury-car-and-McMansion-owning inner ring suburb types that are the Democrat's favorite constituency :/)
Coupling a regressive tax with money transfer creates an inverse "V" shaped effective tax rate that will squeeze some part of the society (probably on the middle class).
If the taxes and transfers are diverse enough, one can reduce that problem by making them compensating each other, but if you make VAT + UBI make the lion share of the government's money flow, it will be a really large problem.
Yes the nadir of the V is the inner-ring BMW suburb class, I so disparaged. And I really meant it when I said I didn't care about them.
It might sound like I'm being a culture warrior chest-thumper about those "liberal elites", but I really do mean something more material / economic here. I think most of that classes struggles (and they do take on huge debts) would not be worsened by taking away their money.
- This is the class most thirstiest about getting their kinds into good schools without being able to donate their way in. But the scarcity of "good jobs" that motivates this credentialism relates to inadequate demand of the masses. Giving them more money won't help the fact that the Keynesian feedback loop has broken down, causing the job scarcity. (And really, consumption not work is the goal, we should fix the feedback loop by working less not consuming more, beyond guaranteeing basic needs.)
- This the class hitching lots of their wealth on real estate, but it's precisely because our cultural obsession with owning single family homes that good land (i.e. that with good access to the other good land where people need to go) is in perpetual short supply. Even if they are the "vacation home" winners of the current ponzie skin, the portion of winners will bleed away in successive generations if housing continues to be a "good investment" --- and thus unattainable to increasingly many people.
- Perhaps this class is less affected by expensive healthcare (other than the richer ones above), but would still benefit from it being cheaper. Not a majority of them is doctors or biotech researchers or whoever else benefits from our shitty healthcare system.
So yes, I think even if they are at the tax advantage nadir, they still are benefitting:
- Richer masses fix their job anxieties
- We should separately fix real estate and transit so they can be at peace in condos not mcmansions
- We should separately fix healthcare to their slight advantage.
Also, I sincerely hope and empowered working classes / lower classes will prevent the richest billionaires from emerging (at least more than transiently), so the 0.1% stuff should be far more of a theoretically problem as we get a "thinner vertical tail" power law.
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.
Confiscating profits wouldn't work, many companies are reinvesting their profits. Probably the best way would be to just make the fines hurt more, by using a fixed and non-negligible percentage of the monthly/yearly revenue, much like Finland does for traffic fines.
I can’t believe we as a society don’t adopt this idea more. Punishment should be a percentage of taxable income of that year. The impact should equally felt regardless of your current financial status. Extending this to a corporation would simply put them in back foot in a market.. which is indeed the punishment.
In the US, income based fines have questionable constitutional allowability. I fall on the "the seem constitutional" side, but some people apparently think it violates the 8th amendment.
> 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.
I agree, but like you mentioned, the externalities on innocent parties would be too great. Also a lot of companies do not issue dividends, so focusing on them would do no good in a lot of cases. I think a threefold strategy would need to be implemented:
1. Direct action against executives in the board (e.g. heavy fines amounting to a large fraction of their total compensation and/or jail).
2. Confiscation of dividends for a period of time.
3. Forced issuance of new shares to dilute existing shareholders, with sale proceeds going to the government.
One issue is that shares can be traded, so it's possible for a shareholder to benefit from some bad action, then avoid any punishment by selling the shares before the punishment is implemented. Maybe such people could be shared a per-share fine based on shares held at a particular date?
>Maybe such people could be shared a per-share fine based on shares held at a particular date?
I think it’s nearly impossible to expect most shareholders to understand the business underpinnings to this degree within the existing system. Think of pensioners with mutual funds, do you think most even understand all the businesses in those funds let alone the operations of those businesses?
To me, this is akin at employees being punished as well. Both benefit from the business operations but it’s hard to expect employees to have knowledge and be responsible for the decisions of the C-suite.
> I think it’s nearly impossible to expect most shareholders to understand the business underpinnings to this degree within the existing system. Think of pensioners with mutual funds, do you think most even understand all the businesses in those funds let alone the operations of those businesses?
That's true, but I don't think that matters. Those same shareholders both profit and lose based on all kinds of other factors they don't understand. Adding new ways to lose tied to illegal activity doesn't really fundamentally change anything.
Also, there's something important to note: pensioners with mutual funds have savvy proxies (fund managers) who should very will understand the business underpinnings to this degree, and vote their shares to avoid losses due to these kinds of fines.
>Adding new ways to lose tied to illegal activity doesn't really fundamentally change anything.
I think it does because it creates a adds a dimension to the loss that will disproportionately affect the assessment that of risk. For one, this added dimension has only a downside. Think of an auto insurance company who operates in no-fault States. Their behavior (and by extension, the policies they offer) is changed because the risk they incur is higher despite their customer being a good driver. (The analogy being a “good” company still gets punished in the form of less investment under the proposed rules because the risk to the investor is increased).
Second, while people are well attuned to think about risk, they are very bad at judging it. That’s why the fund managers are not generally capable of out performing the market for extended periods. They are either not as savvy as you assume or work under such constraints that they can’t use it to their advantage. Behavioral psychology/economics shows that people are disproportionately risk-adverse so if you think increased risk without an even higher commensurate increase in reward, they tend to avoid taking on any extra risk.
You are responsible for your property. If you own stock, you own part of a company so you are responsible for its actions. In the case of mutual funds, it's the funds' job to understand the businesses it invests in for you. There could be an exception for non-voting stock though.
Well this is just false. You are not at all responsible for a company’s actions just because you are a shareholder. HN is evidently quite out of its depth with these kinds of threads.
Just to underscore what was previously stated, I think this philosophy would drastically change the paradigm. I’m guessing it would severely restrict the money flowing into stocks which would have repercussions in other areas like pensions etc. Point being, I don’t think it can just be layered onto the existing system without serious blowback.
As I wrote, there could be an exception for non-voting stock. At least temporarily.
But ultimately, it's supposed to change the paradigm. Because currently the economy is run by paperclip maximizers that no human is held responsible for. Which is not ideal.
Non voting shares are a minority already. Combine that with the fact that literally trillions of dollars would be aligned against such a idea, i fear it unfortunately relegates it to a thought experiment rather than a pragmatic policy proposal.
The difference here is that you would be uniting all business interests. Normally they are a fractured group with competing interests. It would take a truly revolutionary movement to enact that kind of change. Not impossible, but also not no particularly likely.
One of my more radical political views is I'm 100% behind a corporate death penalty, as well as direct personal criminal consequences for company principals that engage in fraud or similar.
The sad reality of the world is that once a business is past a threshold of power, it's nearly impossible to hold them accountable. Craven sociopaths know they can do what they do, and worst case, suffer some bad press while they move on to the next thing, banking 100's of millions the whole way.
Make those people truly terrified of the consequences of their actions and politics will be utterly transformed.
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.
Sure, I believe Ohio has something similar. More significantly I think (in percentage terms), there are already sales taxes and VATs.
But when people are discussing the corporate tax and corporate tax avoidance, usually they're talking about the corporate income tax, which is also what the article is about.
With a VAT, the total taxed amount is $10, which is divided up among the companies based on how much value they added (so if they move from $8->$9, they pay tax on $1).
With a gross receipts tax, the total taxed amount is $7+$8+$9+$10=$34. Goods that are produced by many small companies working together will pay a lot more taxes than those produced by huge vertically-integrated ones.
There's some good reasons to use a VAT if you want to tax revenue, and one of them is to avoid problems like this.
With a VAT each layer deducts the tax they pay. The net tax is only on the the value added. The company in the middle pays tax on $7 and collects tax on $8, and forwards the difference.
It's very elegant and fair, but imposes a lot of accounting. Sales tax is easier in that it only collects at the end, but it's actually hard to define "end". (Buy a screw and you pay tax, buy a manufacturer buying the same screw usually does not.)
There are still problems about regressive taxation (are stock profits value add? Services? Plain old labor? What's the difference? Usually poor people end up paying the taxes on everything while rich people buy things that aren't subject to the system). Still, if you want to tax profits on consumables, it's remarkably straightforward.
It does add more accounting, but one advantage of involving the companies in the middle is it makes cheating harder and less lucrative, since a bunch of companies have to coordinate to avoid paying the VAT instead of just one company at the end.
Agree that VAT/sales taxes are regressive and shift more of the tax burden to lower-income people. Although the only US political candidate I can remember recently proposing a VAT was Yang in which case his UBI proposal would probably more than balance out the effects on after-tax income.
I don't know if Yang's math checks out, but I think his proposal was $1000/mo and a 10% VAT. So the breakeven point would be $120k spending on taxable items/yr for an individual, or $240k spending/yr for a couple, with people below that coming out ahead and above coming out behind.
Where you draw the line for "middle class" is somewhat arbitrary - I think you could be middle class and still earn over $120k, especially in a high cost of living area - but probably most people who consider themselves middle class would fall under that. Especially because people who earn $120k are probably not spending $120k/yr once you factor in retirement contributions, income taxes, etc.
A relatively high-profile economist wrote positively about the UBI idea last year. [1]
Not that you couldn't make it more progressive. I think I've seen proposals for a progressive individual consumption tax, which would look something like a progressive income tax but then removing the limits for IRA contributions. The theory being you would put money you want to save in the non-taxable account, then you would only withdraw what you want to spend in a given year, which could be taxed at a progressive rate.
>Where you draw the line for "middle class" is somewhat arbitrary
It’s a convention so, yes, it’s arbitrary (and people tend to change that definition to fit their points, and of course it’s relative to COL) but the most widely used definition is the middle quintiles. I believe this puts the upper bound around $120k for a household (not individual) in the US.
And you’re right, most people do consider themselves middle class. Some studies show as much as 90% of people think they are middle class which, unless we use a very loose statistical definition, is obviously false. The problem is people subjectively compare their life to their own peer group rather than society as a whole, so they are misled about defining the societal norm.
I only meant to say the majority of the middle class would fall under $120k no matter how you (reasonably) draw it (so with respect to that specific VAT/UBI proposal, most of the middle class would see a gain).
For how higher incomes could end up middle class I wasn't thinking of a different threshold, but ways of defining social class that are more qualitative than quantitative.
For example you could define middle class as people who live a modest lifestyle financed by selling their labor to a company, and upper class as people who can live off wealth. So someone from a wealthy family living off a trust fund and going to an elite graduate school might count as upper class despite being low or middle income, and an engineer making $120k in the bay area might still count as middle class that way.
Defining it like that would probably produce a small upper class relative to the size of the middle class, but in historical societies where social class was a bigger issue what's considered upper class is usually a pretty small percent of the population, so it wouldn't seem too crazy to me to define it like that.
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).
the fact that streets are illuminate at night and pollice patrols them is using services provided by taxpayer's money.
Uber benefits from streets more than the average citizen.
if corporations had to pay per use, they would prefer to build their private infrastructures and police forces, while public infrastructure would lag behind chronically underfunded.
I don't think building "private infrastructure" in the sense of streets on public ground would make any sense or ever be allowed.
The company could just pay for the usage of the road (in some way) and the government makes sure the roads exist. Besides the bureaucratic overhead, I don't see why that couldn't work.
Well they have a right to petition the government in the US at least. Would you say the same about what citizens prefer does not matter in a representative democracy?
Citizens tend to be all over the place when it comes to taxation. Traditional corporations are pure profit seeking entities. What they would -prefer- is to pay no taxes at all, while benefiting from all tax paid services they can. So I'm not really sure, given we're talking hypotheticals here anyway, that designing a system to tax corporations based on what they -prefer- is really going to get us anywhere. The current system, whereby many major corporations pay nothing in taxes, while benefiting from major government subsidies, directly and indirectly, is already pretty close to what they'd -prefer-.
>would -prefer- is to pay no taxes at all, while benefiting from all tax paid services they can.
I think you could probably preface the above with the word “citizens” and it would still be true. But both citizens and corporations have the right to lobby their representatives in their own interest. It’s the politicians job to try and create policy that balances the interests of all their constituents.
I, personally, would happily pay -more- in taxes, if it meant that, for instance, we stopped all fundraising for elections (and instead candidates had a set amount to spend per race), and also if we provided healthcare to everyone.
Ah, ok I didn’t realize context of “all over the place” meant in terms of reasons for taxation. I do think there is a growing movement in business to have a multi-dimensional focus. B-Corps are one example.
I agree. Just charge everyone a monthly fee for essential gov services. And do I mean essential. If you want extra programs from the gov, you need to pay voluntarily.
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.
I'm a bit confused by your post, it seems you are agreeing with me, but you say you disagree?
I am aware of the difference between capital gains tax and corporate tax (also note that not every country has a capital gains tax). My argument applies to both, i.e. one of the reasons for raising inequality is the inbalance of labour and capital and the low corporate and capital gains taxes definitely contribute.
About the effect of income tax on salar, I'm not quite sure what that has to do with my points. I was not arguing that we should eliminate corporate tax and just let income tax handle it. Unless your argument is we should use income tax instead of corporate tax because it lowers salary?
Yes - corporate income tax should be eliminated entirely - the revenue can be made up in other, less terrible ways. Corporate incomes taxes are a poor way to address inequality because they tend to fall, at least in part, on workers, and not on wealthy people themselves, who largely accrue wealth through investment, not work. If the goal is to reduce inequality then we should simply tax rich people more, not corporations, whose money will eventually be passed to shareholders anyway.
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.
Those bonuses are then taxed too, which should give you a hint why corporate tax is a bit daft to begin with.
Corporate tax is, by and large, a fiction to placate voters. It could (should?) be replaced with a more flexible system that isn't as susceptible to the usual deduction and profit shifting.
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.
> Nobody benefits from a company growing indefinite wealth without distributing it to actual people.
No, many would benefit in very obvious ways, if you just think about it a little bit: if you want to accumulate wealth you prefer to be taxed on what you spend rather than what you earn. That allows you to save more quickly, it allows you to create a dynasty where wealth is passed to your offspring, who in turn would prefer to pay taxes on their consumption rather than their income.
So if a company served as a type of money making engine but didn't distribute anything, you can save by purchasing shares and letting compound interest work to your benefit and then spend some of that in your retirement by selling some of your shares and give the rest to your kids. You would have a lower overall tax burden as you could earn like a king but live just a middle class lifestyle, allowing your kids to live like kings even if they earned just a middle class lifestyle, and with some left over due to the magic of interest.
This is why if your income >> your consumption, you really want only consumption taxes.
There is also the issue of precautionary saving. Most people prefer to have money in the bank to insure themselves against future loss of income, and this type of precautionary savings benefits people even if there is no consumption, just as having insurance provides a benefit even if you never get into an accident. So if you don't need to pay taxes on savings, then you can shield yourself more easily from future income losses and smooth consumption so you always prefer taxes on consumption, which do not make consumption smoothing more difficult, than taxes on income, which do. Think of it in this way -- a tax on insurance makes insurance more costly and thus more difficult. But financial savings are a form of insurance for when you lose your job or face some other financial setback.
So in summary, one can argue that the purpose of money is consumption so "nobody benefits" by acquiring money that they don't spend on consumption. But this is a naive view that ignores the role of risk, time and inter-generational concerns.
Your explanation requires paying out money to real people, so I don't see how it relates to the idea of a company that does not pay out money to real people.
> So in summary, one can argue that the purpose of money is consumption so "nobody benefits" by acquiring money that they don't spend on consumption. But this is a naive view that ignores the role of risk, time and inter-generational concerns.
> Nobody benefits from a company growing indefinite wealth without distributing it to actual people.
Isn't this exactly what companies like Apple etc. are doing? As it accumulates wealth, the stock price (which is supposed to reflect the value of the company) goes up as well. And thus the shareholders benefit.
I believe actual cash hoards on hand is considered bad business. Apple having cash on hand is seen as okay, at present, because investors trust them to spend it well on expansion. Remember share price doesn’t indicate how well a company is doing today, it indicates how well people believe it will do In the future.
If you have piles of cash and don’t plan on spending it, somehow, on your business then you can’t expect your stock to rise and in fact if you’re so inept that you don’t know how to spend your billions your stock price may actually drop.
You can expect that the market cap will be at least the amount of cash they have, if it’s a profitable company. (This isn’t always the case, but it’s close.)
The more cash they gather, the higher the lower bound of the share price.
That is completely avoided if the person makes less than 12k/year though. So there is already a loophole, there just hasn’t been enough incentive to use it yet. Although I’d question if that’s why some executives take a $1 salary and the rest in stock. All of their benefits are now tax free*.
yes I realize it’s nuanced and depends on country.
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.
Frankly, if OP doesn’t want me to anthropomorphize corporations for tax purposes, they’ll need to go back in time and stop the courts from anthropomorphizing them for various rights.
If a company gets 1A rights under citizens united, then it can have tax obligations as well.
I’m pretty over this double standard where companies are handed various rights, but not commensurate obligations.
I’m 100% fine with that perspective. However, I think it means taking away other “anthropomorphic” rights from the entity.
If you say: we’ll only collect taxes from the individuals that are paid by Microsoft, instead of taxing Microsoft, that’s fine by me. But, I would then say that Microsoft also doesn’t have free speech rights as a corporation, after all each individual in the corporation has free speech rights.
If we decide that a corporation *is* entitled to some rights granted to people (such as a right to free speech), then the corporation should also be subject to taxation, separately from all the individuals that compromise it.
I’m unwilling to give one without the other. If a company want rights, it should have obligations. If it has obligations, then the company should have rights.
> Linking taxation and free speech, among all possible rights and obligations, does seem completely arbitrary though.
Well, it was completely arbitrary as it's serving as an example. I'm not saying my policy would literally be X Taxes and Citizens United, just using each as an example of the general class of things that I think should be linked.
I've seen corporate personhood used aggressively to argue that corporations should have more rights, but then when we're in a tax policy discussion, suddenly we are squeamish about anthropomorphizing corporations. My argument is that the amount that we anthropomorphize corporations should be equal whether our discussion is about rights (with free speech as one example) or about obligations (with taxation as one such example)
Instead of writing separate but very similar laws for personal and corporate property, you say that the law is the same for both cases, aside for a few exceptions.
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.
Getting more money in the hands of governments is not going to do to us any good, they will just increase spending.
It will end up being: increase in price -> increase in government spending.
Everyone will pay the increased prices, governments will pocket a % to keep their employees busy or employ their friends for public work, some of it will be redistributed to a portion of the population.
I believe taxes shouldn't be paid by anyone and governments should disappear.
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).
The top corporate tax rate had been ~35% for roughly 25 years ; in 2018 it dropped to 21% and wage growth has indeed increased since 2018. Were wages positively affected by the lower corporate tax rate? I don’t know, so many factors affect the economy; corporations might choose to lower prices or do more research on better products or issue greater dividends to attract capital for expansion. I was just making the point that we humans end up paying somehow for the spending that the government chooses for us and that I would rather make these tax costs more visible to the people actually paying the taxes.
Average effective tax rate for corporations is considerably less than the top rate, so much so for companies like the FAANGs as to make a mockery of corporate tax as being anything more than a guarantee of full employment for tax attorneys. OTOH, brick and mortar which has to compete against Amazon has the privilege of paying for Amazon.
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.
Effectively they're paid by the customers though. Investors will want to get their return on the money they invested regardless what happens. If they can't get their return they will simply invest in something else and the business never gets off the ground.
For example, if a corporation has no profit, common for startups trying to get off the ground, they pay no corporate income tax. This is the case because corporations pay income tax on profit not revenue. Having no corporate income tax would only shift that burden from the economic use case to elsewhere which is what happens with the FAANGs and multinationals. That elsewhere ends up as brick and mortar and individuals. BTW, tax fairness means lower as well. Brick and mortar and individuals would pay less if the FAANGs and multinationals paid fairly.
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.
It does seem like a reasonable principle, which makes abolishing the corporate tax unpersuasive. If there were only a single jurisdiction the argument would be more compelling.
It certainly isn't impossible for nations to tax foreign individuals operating companies locally without a corporate tax. A way would be:
a) similar to KYC laws, make knowing all persons who own part of a company mandatory, regardless of how many structures (corporations, trusts, whatever) you have to go through.
b) preemptively tax every individual on profits/salaries/perks/payments from the company at some established rate.
c) come tax season, ask for a global income statement from everyone taxed. Adjust their taxes based on whatever bracket they land in.
Even without a corporate income tax companies would still generate tax income in foreign countries where they sell goods and services, e.g. VAT/sales tax. They would also pay property tax on any physical presence they maintain and probably a myriad of other taxes depending on the country.
While the tax incidence (where the burden lands) of various taxes is a thorny question subject to much debate in the literature I don’t think it’s especially controversial to say that sales, property, and wage taxes are likely to have different incidences than a tax on profits.
> ... 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.
Only if it's not a legitimate business expense. Which in practice means if you get a meal with coworkers and talk about work it counts. Even easier if you have clients
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.
if corporations paid less taxes that means more of the revenue could go into the profits section which would most likely end up in the pockets of greedy board members.
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.
Well, the shareholders may live in a different area or country than the one in which the company operates. If a corporation is largely owned by American investors, but does its production largely in a developing nation (relying on their infrastructure to operate), then I think it's fair to say that both the developing country and the US should both get a slice of the pie: 1 for providing the infrastructure and labor market, and the other for providing the comforts of a developed country to shareholders.
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.
I know people personally that are always complaing about Amazon being too big and a monopoly while also being prime members and basically addicted to getting packages everyday in the mail.
Sums things up pretty much.
The main reason Amazon is paying a $15 minimum wage is because of substantial pressure from progressives - there's an extensive record of this. The media reporting has largely been coverage of Bernie Sanders and the like, so it's pretty clear that there are non-media folks who have been driving it.
Artificially putting a floor under the price one's allowed to charge for one's services benefits only politicians proposing such populists ideas and the non-working.
Spoken like someone who's far away from minimum wage. One would think it also benefits the people who receive the wage increase, yeah?
My country has a $20 minimum wage, and yet the unemployment rates, small business survival rate, and inflation are all around the same levels at the USA, so all the talk of impending economic catastrophe if we give poor people a few more crumbs seems to be hot air from where I'm sitting.
That sounds like an argument about "if one's time is worth less than minimum wage, one cannot find a job". And sure that is true for some people, but saying it benefits _only_ ... sounds like it is never good for any worker, which is way too strong a conclusion, because other situations exist.
For example: hiring one of two candidates, Nick and Joe, would be profitable under 30$ per hour. Nick asks for 15$, its Joe's first job so he's willing to take 10$, I go to Nick and say, "look Joe will do it for 10, so I really can't justify paying more, but I'd prefer to pay you those 10, since you're experienced". If Nick has a better offer elsewhere, he has no problem. If not, Nick gets just 10.
If the state says 15 is the minimum wage, not only Nick but also Joe must get 15, so my best move is to take Nick at 15. Clearly, a higher minimum wage _can_ benefit the worker, and not only the very weakest one.
Capitalism allows each participant to seek only the best available deal that is agreeable to them, sure, but availability is subject to negotiating power, and that is distributed very unevenly.
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.
Yeah but you gotta use the tax code's definition of wages when arguing about the tax code ;)
> It would be pretty awesome if companies increased salaries for everyone at the same proportion of their interment of profit.
It would be pretty awesome if corporations didn't pollute our air too. But corporations are sociopathic profit maximizers. Presumably you support regulating their emissions, rather than just wringing your hands at the bad people. Moral suasion arguments are not effective as tax policies.
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.
Indeed. Which is the reason why my conclusion was opposite to the opinion. The real world gets in the way of it being practical.
But in my ideal world inheritance is considered income and is taxed as such. And on a logistical curve a billionaire inheritance is taxed really close to 100%. Anybody that has earned so much money they no longer need to work has paid as much in taxes (and continue to do so as interest is taxed as income). Additionally on a logistical curve it is almost impossible anyway to earn this much since a huge earning is taxed close to 100%. For example, someone making 5 standard deviations above the mean pays 99.33% tax on it, so they will probably end up with less after taxes then someone earning 2 standard deviations below the mean (11.92% tax).
As for the farmer who is self sustaining. I guess they are not using up much of the shared infrastructure anyway, I see no need for them to be paying taxes.
This is incorrect, capital gains rates in the US are currently similar to or higher than many European countries. Federal (20%) + NIIT (3.8%) + State (up to 13.3%) puts you firmly in the middle of the pack for European countries. The proposed changes would make them the highest in the developed world, by a large margin.
The elephant in the room is that the main difference between US and European tax rates is that the middle-class tax rates in the US are much lower than their European counterparts. If you are in the top tax bracket in California, the income taxes aren’t that much different than in most of Europe and the capital gains taxes are typically lower.
The full amount of a short-term capital gain (property held for less than 1 year) is taxed as regular income. Long-term capital gains are taxed at a lower rate than regular income, but the amount depends on your tax bracket. Long-term capital gains in the 10% and 15% tax bracket aren’t taxed at all, those in the highest tax bracket are taxed at 20%, and everything in between is 15%.
In the US, capital losses can reduce capital gains and up to $3000 of regular income. If losses are $3000 more than gains, you can carry them forward to future years.
If you make 90,000 in Florida City, Florida. You purchase a home for 100,000 sold for 200,000 your capital gains is:
$15,000
15% federal
0% state
0% local
In VermountVille New York State
21409
15% federal
6.41% state
0 local
In Sf 24,500
21,000 if you are married.
In order to pay 36% you have to be earning over 500,000 to pay that rate and single.
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".
Why are governments allowed to collude like this? Isn't this the same idea as price fixing? Exploiting their monopoly (governments' monopoly on the right to do commerce) to unfairly raise prices (taxes)?
The world needs at least somewhere where you can opt-out from Western neoliberalism and socialism.
You are right, of course. But Rousseau made it quite clear that the sovereignty of a government is discretionary. This sort of thinking isn't convincing on an ideological or theoretical level to anyone but a medieval peasant, and it only increases my indignation.
Then be indignant I guess? Countries pressuring each other to do things dates back as far as the existence of countries. And it isn't like this is a broadly unpopular idea either. Most people do actually believe that multinational corporation should pay their fair share of taxes.
It's interesting that you're being downvoted but you make a solid point. People in government are no different than those not in government, we're the same human beings. To suggest that they should be able to do anything they want seems pretty backwards and quite contrary to the enlightenment ideas.
It's a philosophical point disconnected from reality. In most countries we've got some system of elected government with various branches who get more power and influence than other people. Having a solid philosophical point against it doesn't change the world.
"Why is the government allowed to put me in prison for not paying my taxes, but when I kidnap someone and lock them up in my basement, I'm somehow the bad guy?!"
How so? do remember that they can only do things supported by the general climate of opinion so them being in government isn't the point of contention here. It's what we as people tolerate (passively or actively) that matters. Besides, this greatly undermines the justification for anti-trust laws as they're clearly communicating to everyone that "it's OK to collude"
Collusion between governments isn't illegal, and there is no governing body that would prevent this. At best there are economic treaties between countries.
This applies only to "global companies with at least a 10% profit margin". By definition, you're already playing ball with all of these actors if you're a global company.
> Compared to those that were less free, countries with higher economic freedom ratings during 1980–2005 had lower rates of both extreme and moderate poverty in 2005. More importantly, countries with higher levels of economic freedom in 1980 and larger increases in economic freedom during the 1980s and 1990s achieved larger poverty rate reductions than economies that were less free. These relationships were true even after adjustment for geographic and locational factors and foreign assistance as a share of income. The positive relations between the level and change in economic freedom and reductions in poverty were both statistically significant and robust across alternative specifications.
> Some fear that growth propelled by economic freedom will leave the poor behind. This was not the case during 1980–2005. During this quarter of a century, the developing countries that moved the most toward economic freedom achieved both strong economic growth and substantial reductions in poverty. This indicates that an institutional and policy environment consistent with economic freedom is an important ingredient for progress against poverty.
> We study the relationship between economic freedom and poverty rates in 151 countries over a twenty-year period. Using the World Bank's poverty headcounts of those living on less than $1.90 per day, $3.20 per day, and $5.50 per day, we find evidence that economic freedom, measured by the Heritage Foundation's Index of Economic Freedom, is associated with lower poverty rates. We also test the effect of various components of the Index of Economic Freedom. We find that a government's integrity and a country's trade freedom are associated with lower poverty rates. We check the robustness of our results using alternative freedom indices.
Anyway we aren't really talking about removing peoples economic freedoms, you can have a strong economy whilst retaining workers rights, social support and environmental controls. It's the poorest parts of the world that don't have a handle on this stuff.
Corporations profit the most from infrastructure, education and other collective achievements of a society, so it makes sense that they also funnel resources into that system.
The charitable interpretation of this agreement is that this is to be achieved by coordinating taxes of multinational corporations.
It seems reasonable to me, strategically speaking. I have political reservations (to say the least) towards high concentration of power though, since we’re talking large corporations, G7 and so on.
People do move there. Singapore picks up a ton of US expats, as did Hong Kong before it got swallowed by China. Bermuda and the Caymans have tons of companies and restrict immigration so tightly that they are less attractive.
Singapore has Common Law inherited from the British. Hong Kong also used to have British-style laws, until, as you said, it was "swallowed by China" (and even then, it's fairly Western on paper).
Are you trying to claim any G7 country is socialist, while suggesting an administrative division of the one-party socialist People’s Republic of China is a good alternative?
Its similarly difficult to find examples of competent propaganda ; because anything easily labeled propaganda is not competent.
Scientific and logical principles of "evidence" to not apply to human political systems, b/c the method of inquiry are too compromised by the power the system wields over them. Even information about Afghanistan comes through via the government. But today? There is us nothing modern the government wants you to know about.
On the contrary, those countries are extremely popular places to base your business activities or start a company or manage your finances from. Ever been to Bermuda? Or the Virgin Islands? You can't move for wealthy industrious Western expats and their business ventures. And also to a lesser extent Ireland, the Luxembourg, Singapore, Switzerland, etc. These are all some of the most popular countries to move to in the world.
But now the United States and Canada and whoever else is the G7 are trying to shut them down and force everyone to follow their hellish tax laws.
Are you implying Ireland, Luxembourg, Bermuda (part of the UK), the Virgin Islands (part of the US and UK), Singapore, and Switzerland aren't western countries part of or at very least allied with and influenced by other western "neoliberal" countries/G7?
Because that's a very, uh, unique idea. Also weird to jump from implying escape from western influence doesn't exist to listing western countries as a way to escape from the west.
The actual laws on the books are more nuanced than posters would like to portray.
Google cannot sell something at 100% licensing fee cost, ie 0% margin.
There is a whole set of rules that govern cross border interco transactions under tax transfer pricing rules.
Google must by law reflect effective market markup in order to stay wothin the law. They cant just say "we are going to pay ireland 95% of sale price" and call it a day.
There is a whole analysis that needs to take place to show that the final applied margin is market.
The moment they dont , googles accountants will not sign off on financials, which starts another meltdown.
Yes, there is some estimate wizardy that goes on, but for the most part companies stay within the law because its very easy to show otherwise.
Benchmarks are transparent.
Most of the upside is abroad because the IP is whats most valuable. Whatever shared-services google performs in the US to spread that IP around, are unsurprisingly low value and yiwld the corresponding taxes.
The problem with businesses is that they hide systematically profits. The big ones are shifting their profits globally. The small ones never register profits (claiming they always operate at a loss, specially if they operate with mostly cash and not credit cards).
And in business, it is easier to hide your profits because you can shift around money to assets (this ferrari and the Manhattan condo are company owned), compensation (my CEO will get a 1000% raise this year), liabilities (paid off that huge loan we got to buy the lambo) etc.
The problem cannot be solved unfortunately. There are crude methods like estimating profits from revenues, but really, this has never worked.
It depends. In my country there are examples of employers who were paying extra their employees (who were not taxed due to their pity salaries) and were requiring them to return part of their salary as cash.
Will rich nations back a deal to tax multinational citizens?
This is one area where America has a secret lead for both foreigners and ultra-rich citizens. Checkout GRATs and Opportunity Zones if you want to daydream about how to pay near-nothing in taxes as an American sitting on a massive windfall.
And then there’s all of the things you can do inside of an insurance policy.
This reminds me of when the G7 political elite got together in 1990 and created FATF, to institute a financial warrantless mass-surveillance system, euphemistically called an anti-money laundering system, and nearly every government in the world soon signed up, despite it turning out to be one of the least effective policy experiments in history:
I'd ask some economists if thus is net negative or net positive for developing economies. If the principle is you pay tax in the economy you supply service, then a lot of service is supplied over mobile devices to emerging economies. Maybe their tax revenues will rise?
Only if they peg their currency to the dollar or each other: If they don’t then tax revenue has little to do with the rate of tax and more to do with the level of saving. And nothing at all to do with the capacity of the nation to provide public services - which is more to do with its overall productivity level and power structure.
Economists struggle with how money actually works let alone the function of taxation and its incidence.
I think it will depend on whether these services will even _be_ supplied there. More likely than not, companies will just pass over the opportunity to provide services to smaller and poorer countries due to higher fixed costs of doing business there offsetting the benefit of low per-unit costs inherent to digital services.
> want a global minimum tax rate so as to avoid a "race to the bottom" where countries can undercut each other with low tax rates.
That is competition. Governments, corporations, and every other entity on earth should work that way.
If a global entity wants a better deal, they should be able to get one.
This is nothing more than universal trade restriction. Trade restriction that is designed to keep global powers in power and keep the little guy scraping by.
> Firstly, the G7 want a global minimum tax rate so as to avoid a "race to the bottom" where countries can undercut each other with low tax rates.
> Secondly, the rules will aim to make companies pay tax in the countries where they are selling their products or services, rather than wherever they end up declaring their profits.
Good. It’s a shame that Biden had to back down from the initial 28% because of domestic opposition.
The actual rate is the least important part. What is important is jurisdictional issues, accounting standards, corporate law, deferral rules and the like.
This is the problem with corporation tax generally. You can't really have a conversation about it in "normal" terms, that a journalist, politician or MOP can understand. It can only be understood via scenario plans and spreadsheets. It's a million little details. There is no "big picture."
And furthermore, I'd say however they harmonize the taxation shouldn't even matter, because the the G7 countries (or at least the euro ones acting zone wide) have no structural constraints preventing the money printer.
The real important thing here is establishing the importance in preventing the race-to-the-bottom, so more important things like multinational carbon taxes, developing country capital controls, etc. are newly inside the Overton Window.
IDK what you mean by "constraints preventing the money printer," but in the eurozone we have the opposite problem. Only the ECB can "print" money, or rather, only the ECB can create primary loans to national governments. National banks can't.
In practice, expanding national debt requires eurozone-wide unanimity. Ask Greece.
I feel the need to point out that currency debasement is a fundamentally different thing from taking out loans/issuing bonds/other debt. If anything, currency debasement reduces national debt in real terms, by devaluing the currency it's denominated in. I'm not especially clear on the situation, but I was under the impression that Greece's problem was that noone was willing to lend them money due to a expectation that they wouldn't be paying it back, not that they were prohibited from borrowing by EU law, but even that would be a different thing from being prohibited from printing money.
Extremely short analysis. After 2008 Greece's GDP crashed by 50% over several years and stabilized 2016. It's pretty obvious that when you have a shrinking economy that your real debt burden is going up over time. 100% debt to GDP will turn into 200% and it's not because of irresponsible spending or low taxation.
If anything you have to lend more money to Greece and only give the most productive companies/sections of the government access to loans, if Greece's GDP was 355 billion € in the past it can recover up to that old level.
I feel like I need to point out that they are identical, inasmuch as debasement means anything in our current currency systems.
Debasement of gold happens because gold isn't printed. You need to dilute it in order to make more coins. In a gold currency system, it's the gold that's the "real" currency. Gold value rises and falls, but that's not debasement. The coins are debase. It's theoretically possible for a gold coin to be debased, but also worth more because the value of gold has increased by more than the coin has been diluted.
Euros and dollars aren't redeemable for anything, so debasement doesn't really mean anything.
In the Eurozone, when a national government runs a deficit (all of us, currently) then the ECB issues a loan. That money is then available for the government to spend. This is where Euros come from.
The ECB refused to loan/print money to the Greek government until they agreed to certain demands. Ireland, my country, did agree to the demands and the ECB made some euros for us to pay our banks with.
It works in a similar way in the US. The Federal Reserve Bank gives their government dollars, and they US government give them bonds in exchange... a loan. The Fed can then sell those bonds to anyone who wants them, or hold them.
The one unbreakable eurozone rule is no printing your own money. The "Greek Crisis" was a fear the Greece would try to issue its own bonds, which would trade at a different rate & effectively create their own separate euro... confusing everyone.
But Greece is prohibited from printing money because it's currency is the Euro, and like all countries that have it, Greece had to sign the stability pact and, more importantly, also had to sign off the right to print more Euros. Only the European Central Bank can print money, and Greece can't tell it when to.
So true. It's a fixing the algorithm vs tweaking some parameters situation.
PS: if I were to design a state I would make it a part of the constitution that laws must either be written with placeholder variables for any concrete numbers you'd want to put into them or specify only concrete values for those placeholders and nothing else. And no single vote can contain both kinds at once.
rather than simple placeholder variables, we should employ placeholders for smoothly continuous functions over the relevant parameter space. for taxes, the parameter space might include revenue and profit, over which the tax is smoothly continuous. discontinuities just beg to be exploited.
Yeah, this is basically what got me to that idea of separating formula from parameter: whenever politics should care about some quality of a formula, it gets completely drowned in the noise of people screaming at each other trying to drag the parameters one way or the other. As evidenced by every single discussion about UBI. Sometimes the formula still turns out ok, but far too often not ok at all.
It was in my second or third programming side job when I was asked by the ramshackle finance marketing upstarts I was working for if it was possible to implement the almighty Income Tax Table (in Access, obviously). I had heard scary things about that beast. A few minutes of googling (I think was already Google?) and I realized that the law in question defined a simple linear factor that increases at certain thresholds, with a tax-exmpt base per threshold to correct for any jumps. I was so disappointed! Not so much by a scary mad beast that turned out to be all tame and reasonable but by the professions of finance marketers and tax consultants who routinely acted as if it was some arbitrary monstrosity that could only be dealt with in a lookup table.
yah, the lookup table is just discrete points of a stepwise function, so why not just use the underlying formula instead, and smooth it out while we're at it since it simplifies the calculation?
in this era of handheld supercomputers, we're well beyond having to manually multiply out the formulas anyway. and tax forms are already basically one long formula where you just plug in the variable values in a step-by-step manner (and usually have a computer do the math for you).
exactly. social phenomena in general are many orders more complex than physical phenomena for which mathematical models are generally deployed effectively.
but even so, a zero- (e.g., a single tax rate) or quasi-first-order (like a limited number of tax brackets) model makes no sense, when we can much better fit the desired effect with a slightly higher-order function for only a small complexity trade-off. better fit means reducing the exploitation surface.
tangentially, this is a relevant application of basic linear algebra and calculus to civics, which could be used as concrete motivation in the high school education of those subjects.
Based on pattern-matching on my own political science knowledge, they're saying that a legislative act can either: establish a law, but all numbers must be unspecified placeholder parameters, or: specify the (new) values for the parameters of some existing law, but without changing the text of the law. A single vote cannot apply to both.
Also it seems the agreement is that 7 countries agree that all countries in the world need to have that minimum rate? How would they convince the rest of 180+ countries? Especially, how do you convince the ones who would lose a lot of tax income by closing their tax heaven loopholes.
Dunno. They haven't actually agreed to minimum rates yet. They just said they might in future.
Broadly, you are not going to convince pure tax havens (eg Bermuda) to close tax loopholes. They don't even have corporate tax. You can do other things though.
Part of the problem here is that reporting is mixing up issues. It's not clear how (if at all) the MSFT-Bermuda shenanigans relate. The minimum tax rate hasn't been done yet, and may not be. What they do seem to have agreed on is some sort of joint accounting standards. Accounting standards define what counts or doesn't count as an expense, investment, etc.
Where that (may, we don't know yet) relate to the rest of 180+ countries is, for example: US accounting standards no longer recognize payments to (for eg) the Bermuda entity as an expense transaction.
When you are uncoordinated, discrepancies in these standards allow companies to pick and choose.
Basically, you do not consider payment to non-cooperating countries for tax purposes.
For example ACME Inc. produces widgets with costs of 50 and revenue of 100 in the US. To avoid taxes, it also pays 50 in "licensing fees" to ACME Tax Heaven in the Cayman Islands, so that the profit in the US is 0.
If the payment to the Cayman Islands is not counted, then the taxable profit in the US becomes 50.
These seven countries have a lot of sway, but even if it's only these countries that implement it it will likely affect a number of corporations. There are benefits to being legally located in stable modern economies, so this at the very least minimizes shopping around for the lowest tax rate among them.
Good. I didn't think such a global minimum was politically possible. There was recently an article on HN where the author claimed that high tax rates don't impact high net worth individuals because they have already made their money. It just makes it harder for others to join the club. Perhaps what we need is a global maximum wealth (rather than income) cap, as a multiple of global median per-capita wealth. Perhaps start with a large multiplier (say 10,000x) and reduce 1% annually?
The trick is to not own things (personally) but control them, e.g. if you want a yacht, you create a holding somewhere that buys the yacht and owns the yacht, and you can use it whenever you like. The holding then has contracts with other companies renting you out. And you work for 0 EUR for the holding and have no income. The holding also owns the house you live in. If you're a high risk person the company can be owned by your wife(example is simplified, the setup is more complex and implemented my EY e.g.).
For example I want a computer. If I pay for the computer as a private citizen, I have to pay income tax, social security on the money before I can spend it and then I have to pay VAT on the item.
Hamilton got too greedy here [1] and the setup wasn't the best, but you get the idea:
"Hamilton set up another Isle of Man company to purchase a €1.7m motorhome that he uses at racetracks. [..] He is contracted to Mercedes, with whom he secured his fourth world championship last month, via a Guernsey company."
See Hamilton doesn't get the money from Mercedes, his "Guernsey company" does. He doesn't own the motorhome, he owns the company that owns the motorhome. No VAT payed, no income tax payed. And the company he owns might be through several shell companies so no IRS knows what he owns. And when it knows, the company only makes losses (see Trump setup), so no taxes payed on owning the company either.
But these arrangements are clearly fake to avoid tax. There are already laws that see through it, just there is nobody that would dare to do anything about it.
In the UK for example, for a long time people paid themselves in loans, to completely avoid tax. This was at first available only to the rich, HMRC knew about it and did nothing. Only when the "pleb" learned about it and started using it, they woke up and applied the tax retrospectively and called it "disguised remuneration". Many people lost everything they had, many committed suicides.
Why HMRC does not do the same with companies using fake charges to hide profits? Those companies got huge competitive advantage over local small companies who cannot afford such creative accounting. So many businesses didn't happen because of that.
I think it's time HMRC doubled down and destroyed this gravy train.
I am sure we have clever people that would build a new Facebook, that is ethical and pays taxes.
"Some folks are born silver spoon in hand
Lord, don't they help themselves, yeah
But when the taxman comes to the door
The house look a like a rummage sale"
-Fortunate Son, Creedence Clearwater Revival
It will then take slightly over 229 years until the multiplier has shrunk from 10,000 to 1,000.
After another 229 years the multiplier will have shrunk another order of magnitude, from 1,000 to 100. And it makes sense mathematically that if it shrinks an order of magnitude in the first 229 years then it will shrink another order of magnitude in the next 229 years.
I mean, that clearly doesn't seem reasonable long-term to any mathematically literate layperson, since after ~917 years, the maximum wealth would be less than the median. (10'000x * .99^917 = 99.42%) But I suppose it's not like it'll last that long before corruption sets in anyway.
The problem is a wealth tax is almost impossible to implement. People will form crappy charities or put the money in their kids' names or move it to the Caribbean or some other gymnastics that will make worse use of the money overall.
If the wealth tax is uniform it doesn't matter if they put it in crappy charities or their kids names or whatever - the crappy charity or kids will still need to pay the tax.
I see bigger problems with evasion and valuation. Evasion can be solved by coupling the wealth tax with enforcement of property rights. You own an offshore bank account, somebody steals from that offshore bank account, you show up in court to prosecute them, and the government says "I'm sorry, we don't have any record of your ownership of this bank account, and you have never paid taxes on it." Oops. Also makes logical sense, as the function of the state is to enforce property rights.
Valuation is tricky, as a lot of wealth-producing assets are illiquid and it's hard to pin a specific value on them in the absence of a specific transaction. The way LVTs handle this is through statistics: you know what comparable land sells, you know what improvements are on it, you can run a regression against all the features that impact valuation and subtract them out to get a reasonable estimate of the value of the land itself. Something similar could work for income-producing assets: you know all the cash flows from the asset (because you've been declaring your income, right?), you can do a discounted cash flow analysis that smooths them out and arrives at an estimate of the NPV of the asset under current cash flow & interest rate conditions.
Tying property rights to declared wealth only, is how I envision solving this problem as well. The proposal may have flaws, but I suspect it's still better than what we have now.
This'll be hard to do when voting power in corporations is directly tied to paper wealth.
Although one idea I was playing around with in my mind was around whether the tax could be made payable in public stock, provided that the voting rights are still assigned to the holder for a guaranteed minimum window (5 years?) that could extend pretty much indefinitely until the government chooses to close a position, e.g to pay for things.
I have no idea how good or bad an idea it is, but it's an idea.
15% is a more reasonable minimum tax rate if there is a guarantee this is a loophole-proof, concrete floor rate. 28% would probably never fly without loopholes that would bring the effective rate to 15% anyway.
I agree with the minimum tax rate. But I think the criterion for taxing profits should not be where the products are sold (for that, we have the sales tax or the VAT). The right criterion is where the value is created, which is usually the country where the most expenses/employees are.
For example, if an Australian mining company digs up iron ore and sells it to China, it would seem unnatural to tax the company's profits in China. Of course, China might impose tariffs or a sales tax, but the profits should be taxed in Australia.
A strange side effect of this would be that the law of one price on international markets would no longer hold. Imagine you manufactured a product for 10$ that you could either sell for 50$ in a country with a low profit tax of 15% or for 60$ in a country with a profit tax of 40%. Then the rational choice would be to sell it for 50$ in the low-tax country, because after taxes, you still get 44$, whereas in the high-tax country, you would only get 40$ after taxes.
Consequently, a destination-dependent profit tax will lead to lower prices for consumers in low-tax countries and higher prices for consumers in high-tax countries, essentially making the consumers pay for it just like with a sales tax or VAT.
Then the effect would be that all the taxes on facebook, google etc go to the US, not in the countries where they earn the money. The problem exist for example with internet advertising - the local agencies are all doing badly, advertising has moved to the internet - to google and facebook, so they receive most of the money that otherwise would be spent on local radio, print and tv advertisements, the local ad agencies organizing that would pay taxes in our country but now all the money and the taxes leave our countries and we get nothing - no taxes, and no money spent locally. this is what all the countries except the US want to avoid.
The Facebook value is created in the countries they operate through the data they harvest. The work is done by people who use this service.
Any Ad revenue that used targeting in the UK should be taxed in the UK. Simple as that.
Unfortunately HMRC is only strong towards individuals. They wouldn't dare to go after company like Facebook. Even if they did, I am sure, given how little inspectors earn, they'd happily accept an offshore bearer account and quit.
It's complicated. "Money they made in their country" is hard to define. Large companies abuse intangible assets to shift profits around, but it's hard to say at what point abuse starts. For example, Google USA sells advertising to its clients. But, the assets it is selling are actually owned by Google Ireland. Google Ireland charges Google USA a license fee of 100% of the revenue they made. Suddenly, Google USA has net profit of 0 and Google Ireland has a large net profit.
This at the same time happens frequently, but also some amount of intercompany shifts in profit are reasonable. Google Ireland might be the actual owner of the asset. Company ownership might be fuzzy as well - maybe foreign subsidiary is only partially owned by the parent and partially owned by another company. Drawing the line can be very hard. Do we make it so companies are not allowed to sell or transfer assets overseas?
Probably the best solution is a minimum tax worldwide. This reduces the incentives to shift profits around, since the tax rates are the same everywhere.
In theory this is fixed by the the laws around “Transfer Pricing”.
You are supposed to be able to prove that the deal between your different international entities is an arms-length agreement. That is to say that the revenue sharing agreement is similar to what would be negotiated between unrelated companies.
In order to do that you are supposed to be able to show evidence that the deal is similar to other deals in your industry and such.
I don’t know how Google would get away with a licence fee of 100% under those laws so I kind of doubt that that is what they have in place.
However, let’s say they have a 30/70 split with 70% going to the IP holder (Ireland company) and 30% going to the selling agent (USA company).
Now it’s in the best interest of the company to attribute as many of the expenses of providing the service to the USA company so that we can get its profit down to zero. The profit margin of the US company might be 0% (so no tax) while the profit margin of the Ireland company is near 100%.
Yep, this is just the introduction to these kinds of thing. Then, they start to get accountants in both countries to agree on what seems a reasonable rate, say 30%? And the other 70% can be delayed earnings or whatever, and then maybe they decide to reinvest it instead. The list of resources is bottomless and continuously increasing.
What matters is that because the savings are potentially huge, your BigCo
is incentivized to reduce that tax exposure and they've got the legal and accounting workforce to find that optimization.
There are lots of legitimate high-value cross border IP transfers, and since the US creates a lot of valuable IP it makes perfect sense that they’d oppose this.
Technically, we (the irish) create all that IP which we sell to American companies. People like Seamus Jobs and Paddy Wozniak made OSX and stuff, which is why Apple US pays Apple Ireland 100s of $bns to license it. MSFT's IP is Bermudan. Innovative little island.
That's not how it works at all. Apple Ireland is used to defer taxation on non-US sales, but those profits still needs to be eventually repatriated in order to pay out dividends and fund US R&D, which is the majority of its fixed costs. Profits from US sales stay in the US, and on net Apple Ireland pays Apple US 10's of billions a year.
How does Apple's money get to Ireland in the first place? I haven't read those filings (not gonna either, I have drinking to do), but I was under the impression that it was IP licensing.
Google Ireland takes payment directly. Unless they've changed recently, all non-US adwords invoices are paid to here.
Repatriation to pay dividends is fairly moot, since they don't pay dividends. Maybe this is one of the reasons buybacks are preferred.
Apple pays a regular dividend and does regular share repurchases. Since 2012 its paid out about a half trillion dollars to shareholders. These are equivalent from a corporate accounting point of view, share buybacks are paid out after US corporate taxes are paid. Buybacks are preferred recently just because of the better tax treatment from an investor point of view, it changes nothing for the company.
As for how the money gets to Ireland, most of Apple's non-US operations are subsidiaries of Apple Ireland. For illustration, there's this (somewhat outdated) graph of the revenue flows on wikipedia: https://upload.wikimedia.org/wikipedia/commons/a/a5/Apple%27...
You're right. I was wrong. There is no IP licensing payment from the US entity to Ireland.
IP licensing happens between 3rd party countries and Ireland. Irish tax law (to our great pride) gives IP licensing revenue tax exemption. It doesn't count as revenue for tax purposes. Once here, it can be transferred to a proper tax haven like Bermuda. Since its tax free, it doesn't matter that Ireland (like everyone) doesn't recognise the transaction to Bermuda as a legitimate expense. It didn't count as revenue anyway.
I guess that invoicing to Ireland is neither here nor there, just more convenient when the money needs to come here anyway.
Once the cash is in Bermuda, the game is done. The Bermuda company can hold it, buy shares, etc. This is why Apple (And MSFT) have moved all their IP to Ireland though.
Without such IP, if Microsoft charged a German end-customer, say $100, for Microsoft Office, a profit of circa $95 (as the cost to Microsoft for copies of Microsoft Office is small) would be realised in Germany, and German tax payable. With such IP, Microsoft can additionally charge Microsoft Germany $95 in IP royalty payments on each copy of Microsoft Office, ensuring that its German profits are zero. The $95 is paid to the location in which the IP is legally housed. Microsoft would prefer to house this IP in a tax haven; however, higher-tax locations like Germany do not sign full tax treaties with tax havens, and would not accept the IP charged from a tax haven as deductible against German taxation. The Double Irish fixes this problem.[8][9]
The Double Irish enables the IP to be charged-out from Ireland, which has a large global network of full bilateral tax treaties.[g] The Double Irish enables the hypothetical $95, which was sent from Germany to Ireland, to be sent-on to a tax haven like Bermuda, without incurring any Irish taxation.
Broadly, the point of these tax structures for US companies isn't for the company to completely avoid paying US corporate tax, it's to
- Avoid paying corporate tax at a higher rate than in the US, and
- Defer paying corporate tax, often for decades, until theres a more favourable tax situation in the US, or a better opportunity to reinvest their capital comes up.
At the end of the day the profits belong to the shareholders and the only way to return the money to shareholders is by paying US corporate tax. Shareholders usually don't mind these arrangements because the tax savings is often more than the cost of capital having the money sitting unproductively.
Avoiding paying more than the US rate doesn't require any of these shenanigans. They could just charge royalties to the US.
Beyond that, the arrangement essentially turns corporate income tax into a corporate dividend/buyback tax. Dividends are always much lower than profits, and many companies don't do them at all.
>> the only way to return the money to shareholders is by paying US corporate tax
"Return" is somewhat ambiguous here. Shareholders already own those profits, and cash is reflected pretty directly in share prices. They don't necessarily have to "return" value this way. Many don't.. eg Berkshire.
The parts that bother me most here is (a) all the wasted effort going into what is essentially a silly ritual. If we had to explain this to aliens, they'd bucket it into the same category that they use for whatever pharaonic priests. were up to. and (b) the unfairness. A small, unsophisticated company doesn't get to (eg) reinvest its profits tax free. If a farmer buys more land, its an investment. It isn't an expense. If Apple buys land, its effectively expensed.
> Avoiding paying more than the US rate doesn't require any of these shenanigans. They could just charge royalties to the US.
I'm not sure exactly what you mean by this
> Dividends are always much lower than profits, and many companies don't do them at all.
Dividends are lower than profits only for companies that have opportunities to reinvest profits into growth. For companies that don't, in principal, you'd expect dividends to be exactly profits.
> Shareholders already own those profits, and cash is reflected pretty directly in share prices. They don't necessarily have to "return" value this way.
There's large opportunity cost to shareholders for companies to hold onto cash, which is usually in low-risk investments, compared to how that shareholder would invest it themselves. That's what I mean by cost-of-capital.
> Many don't.. eg Berkshire.
This is a bit of a special case because Berkshires core business is making investment decisions (and doing so through a holding company is itself tax advantaged). When the day comes the value of Berkshire companies consistently underperforms the market, shareholders will absolutely demand Berkshire start distributing profits instead of making investment decisions on their behalf.
> A small, unsophisticated company doesn't get to (eg) reinvest its profits tax free.
It absolutely can reinvest its profits tax free! It just can't build up a long-term cash pile tax free.
I mean that they could have just paid royalties to the US entity, avoiding Ireland and Bermuda.
Beyond that, you're taking a very naive, textbook approach. Tomorrow never comes, in the sense that you are talking about. Tax deferral should be thought of like an accounting equivalent of equilibrium in economics. It's never reached, but affects how some things work in the present. Dividends<profit isn't explained by the accounting point you made, it's accounted for that way. It actually doesn't require any explanation. It's simply true empirically. In many cases, companies don't pay dividends. Berkshire is one such company. There are other ways, many using less legible, more complex structures to do so.
Berkshire's "special case" is not arbitrary. They're structured in such a way for tax advantage. Restructuring can happen, as do rule changes. One of the reasons why tomorrow never comes.
>> It (small, simple company) absolutely can reinvest its profits tax free!
Ask a farmer what happens when they buy land. Ask a store what happens when they increase stock. This is emphatically untrue. If it were, we wouldn't call this an income tax. We'd call it a dividend tax.
As with the first point, if the tax was intentionally applied only to dividends, there would be no need for shenanigans. Apple & MSFT could be housing their cash where they are actually headquartered.
I don't have any opinion on corporate tax generally. IMO, the whole thing advantages financial & software firms unfairly, relative to companies that need to make real capital investments in order to grow. I do have an opinion on the fairness of it.
Two reasons: they’re not always actually intra company. Apple and Apple Ireland are different companies - and while intuitively it feels like you can just lump them together, it’s often much more complicated than that.
Second, because it is actually moving money. If I’m a Canadian software company that does most of its sales in the US through an American subsidiary (not uncommon), the way it works is the American subsidiary pays the Canadian company back for the sales of the Canadian company’s IP. Otherwise the money would never get back to Canada and the developers wouldn’t get paid! Furthermore, would be silly and tax-suboptimal to ignore the IP-money-flow and treat the Canadian company as nearly pure loss while treating the American one as nearly pure profit.
One is a wholly owned subsidiaries of the other. It's not of course a sufficient condition, but I m sure it's possible to distinguish the relationship between Apple and Apple Ireland from that between say Dell and EMC, or IBM and Red Hat, or the daughter companies of conglomerates like Berkshire Hathaway.
> Otherwise the money would never get back to Canada and I wouldn’t be able to pay my developers!
It doesn't have to be paid for the right to sell the IP. You can just move all revenue back into headquarters' coffers, and use it to finance the various cost centers. Just write the law so that it cannot be called a sale.
> You can just move all revenue back into headquarters' coffers
So it's actually moving money! And you need a reason to move money from one company (in the US) to another (in Canada). Call it sale, call it IP licensing...
The difference is that "IP" production occurs where the R&D departments exist and salaries have to be paid, rather than where the corporate taxes are lowest.
The context was "If I’m a Canadian software company that does most of its sales in the US through an American subsidiary (not uncommon), the way it works is the American subsidiary pays the Canadian company back for the sales of the Canadian company’s IP."
The IP production occurs in Canada where the R&D departments exist and salaries have to be paid and the US subsidiary company pays to the Canadian parent company.
They cannot just "move all revenue back into headquarters' coffers."
The difference between moving money in your situation and in Apple's, where there's no correspondence between where engineers are located and where IP is licensed from.
By forcing all revenue to go through a single point (the headquarters) it's much harder to establish fake licensing like Apple Ireland's.
Ok, I was commenting on the US subsidiary of Canadian firm example (which you didn't seem to agree on).
But I don't think that the meaning of "forcing all revenue to go through a single point" is clear at all.
From the point of view of most countries sending money out to Cupertino wouldn't be an improvement over sending it to Cork if that still means that they don't get to tax it.
Isn't there a way to block internal up transfers and actual IP sales? Is that the issue? Like we want to block google to Google transfers, but not company a to "actually unrelated" company b?
> Probably the best solution is a minimum tax worldwide.
I saw a similar comment earlier this week. I don't understand why first world people think developing countries would agree to this minimum tax and not undercut them on day 1 to attract investments and jobs.
There are no global tax authorities. Nobody is going to enforce these things. Even this G7 treaty is going to be a mess in practice because multilateral treaties are flawed like that.
I agree that this is hard and that there are no global tax authorities, I wasn't trying to say that's something that can just be implemented. It's probably the most realistic solution to the transfer pricing problem though, which probably says something about the scale of this issue.
I also disagree that the developing world is that much of a problem. Currently, in the developing world, money flows to places like the U.S. Virgin Islands, Bermuda, etc. While I'm sure they are not the only places that could act like as tax havens, there's probably a limit. Multinationals probably aren't going to want to relocate their headquarters to a developing country like Egypt for a variety of reasons like language, currency, corruption, weaker property laws, ease of moving cash, etc. Tax havens could also be disabled with tools like sanctions on a G7 or G20 basis. Bermuda doesn't want to play ball? Sure, then the G20 banks and governments will not allow their citizens to deal with Bermuda.
As other people have said, the goal isn't to prevent this from happening, it's to make it too risky or expensive to justify as opposed to just paying corporate tax on profits without shifting them.
It’s like fixing bugs in software: I don’t expect any given proposal to solve everything or to close every loophole and workaround, but it’s still important to put continuous effort into trying.
It doesn’t become effective until the G20, or at least G7, pass it. Part of the law would be automatic tariffs against non-participants. That leaves non-signatories with a choice between compliance and economic decimation.
Why don’t countries do this already? E.g., most European countries and presumably the US dislike that Ireland undercuts corp tax, so why don’t they penalize corporations who operate in their borders but are headquartered in a country that doesn’t have agreeable tax laws?
Well they sometimes do (e.g. fine them) but at a scale where it matters these are companies that also have leverage - if Amazon responded 'Ehhh we might stop delivering to the UK then, Brexit is already an expense, with this too ...' and then the Government is the government that lost/banned/there-is-no-good-spin Amazon.
Within the EU, (or EEA perhaps) I vaguely recall there's some restriction against penalising for things like this, as long as the other nation is also a member state. (Since viewed as a whole, 'one EU', it should be fine, I suppose.) Struggling for the right words ro search though.
If there is no benefit to moving around the income earned, companies would stick to declaring their income at the point of earning (so where they provided the services) because that would likely be the easiest, and would eliminate all sorts of currency based risks, transaction costs, etc.
> Anyway this could be the push that the EU needed to start their own Silicon Valley.
Given the combined market caps of Apple, Microsoft, and Amazon (~$5.6T) is larger than the national net worth of all but the four largest EU countries, I don’t think there’s a lack of motivation here.
By digging a bit into the US data, those numbers are, if anything conservative. According to the US Federal Reserve Bank, in 2014, the US had total assets of $270T and total liabilities of $146T for a net worth of $124T.
Just tax the revenue in the country where the money changed hands. (The client's home) That's the taxable event. So, I think, for your case, Britain (UK)
How did the money change hands in Britain? The British person typed his CC number into a web form that routed to a server in the Cayman Islands that charged a bank in France. That bank in France will then demand repayment at the end of the month from the guy in Britain.
So if you had a completely Australian company selling stuff online, they'd be subject to US corporate tax for profit earned from American customers, French tax for customers from France, etc?
This seems complicated because unlike sales tax, corporate tax is based on profit at the end of the year. It's much more complicated than sales tax. Companies would have to handle corporate tax code for up to 195 countries.
Sure? Why not? I practice it wouldn't be 195. We're trying to fix a tax avoidance issue so we've to fix the money somewhere. Demand-side seems the right choice. I'm assuming there'd be some minimum threshold. Most companies are selling mostly at home. And if you want to play InternationalBigCo game it seems a reasonable burden to me.
To start with, how do you figure out how much profit this completely Australian company made in France? It's not their revenue from France, and all their expenses are in Australia. Does the company calculate expenses according to Australian law, or French law? Calculating expenses is complicated, and each country has different rules. You're effectively forcing companies to file full taxes in every country where they have customers.
If the company doesn't declare a profit in France, is France going to audit them? They have no presence in France.
Multiply this issue for every country where customers reside. This is bad for consumers. Companies are going to choose which markets are big enough for it to be worth the additional burden. If you're from Canada, too bad; we don't sell to Canadians.
Australia and France have similar tax rates. This doesn't have much effect on how much tax the company pays; just how much goes to France.
We have already have sales tax, which is a much simpler system that taxes revenue, not profit.
> If an American SaaS company sells a product hosted in Ireland to a company in Britain, where was that money "made"?
Britain. If corporations want to pretend that (for example) China has the authority to restrict what users in China see on foreign websites (cf recent Bing tank man mess, among many others), they can apply the same reasoning to tax liability.
> Google Ireland charges Google USA a license fee of 100% of the revenue they made. Suddenly, Google USA has net profit of 0 and Google Ireland has a large net profit.
That's irrelevant; Google USA made a gross profit of X G$ and should be taxed accordingly. If they want to claim some of that as a tax-deductable business expense, the burden of proof[0] is on them to demonstrate that it's a legitimate business expense.
0: If accused of tax evasion, the burden of proof would on the IRS to demonstrate that they intentionally misreported and should suffer criminal penalties, but if they're innocent, they still owe back taxes plus nominal interest.
(Edit: In case it wasn't obvious, I'm talking about what the law should require, not what laws paid for by corporations currently do.)
> Google USA made a gross profit of X G$ and should be taxed accordingly. If they want to claim some of that as a tax-deductable business expense, the burden of proof[0] is on them to demonstrate that it's a legitimate business expense.
They've done this, repeatedly. The laws as written (US, UK, many other countries) make this a completely legitimate business expense.
So, what should the law require? How would you create a law that prevents this from being a legitimate business expense but doesn't eliminate other things that would be broadly agreed as being OK?
Could they create a special category for the clearly profitable tech titans where they are taxed simply on local turnover regardless of whatever legal accounting bullshit they use to avoid paying tax?
This is a terrible solution because it eliminates tax competition between states. The corporate tax rate should be zero-- that is the best solution, as it would free up all of this ridiculous accounting and financial compliance machinery for actual productive uses. Corporate profits are already taxed at the individual owner-level as a capital gain or dividend. The corporate income tax is grand-standing political tax with no basis in science or economics.
Shod google not be taxed twice in this example? Once on the income made in the USA when they sold the actual thing, and once in Ireland when the Irish branch sold the thing to the USA branch? Not to mention sales tax....
If the US branch bought a widget for $90 and sold it for $100, they'd pay tax only on the $10 of profit. If it actually cost the Irish branch $90 to make those widgets then that would be entirely fair and the right way to assign the tax burden. However, if the widget is actually free to "make" and yet the US branch is changed $100 for them we get the current situation.
Google USA made zero profit on those sales due to the 100% licensing fee with Google Ireland, so there's no income to be taxed. Revenue and expenses are exactly equal.
As for sales tax, I don't really know how it works in this situation.
Tax on revenue is just a sales tax on the consumer of that product or service. You might as just increase sales taxes and remove corporate taxes entirely.
In WA sales tax only applies to retail sales. Which means a revenue tax and a retail sales tax are not equivalent.
For example, if a home builder is buying lumber directly from a wholesaler, they aren’t paying a sales tax. Whereas the revenue tax does catch a portion of that income.
Maybe you mean we should broaden the concept of sales tax, and apply it to all transactions? That would be closer to equivalent to a revenue based tax structure, and would probably end up looking very similar to the VAT tax structure in Europe.
I’m fine with a VAT tax, if we want to structure things that way. Honestly it’s a lot more paperwork to manage that way instead of revenue, but either works for me.
Assuming arguendo that a sales and revenue tax were equivalent, a revenue tax would be the much simpler way to manage tax collection. Why would you ever prefer a structure that creates a tax event for every transaction, to an equivalent one that creates a single tax event per business entity?
Yes, conventional sales taxes apply to the final retail sale. But in your example, a home builder buying lumber does pay sales taxes, since there is no sales tax on the sale of the finished home (at least not in my state).
All taxes are ultimately paid by the consumer. In that regard, I agree just impose a national sales tax, get rid of everything else, and be done with it. Gets rid of all the complexity and games played with income taxes.
Give everyone an automatic refund of $X to make it non-regressive. This could be done as a monthly payment, an "advance refundable tax credit" like the stimulous payments.
Taxing revenue would kill small margin high input businesses, lead to double taxation, encourage vertical integration. Makes no sense outside of small business where they get a heavily discounted rate since it's usually there to save them the hassle of keeping expenses.
I’m not sure why double taxation matters so much. If I get a salary then use some of that salary to get a haircut, the money is taxed twice but we think of this as normal.
Human W2 taxpayers are not able to write off expenses such as driving to work (or even a home office), yet these are clearly costs of doing business. Why should corporations get additional rights that aren’t afforded to humans?
Because if I'm Apple and sitting on billions of dollars I get to buy out my supply chain and I pay 0 tax for all components and transitions in the chain - and your random manufacturer X has to pay Qualcomm and gets taxed, who pays TSMC and gets taxed, who pay their suppliers and get taxed, etc. Then multiply this by every component at every step. This is a terrible incentive system for breeding huge vertically integrated monopolies even faster than we currently do.
Double taxation only matters because it complicates the tax code, there is no other justification against double taxation.
For example, if you have one tax there is only one way to optimize it, if you have two taxes there are two ways to optimize it. As you add more taxes you are adding more room for loopholes. Solving the problem by taxing profit by country is just adding more room for loop holes.
If a tax on revenue was used the outcome would be companies would try to increase profits but reduce revenue so high margin products would be the goal which would mean higher prices / fewer sales.
I think the solution should be market based. Whatever rate google US gets from google Ireland should be available to any company and google Ireland should be forced to sell any services/ip to any company who requests it at that rate.
Doing anything else means the cost of the IP google Ireland charges to google US is made up.
The problem in this case is that no other company would agree to pay 100% of revenue to Google Ireland for their services. Google Ireland is overcharging, not undercharging.
Except we already have a minimum tax worldwide - 0%. Perhaps every country should meet the others and offer 0% corporate tax. The solution isn't as simple as "minimum tax" as some places legitimately believe that corporate tax is not the most effective way to generate government profits (Wyoming and South Dakota at the state level).
Actually, we don't - there is no legal/treaty reason why a government could not offer a negative corporate income tax rate (at least in the lowest N-1 tax brackets), and we may actually see that if corporate abuse of political processes is allowed to continue far enough.
No, I'm saying that "this value is not allowed to go below X" is different from "the lowest current value happens to be X" and we have the latter, not the former.
I didn't claim to solve anything. Merely that a world wide corporate tax rate isn't as simple as everyone thinks. For what it's worth, a corporate tax rate doesn't prevent you from doing what you suggest. In fact, you are encouraged to do so to avoid the tax.
What you're describing is a method of deferring taxation, not avoiding taxation. Google is a US publicly traded company so its profits ultimately belong to its shareholders, and it can only pay that out via the US.
The company doesn't have an obligation to pay this money to their shareholders, ever. You might die (of old age) before you get your initial investment in Facebook shares back as dividends.
If that was deemed likely, the company's shares wouldn't be worth anything. Facebook and Google routinely do share buybacks these days (which is equivalent to paying dividends)
Shares, especially in big tech companies, are nowadays mostly valued as a commodity not for the dividend value. Even ignoring meme stocks like TSLA or GME, stocks like Facebook or Google are never going to pay back enough in dividends or buybacks to justify the price.
While yes liquidity drives share prices over the short term, as a general rule that's nonsense. What do you think it means for them to be "valued as a commodity"? Why do you think shares have any value at all, or have any connection with company performance? Over just the past 3 years facebook has paid out almost $30 billion to shareholders through repurchases and has plans to pay out $25 billion more. That's the majority of what its market cap was just 8 years ago, and it's still a growing company. Do you think it does that just for the fun of it?
> It's complicated. "Money they made in their country" is hard to define. Large companies abuse intangible assets to shift profits around, but it's hard to say at what point abuse starts. For example, Google USA sells advertising to its clients. But, the assets it is selling are actually owned by Google Ireland. Google Ireland charges Google USA a license fee of 100% of the revenue they made. Suddenly, Google USA has net profit of 0 and Google Ireland has a large net profit.
I have an even easier solution, and it doesn't require an International Tax Police or Global Government. Lower taxes. Perhaps even eliminate them. There are many ways to achieve this such as eliminating government pensions, removing entitlements, and cutting defense spending and foreign aid. Instead of robbing Apple or Google to buy F35's and ship cash to the Middle East, perhaps we could cut them a break to hire and build things in the USA.
Because in practice if you make 1 million in a country, you’ll claim 1 million in expense in another country (with little to no taxes) for things like IP, trademark, etc.
Though whole accountancy process has many parallels to a pyramid selling, with the IP being the top of the pyramid located in some tax favourable country of the moment.
Of course it could be argued that the second company is also making the money in the first country where it’s IP, trademark etc. gets used and has to be taxed there.
Tax authorities already try to control for arbitrary cross country bills that try to shift profits (at least in some jurisdictions). The downside is more bureaucracy and unproductive friction of course.
AFAIU proposals for taxing companies wherever they do business rather than where they are headquartered often involve paying MAX(X% of profits, Y% of sales), precisely to avoid these kinds of shenanigans.
There's a fixed cost to administer such arrangements.
But the system is not fixed - people do start exploiting these arrangements, and once the number reaches critical levels they get whacked. An example in the UK was "employee benefit trusts", which were used by a lot of celebrities and footballers. https://www.rossmartin.co.uk/disguised-remuneration-zone/302...
You need to be big enough to (a) pay for enough legal bulletproofing and (b) have political cover against the law going after you.
They can't afford a legal department and the paperwork and compliance involved in setting up and maintaining a bunch of international subsidiary companies.
It only makes sense with large amounts of profits to launder through such a system.
Take Apple selling phones in the UK. Is the money made in the UK, where the phones are sold? Maybe part of it (selling phones), but Apple enjoys a large premium over Android, and that's more debatable. Was the money made in Taiwan, where iPhones are made? Or in California, where iPhone was invented? Personally, I don't really see why UK would tax Apple more than Android makers, simply because Apple (from California) was more inventive... while the profits were realized in the UK, they weren't created in the UK.
This has already been settled in the EU - from a tax perspective, the sale is happening where the customer placing the order lives, which typically coincides with an address in the same country.
Now something like this is bound to come, from the new treaty, to all G7 countries, which hopefully means it will trickle down to the G20 at the least.
The main issue is not rules on sales though - it's cracking down on profit-shifting masqueraded as IP transfers and licensing. Hopefully that too is being cracked down on.
First, this is not a treaty, it is an annoucement. To make the announcement a "real thing", each country needs to go back to their own legislatures and pass laws, and in those countries that are federal, they need to somehow get their states to pass laws. That then needs to trickle down into account changes, jurisdictional changes, etc. None of that has happened. What has happened is that leaders got together in a conference and issued a joint press release of an intention to address a certain problem within a framework of certain types of solutions. Think of it like the Kyoto agreement -- there is a big difference between popping some champagne corks and actually getting stuff done.
The UK already has an 18% GST rate, which is equivalent to an 18% tax on revenues. In 2020, Apple had revenues of $274B and pre-tax net income of $67B. On which, they paid $10B in income tax (a 15% rate).
Apple revenues in the UK was about $2B. Which means Apple is already paying $360mil in GST tax to the UK gov. Apple also paid some amount of wage, income, real-estate and other taxes.
Let's imagine companies had to pay income tax on a pro-rated, point-of-sales basis. Thus, apple's pre-tax income for the UK would be 2/274 * 67 = $500M. At a 20% income tax rate, this would net the UK gov an additional $100M.
This is why they want this sort of thing. It has nothing to do with fairness. The US gov is generally opposed to pro-rating profits based on location of sales. Because the US tax code allows companies to effectively deduct foreign taxes from net income, income taxes paid overseas has the effect of reducing income tax paid to the US gov.
Bingo. The reason that non-US governments (like the UK) want to get a share of the tax on profits is because they lack domestic innovative high-profit companies. They want to take a share of the added value created / subsidised by another government (US in this case). It's bad incentives all around.
VAT excludes the VAT paid when the company purchased the raw materials, i.e. it's paid net.
The end result is, the consumer pays VAT which is 20% of the price (i.e. 20% of the revenue), and the tax is spread out evenly across the whole production supply chain, weighted by the amount of added value by each company in the chain.
I'm not sure what you mean. If you assume all sales were to consumers it's true that the government receives ~~18% of Apple's revenue compared to if Apple sold nothing. Or are you just referring to the small difference between counting "revenue" as inclusive of VAT or exclusive of VAT?
Take for example an international coffee bar company with locations all over the world. They can transfer the ownership of the name, brand, styling, product recipes to a country with zero or low tax. Each cafe takes care of buying its own coffee but pays a license to use the name and branding
When someone in a small town in some part of the world goes to one of the branches instead of a local independent coffee house - isn't it a large part due to the branding of the company? the coffee is just a commodity costing a few pennies - all the value is made by the brand and the recipe owned by the company in the low tax country.
This is the whole difference between a revenue tax and a profit tax.
I don't actually know why exactly a revenue tax isn't more popular, say 1% revenue versus supposed 30% profit tax. (As if any corporation actually pays that tax rate).
Revenue taxes create predictably perverse incentives with fairly pathological outcomes. There is wide agreement that it is a poor way to tax business entities, with many undesirable side effects. Notably, the most tax efficient business structure is one that is maximally vertically integrated to minimize the number of transactions with suppliers.
Small companies end up paying a higher effective tax rate than larger more integrated companies and it discourages companies from specializing in what they are good at, neither of which is conducive to a robust and vibrant economy.
Well right now big companies can just move profits offshore by saying that they make no profit in any given location.
I think in either case big companies aren't going to be challenged much, the trick is what will be the better outcome for the countries and society as a whole.
As always with tax, the concepts that we want to discuss are not discreet enough to translate into tax law. Revenue, profit, location and such are arbitrary decisions that can be made by an accountant.
Does Apple makes its money in the US, where the company is headquartered and listed? Does it make it in China, where products are manufactured? Does it make it wherever people buy the stuff. Ireland, where the IP is "located."
Since corporate tax is an income tax, it's taxed on profit... the not of revenue and expenses. Revenues and expenses are accrued everywhere. The entity booking them is arbitrary.
"It’s a shame that Biden had to back down from the initial 28% because of domestic opposition."
You are misrepresenting the situation. A 28% global minimum was never on the table. 28% was Biden's proposed domestic rate (which to your point, he is backing down from). But these are two separate rates so we should be clear what we are discussing here.
Agreed. You have to wonder how establishing a global minimum lessens or even removes the incentive to make local government more efficient. It may even establish an acceptable level of grift.
Top marginal income tax rates in many countries now exceed 50%, not even considering payroll tax, property tax, sales tax, etc.
The question is: how can anyone seriously support tax rates that high? After a certain level, more than half your time is spent working for the government - failure to pay means fines and possible jail time. This is serfdom.
Higher corporate tax rates should not be applauded by anyone. Higher corporate tax rates invariably increase cost of living because companies can simply raise prices to compensate. If all of your competitors have to pay the same (higher) tax rates as you, the correct game theoretic move is for everyone to simply bake the higher tax rates into the price of their products/services.
Almost all forms of taxation ultimately impact the middle class in one way or another, either directly or indirectly. So while nobody is "seriously arguing" for, say, a 70% top marginal tax rate, it's easy to get there when you actually look at the entire tax burden across all levels of government, including price increases caused by higher tax rates.
> Top marginal income tax rates in many countries now exceed 50%
You mean, for people right? I have never heard about any place that taxes anywhere near 50% of a corporation revenue, but yeah, it's not rare to find places that tax more than 50% of a worker's income (all taxes in, if you are talking exclusively about income tax, I never heard about it either).
Why do corporations need lower taxes than individuals?
Shareholders and employees are people. Corporate income taxes represent a form of double-taxation because shareholders are taxed on realized gains (in capital gains or dividends), and employees are taxed on income.
Moreover, capital gains taxes are lower than income taxes because they roughly account for inflation - capital gains are typically incurred on long-term appreciation on assets, and if you're holding something for, say, 10 years at 2% annual inflation you're talking about 21% inflation. So if you have a 21% capital gains rate and a 21% rate of inflation, your effective "tax" rate is really more like 42%.
This is one reason why higher corporate tax rates are generally considered to be a poor economic choice - additionally, corporations can relocate, restructure, and do all number of things to minimize taxable income, and are strongly motivated to do so as rates increase. So you don't even ultimately collect much in additional taxes this way.
Oh, and higher corporate tax rates also raise the price of the goods and services they produce, which is reflected in substantial cost-of-living increases for low and middle-income individuals. That's why it's good politics but bad economics to target corporate taxes in this way.
Between 1951 and 1963, the highest marginal tax rate in the US exceeded 90% [0]. This is a period of time generally regarded as one of booming economic growth in the US, an exceptionally good time to be in the middle class, and a time span looked upon fondly by your stereotypical American conservative.
Edit: Why do people put up with it? Because of the progressive tax system. If my choices are a) earn $517k b) earn $1m but get taxed 37% on everything over $518k, I know what I'm picking. (Numbers come from the 2020 US tax brackets)
During the same period, only a handful of families paid that rate. There was an enormous amount of tax avoidance[0], with the real rate actually paid by top incomes under 50%[0]. When the official rate was lowered by JFK, tax receipts surged. This is the "real" laffer curve. Now it's not clear where the Laffer point is, but it's certainly to the left of 90%.
Economics devoid of morality is a poor governing principle, in my view. Even if 90% tax rates could be economically justified as not impacting growth (obviously not true), it is morally reprehensible because it is tantamount to indentured servitude.
This taxes everyone along with the multinationals. The complex deals they do mean they always pay a lot less than the 12.5% or whatever the tax rate is so i don't see how raising it for everyone else will help
A flat tax on business without deduction seems like it would squash smaller players that must devote a larger percentage of their profits to fixed costs.
This is currently the top comment and it includes obvious misinformation. 28% was never proposed by the Biden administration for the global minimum tax.
> Good. It’s a shame that Biden had to back down from the initial 28% because of domestic opposition.
It's a compromise/balance and as we know of many taxes - easier to raise them than to get them inplace too start with.
Biggest issue in all this would be that it will need the weight of those supporting it to peer-pressure the other countries to join. So Ireland, Luxenburg and other corporate tax over-friendly countries need to come onboard and that will be easier to achieve with a lower bar of 15% than to go in hard at 28%.
Also when negotiating, there are always compromises and by going in high at 28%, left a lot of room to compromise had he gone in at 15% inititialy and with 15%, whilst far from what people demand, it is better than currently and good foundation start.
Far more important though is the second aspect: "Secondly, the rules will aim to make companies pay tax in the countries where they are selling their products or services, rather than wherever they end up declaring their profits."
That is far more important IMHO as currently see countries seeing their taxes due being off-shored and lost - that in itself is the bigger issue and this addresses that aspect.
That's throwing the baby out with the bath water. Apple has a legitimate need for a subsidiary in countries they operate. What needs to stop is the shenanigans around revenue & costs designed solely to generate profit in low tax countries.
Both Ireland and Luxembourg have legitimate activities: Irish whiskey isn’t a big deal compared to tech, but there’s no real reason to ban it. Defining a line is hard, especially when the country’s traditional advantage _is_ finance, like it is in Luxembourg, even outside of tax-optimisation.
It’s easier to have rules against countries with less credibility, but then again, you risk making things complicated for Seychelles, Curaçao, St-Martins. It’s easier to define a minimum tax so that they don’t have to pick between tourism and tax optimisation.
Maybe an import duty needs to be applied. Importing the Irish whiskey will incur a duty. Google US paying a 100% license to Google Ireland should also incur a duty charge for importing the license from Ireland.
Except the reason it's not done today is because back in the 90s, people argued that it's not possible to tell if/when services/IP crossed borders because there's no fixed port of entry.
(They were making this argument because software CDs were subject to import duties but downloads were not and that they were unfair)
Today it's still the case and services/IT are not subject to duties.. but I think large licensing agreements like this should definitely attract import duties
The solution is simple enough: look at the companies books, if money is leaving the country, duty is charged unless it can be accounted for by something else (like the existing duty on physical goods).
IRS: Hey Google, you said you made this much money, so you owe us tax.
Google: No, see, here we paid it to Google Ireland as IP license fees, so we in fact made $0
"Good. It’s a shame that Biden had to back down from the initial 28% because of domestic opposition."
He can always change his mind. Plus--I have a weird feeling Biden would't mind putting off spending trillions on a nebulus bill right now. Of course he won't admit it publically.
IIUC, they are paying taxes on goods sold, but those taxes are then offset by “losses” which they incur by “buying”, say, IP licenses, from their sister company. This sister company get record profits, but this company is then located in a tax haven, and pays no taxes on these profits.
The argument is a tax on revenue is very unfair to low margin business like retail or farming, so corp. tax is usually on profits. Which creates the loophole of where are the profits recognized.
> Good. It’s a shame that Biden had to back down from the initial 28% because of domestic opposition.
28% is a ridiculous minimum to try and impose on the ENTIRE WORLD. You have to be quite clueless about taxation worldwide to think this has a snowflake in hell chance of passing at all. "Domestic opposition" is not a factor at all.
Biden has been consistently good at this, going in with a crazy bold position and letting people argue him down to somewhere that would probably be his real position in the first place.
It's about time people started to elect leaders who can get shit done in the frameworks that exist to get shit done, instead of trying (and failing) to destroy such frameworks.
This is a terrible idea. This “race to the bottom” is what drives efficiency and better ways of doing things. It’s why we don’t have $10,000 desktops in our homes with 386 processors.
If computer chip manufacturers decided to create a floor price for their products that would be collusion and bad for consumers. Same here. It’s bad for citizens of a country.
You damn know some developing country is going to be told “nah, sorry, can’t lower your corporate tax rate too low to spur investment, those jobs are staying in developed countries”.
First, tax competition creates its own inefficiencies —- companies locate production in low tax jurisdictions instead of optimal locations given local skills, factor prices, etc.
Second, this argument only makes sense if you think tax competition leads to “innovation” in tax policy, but it’s not clear why that would be the case. Almost any kind of tax structure is jurisdictional and would be undone by zero-sum competition between countries.
Third, would this hurt developing countries? Right now this is a voluntary agreement between developed countries to achieve a common goal, so that complaint isn’t super relevant. Think of multilateral tariff reduction agreements —- it’s often a good idea to unilaterally put up tariffs if everyone else lowers them, which can result in a high-tariff equilibrium even if each player would like lower global tariffs. Multilateral agreements are the way to achieve the collectively desired outcome that can’t be achieved in a decentralized way.
But a global minimum tax could be also be a good idea for lower income countries, if it’s not set too high. Typically the economic incentives are there to locate especially production in the developing world. If all developing countries had the same minimum tax, then companies couldn’t play developing countries off one another to get lower tax. Lower income countries would reap more gains from globalization and have more funds to eg invest in infrastructure and development.
First, companies don’t optimize for tax at the exclusion of everything else. And calling tax optimization and inefficiency is interesting considering it directly impacts returns.
Second, the innovation isn’t in the tax policy, it’s in the use of the tax revenue. If I come up with a less bureaucratic and less costly administrative process for companies, why shouldn’t I pass the along if I want to?
Third, the implementation goal is global. That’s been stated by Biden.
And I’m guessing the lower income countries will suffer. You want to pay t a similar tax rate for the US for say Myanmar? Abundant corruption, questionable private property rights, untrustworthy courts?
On (1), I’m speaking from an allocative efficiency standpoint (should have been more precise). For example, say I’m a company selling in NY, I can locate production in NJ or AZ, and pretax it is cheapest to locate in NJ. If AZ offers a tax incentive that makes it cheaper for me to locate in AZ I’ll do it, but if you sum up pretax revenue minus costs they are lower than had I located in NJ. So this is a transfer from NJ coffers to company profits + AZ coffers, but it is negative sum.
Not sure I understand what you’re saying on (ii). I think you’re saying that if countries have to compete for business, then, holding fixed their statutory tax rate, they have an incentive to improve bureaucratic efficiency to increase resources available (given the statutory tax rate). But I think the issue is you get competition on the statutory rate, which pushes rates towards zero. I actually think a minimum tax which binds and hence constrains the statutory rate could provide a great incentive along the lines youre talking about to optimize bureaucracy.
On (iii), I’m guessing a minimum tax wouldn’t bind in countries willing to explicitly expropriate FDI. Also having a minimum could limit the scope to vary effective rates for individual companies as carrots / sticks, which if anything could reduce corruption.
If it would be only for the complex tax evasion schemes I would be on their boat but in the end it will reduce competition between countries which is just dystopic.
To add to that, there structural problems with an income tax in general, and a corporate income tax in particular, and there are many arguments for eliminating it altogether, and replacing it with other types of taxes (e.g. a transaction tax, a carbon tax, a land tax, etc). But this locks it in place as a constant for all countries.
This is just G7 isn't it? Seems to me like all the typical very low tax jurisdictions you'd select for as somebody optimizing tax with the freedom to locate wherever you choose are still open.
This is the first step. G7 can then strongarm or cajole their "client states" with coordinated action. Even just the fact that such action is finally happening, is a great step. This was considered a sci-fi scenario 20 or 30 years ago and now it's become reality.
It's one thing to get G7 to agree on something when they're literally in the same club, another to get their client states that might previously have been attractive options like Ireland or Estonia to get on board to some degree. But jurisdictions that are much more independent and less prone to leverage like Georgia or Malaysia on the other hand I just don't see it. And that's before you get off into the weeds of jurisdictions that are more accurately described as oppositional and are raising their own efforts to attract offshore investment which it seems would be even less likely to kiss the ring.
It's easy to forget that the legacy brand countries with the extremely high tax rates and absurd conditions like citizenship based taxation in the most abhorrent cases internationally are the exception, not the rule. Their residents with their political biases make up the majority of participants in forums like this, and this contributes to the perception that their regime is enormously more widely adopted than it actually is, but if you look at the actual numbers by the actual areas that's just not the case.
And worst case scenario then you have crypto, where it goes from the legally difficult realm into the technically impossible realm.
This is just a fight they're guaranteed to lose on a long enough timeline.
Low-tax countries in the EU are being ruthlessly isolated already. This has been happening for some 15 years now, and accelerated after Brexit; covid might well be the nail in the coffin.
I am also sceptical of your claim that jurisdictions like Georgia and Malaysia are "less prone to leverage" - their proximity to large adversaries actually makes them more dependent on soft-power diplomacy to maintain big friends.
Obviously the likes of Russia and China might not play ball - but they have much bigger issues to worry about, from a capitalistic perspective. You put your money into China, you can't pull it out ever again; you put your money into Russia, and tomorrow it might well be Putin's money.
> Low-tax countries in the EU are being ruthlessly isolated already.
In what way? How is life for anyone in say Ireland or the Netherlands or the Bahamas materially different than, say, 20 years ago? Are they not allowed to travel somewhere? Obtain visas? Purchase goods and services from abroad? Are airlines refusing to land there? Even a single example of this "ruthless isolation" would be nice to show, otherwise, I suspect this is more of a dream sequence than a description of reality.
> their proximity to large adversaries actually makes them more dependent on soft-power diplomacy to maintain big friends.
Considering how the west interacted with the Crimea takeover I'm pretty sure these countries have realized by now that the west doesn't really care about their protection.
> This has been happening for some 15 years now, and accelerated after Brexit; covid might well be the nail in the coffin.
Estonia will be a useful barometer to keep an eye on for this in the future, but since their tax rate is actually basically in line with this floor anyway it may well be that this just doesn't affect them at all.
> their proximity to large adversaries actually makes them more dependent on soft-power diplomacy to maintain big friends.
Georgia already has recent experience with such relationships not keeping the bear at bay so may well view the extra capital from remaining an attractive tax friendly jurisdiction as more useful than bowing to parties who have already failed them in the recent past.
Malaysia seems even less likely to buckle to the "international order" as they have neither the cultural homogeneity nor the magnitude of the threat that Georgia has.
> You put your money into China, you can't pull it out ever again; you put your money into Russia, and tomorrow it might well be Putin's money.
When what your money gets you is absolutely nothing, one parasite is just as bad as another in the long run, it just becomes a question of which one costs you more. Russia and China have to restrain themselves in the looting sector less and less to the extent that their US & EU competition go all out in order to look like better alternatives.
And then, there's the implications of an extortion war across the global economy providing capital flight impetus to push the cryptosphere to obscene heights and complete inability to tax in a worst case scenario.
I think the fundamental fact of the issue will remain that as long as it's a forced payment not linked at all to delivery or quality of goods or services, all rational parties will be forever motivated to avoid it to the maximum extent possible, as it resolves to nothing more complex than "burning money" given what it actually buys you.
I would love to know the real motives. I don't automatically buy the "ensure fairness for the middle class and working people" line. "Love for the people" is always the stated motive of all oligarchs and tyrants. And frankly, these politicians aren't exactly in some adversarial relationship, or at the very least a legal supervisory one, with corporations. That myth died a long time ago. Better to ask: why would corporations allow for something like this? Why would their political allies push for this? Somehow it must be in their interest. Perhaps they're hedging because they sense a real threat and have chosen to concede in some way, or perhaps this actually contributes to furthering some perceived advantageous end.
Raise prices all you want. The invisible hand will figure out what people value and what they don't and supply and demand will adjust accordingly. "Your margin is my opportunity."
If we're being simplistic, then I could just as well say:
More corporation taxes = lower income taxes
A citizen should be happy that their government is seeking a greater share of its tax revenue from corporations, especially foreign-owned corporations, because it is easier for the citizen to avoid buying an iPhone than to avoid earning income.
Essentially countries are forming a cartel to set bottom income tax. Forming cartels by private companies to „fix” prices is illegal, but countries are free to do it.
However, the actual mechanics of that tax is hard:
1. Countries can still do subsidies, but avoid touching income tax.
2. Taxing by income where revenue is generated is hard to compute. It would make sense to enforce it only on big multinationals. E.g. Big tech pay income taxes proportional to revenue from different countrues or/and where they employees are located.
3. Looking at statistics the ideal income tax floor should be around 19%.
Countries are supposed to in the end benefit people who live in those countries. There are many things that countries do that private companies can't, like jail people without their consent, for example.
On point 1., EU countries can't do state subsidies. It's illegal under Single Market rules. It was one of the arguments for Brexit that if they leave they can engage in state subsidies again.
“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.
Twenty percent of any profit above that would be reallocated and taxed in the countries where they operate, according to the G7 communiqué.”
How will taxing authorities determine which companies meet the 10% profit margin threshold? Which jurisdiction is this threshold calculated in for multinationals?
Let me tell you how this plays out, from an Irish perspective.
1. G7 countries can't do anything, trade treaties are sealed, Irish taxation rates are their sovereign right. Vetos baked into things because of the first rejection of the Nice treaty.
2. Even in the event of international pressure forming, (And the US can of course strong arm an arm or two), I don't think the international state understand or wish to see where Ireland is coming from. A country with no population pool, geographically isolate, and no real natural resources to exploit and a worker population very demonstrably willing to flee at the first sign of a failing economy. Enforce this rate, the only real thing that is seen to have made Ireland not a back water farming country, and Ireland engages in what it's government has ever really achieved successfully. Invent tax loopholes. The second an Irish government agrees to this, those politicians will be metaphorically taken out back and shot in the head, to be replaced with someone who won't doom the economy. Even the former terrorist party if needs be. And then they get straight back to the economic gurella warfare, because there's no chance of taking on the G7 mono-el-mono. Every system can be hacked, every tax law has a tax loophole. Ireland just needs to look hard enough, if incentivized to do so. And it's entire stability and economic future is quite the incentive.
And if they do, it will be a shattering of taxation sovereignty and a fundamental dividing line on what makes the EU a group of cooperating states instead of a unified single country. Hungary and Greece alone would leave the EU over that.
I think you are misinformed about the level of corp tax in most poor countries. Twenty countries have corp tax less than 15%, of which about half are poor. 15 have no corporate tax and are either rich or are just unambiguous tax havens.
Average corp tax in Africa and South America is 28%, Europe and Asia are 20%.
Most of these are poorer than G7 (and especially the US who is the main beneficiary), so my statement is 100% correct. I didn't say that all poorer countries will get poorer by this specific action. There are many other actions to make everyone poorer than the US.
And less private spending and investment by these corporations and their shareholders. The optimal size of government spending, as a percentage of GDP, for economic growth, is likely well below 25%, and significantly lower than the level in every OECD country, so to the extent that this enables increases in government spending, it will likely hurt economic growth:
The G7 won't be able to make a decision on behalf of the world!
Why do companies already register their ships in Panama or hide their money in the Cayman islands? (Other havens are available)
Because these countries have decided they would rather have the income than agree that what they are doing is somewhere between morally dubious and completely ammoral. It is easy to point the finger though, some of these places probably don't have many other ways of making money...
Yes, they will - as they did with Swiss bank secrecy [0].
It's actually quite simple: if you want to do business with the G7 countries - with close to 40% of the world economy [1] - you follow their rules.
While 60% is a lot, it's a much different blend of markets to work with - hundreds of other countries, legislations, etc. - and it would be a much larger effort to cover.
So: wether I like it or not the truth is: if the G7 countries agree on something, other countries will follow.
Read the article again. G7 countries will collect tax difference that international companies avoided paying in tax heavens. Thus deincentivising companies from even doing buisness there.
This sounds like it will be hell for small software companies with customers all over the world.
Paying taxes differently for each country of the customer you sell to is a ridiculous hardship.
It only benefits the large multinationals to reduce their competition. These sorts of rules centralize markets to fewer and fewer companies able to spend the resources to fulfill more and more complex rules.
The end result is higher prices and lower innovation for consumers. While employment gets centralized to slow-moving, inefficient, but compliant companies.
It's a real shame that legislation is actively trying to make it harder to do business as a small entity. Functioning governments should have it very high on their list of priorities to do the opposite.
Small software companies with customers all over the world are not multinational companies. These small software companies are located in one country i.e. one physical presence, unlike tech companies where their presence is in multiple countries. So this tax change won't affect small software companies located in one country with international customers.
Edited to add...
The article states: "the rules will aim to make companies pay more tax in the countries where they are selling their products or services, rather than wherever they end up declaring their profits."
The following scenario is unclear to me: A software company based in a European country sell their SaaS product to primarily US customers. The majority of their profits are made with US customers, but the company has no office presence in the US. Does that mean the profit from US sales is subject to the rules of this new tax law? (I assume not, but I could be mistaken.) I assume this law only applies if the company has a physical presence in the US. (But now wondering if my interpretation is correct!)
If it's going to be anything like the digital services tax, then the answer is a resounding yes as the US is where your customers are.
I see two things come out of this:
1. Companies selling their B2C services digitally will be paying both their sales (or VAT) AND their corporate income tax in countries where their customers are. This will be a benefit for countries with large markets and leave smaller countries where the companies are headquartered wondering what the value of these companies to their economies is.
2. A major problem for digital businesses will be the fixed costs of compliance. I suspect that a lot of side-projects and lifestyle businesses won't see the light of day on account of how expensive it will be to keep them running for years while they build up revenue.
They'd need to grow to a certain size first and even then, they could just hire remotely.
My hope is that these rules will only apply to large multinationals but somehow I doubt it - governments are unlikely to leave money on the table and will likely use this opportunity to expand the scope to include smaller businesses as well.
Thank you for your reply. In hindsight it makes a ton of sense that this would only apply to companies with a physical presence in multiple countries.
Tracking country of origin for every online purchase and grouping them in order to pay international taxes would be an absolutely ludicrous requirement. No matter how low your opinion of the G7 is, they're not that dumb.
TBH the bad idea in the EU scheme is allowing different countries to have different taxes on digital sales. There should be one rate across the whole Union, to be paid to the Union itself. This can then be redistributed to national governments in various ways, or reinvested in digital infrastructure that benefits the whole continent.
Enforcing fair taxation is not a bad idea, making it awkward is.
However, within the EU they also have a nice (or at least automatable) online system where small businesses can process inter-country VAT sales declarations through their own country's tax system. It's not particularly onerous for small businesses to sell across borders to other countries within the EU.
Doesn't this already apply though? I don't know the details here, but Steam seems to apply both state- and country-specific taxes at checkout. Steam is not a multinational corporation as far as I know.
A lot of countries have laws requiring companies that sell more than $X annually to their citizens to register as a foreign company and apply local VAT.
They might (probably not since the sales likely go through parent company) but that doesn't equate to paying taxes separately in each country you have customers in.
European VAT, for instance, applies even for non-European companies. I can totally see some EU politician thinking that they deserve some portion of the profits of each sale (income tax) as well as a sales tax.
Potential for having to pay income tax in countries you have customers in, sometime in the future, is > 0%.
> This sounds like it will be hell for small software companies with customers all over the world.
Uh, no, this will bring required tax profits for rich governments from these predatory countries that will finally fix their budget deficits and insure equality between its citizens.
/just kidding, this will break small companies and make it almost impossible to sell/export to richer countries for small new comers. The big companies will find new loopholes while facing less competition. The EU governments will then just increase the VAT to 35% to fix their deficits. Everything is fine.
What government in their right mind fights taxes they would receive? They want to keep Apple (and others) happy so they don’t take their income elsewhere.
If you are a simple, single entity, your income tax is calculated there. It's hard to say what if anything will actually come of this. Tax legislation has a tendency to hide the main point. But currently, small businesses disadvantaged by the things this legislation ostensibly wants to curb. Multinationals have the resources and complexity to avoid tax entirely. It's usually just sole traders that pay full income tax.
There isn't a public "this" yet, so IDK. Also, Bermuda is unlikely to agree to this.
It sounds like the primary purpose here is residency definitions, which could mean that the US would be obligated or entitled to consider the Bermuda company american for tax purposes.
IRL, that Bermuda company is likely to be a shell company, receiving payment from a single client (EG msft) so that the parent company can book it as an expense.
That said, it's pretty much impossible to say anything at all before details go live, and accountants have had time to chew on it. Tax rules are all detail. Headlines really do mean nothing. "Where they do business" could mean a lot of things. Sales. employees, manufacturing, financing/listing.
Corporate income tax is applied to the net of revenues and expenses.
Some of the language in other statements seems to suggest there will be some sort of a quota system. MSFT will be defined as x% american, y% Bermudan, etc. This is pure speculation though.
Will it matter whether or not Bermuda agrees to it? It seems like their buy-in will be irrelevant, since if the company wants to keep serving US customers then they'll have to go along with the rules the US is setting up?
It will matter, because (again, totally guessing) the agreement will probably make distinctions between in-treaty countries and out-treaty. Beyond theat, idk.
No, Stripe take their cut and the tax implications are down to the seller. However! They did recently acquire TaxJar (https://stripe.com/newsroom/news/taxjar) so I imagine things will become easier in this regard, reporting and filing, soon.
That's an interesting bit of news, in that at least it confirms Stripe have recognised the danger. I will be happy to be proven wrong about this, but I fear their reaction is too little and too late for merchants here in the UK. The likes of Paddle are already offering much simpler tax arrangements and other significant advantages as well, and as you would expect, this is already disrupting some markets that might have been considered Stripe's natural territory just a few years ago.
Stripe is ONLY a payment gateway, 'Stripe handling taxes' is a complete myth that is always brought up by uninformed US Stripe customers only to hype Stripe up.
Stripe customers in the EU have to deal with this VAT tax pain already which is why they either don't use Stripe and use Paddle instead.
Not really. That sort of payment processor might allow you to specify a tax rate to include on a bill and maybe to configure different rates that are automatically selected depending on where your customer is. However, typically they do not actively monitor and update the current tax rates for different areas, nor do they handle the reporting and remittance to all required authorities, so they only take care of a small part of the overall compliance requirements.
There is another type of service becoming increasingly prominent, which is a "merchant of record". In effect, the service becomes a reseller for your product or service, and since they are then the vendor for legal purposes, they also become responsible for all the end customer taxation issues. You in turn typically deal with them as a much simpler B2B relationship between just two entities.
> This sounds like it will be hell for small software companies with customers all over the world.
No. Because, they have a single physical nexus and can't pick and pick and choose where to declare their profits, after of course reaching a sweat-heart deal.
If a small business doesn't pay a tax the IRS thinks it owes, the IRS sends armed agents to serve process. They have no leeway compared to the large multinationals that pay nothing.
This is all true, but I think I marginally prefer the dominion of politicians I can vote for to the feudal structure of multinational corporations, which we have even less power over.
- with your broker: invest (and then literally vote from the inside) or not in them
- with your feet: work or not for them
Corporate interests are directly aligned with us exactly because without these votes they are finished. That is why corporates try to create products clients want, profit investors want and salaries workers want. On top of that, social responsibility programs to keep everyone happy and pay their taxes.
There is only one way to vote when it for politicians: with your feet. And they don't care since they win by getting votes and they get votes by spending money which is taken from us. They have no interest aligned to ours.
That is why I much prefer the dominions of corporations.
This is such crap. While in theory you’re right, it ignores the biggest difference.
With politicians ever person only gets one vote, theoretically equal power to force change.
With corporations, the number of votes a person gets is directly related to their bank balance. There’s no such thing as equal power for the people, only the rich get to vote.
That is exactly how we got the planet to its current state: if you give more power to the numbers you'll encourage more numbers. Maybe it's time to give more weight to another human accomplishment than reproduction, like to the value created.
But I don't hear governments giving more voting rights to more populous countries, instead it's to the "more developed" (PIB) and "more powerful" (military) both proxies for wealth.
Well that’s clearly not true. Not sure if you noticed but most democratic developed countries are on the verge of population decline.
Not to mention a big chunk of human progress happened well before the development of democracy. Actually the worst aspects of human development seem to have been driving primarily by greed and wealth accumulation. The thing you seem to be advocating for.
Or to the value stolen. You have to understand that by giving state power to the wealthy, they will declare their own actions legitimate and the actions of the poor to be illegitimate.
"Small business" are just the "think of the children" or "9/11" argument to justify money grab. True motive is simply to siphon more money to the ruling western elites.
Doesn't this do exactly what it's not designed to do - i.e make multinationals leave G7 countries and shop for lower taxing countries?
Sounds like it's almost a tarrif, and we've got ample evidence that the country that imposes a tarrif on itself is the country that ends up paying for it in the long run
I'm fascinated that people actually believe this would make a material difference to the way all the paraphernalia surrounding taxes (e.g. legal, accounting, geopolitics etc.) are currently structured.
To quote Tancredi (from "The Leopard"):
"Everything must change for everything to remain the same”
> It was reported this week that an Irish subsidiary of Microsoft had paid zero corporation tax on $315bn (£222bn) profit last year because it was resident in Bermuda for tax purposes.
This seems wrong. Microsoft didn't even have that much revenue globally last year ($143b) let alone profit ($53b)
A few countries agreeing on a global law. Sounds to me like "USA and UK agree that China should do X". Good luck enforcing it and closing all loopholes when there are powerful people that don't want that. Empty political talk to make it look like they are trying
China’s tax rate is considerably higher than 15% and they also don’t want their industries to be competing against companies who are cheating the tax man.
This legislation is directly aimed at preventing a race to the bottom, because societies (represented by their governments) realized that they are getting played by extranational entities if they act alone.
Isn't the literal definition of 'allies' a group of countries which pool their military resources to compel other countries to act how they want? I don't see the contradiction
If they really wanted to do it, they'd do a requirement for a company to show their books to IRS in a given country.
They would call out fake charges to hide profits and demand back tax on that.
It's all doable, but all those politicians are corrupt.
The whole piece reads as if it was bought by Facebook and Amazon for PR.
It's going to be business as usual unfortunately.
I hope a party will show up and have guts to actually do something about those tax dodgers.
To charge tax on these fake intellectual property arrangement you don't even need any laws changed. You only need a few officers that are not bent.
What would such a deal look like? I'm not sure how much they can do to a decentralized entity. There are certainly things they could do but I don't think it can be as effective as if it was a central entity like a corporation.
I already said that the pandemic would force the entire world to lean to the left in terms of politics. It's inevitable.
I'm very happy about that decision, but I'm not really confident it will lead to something. I'm also a bit cynic that it took a pandemic to make countries realize they need money.
I'm also waiting to see if government are really planning to fight against tax havens.
The problem is that it's impossible to protest against those small Island tax havens because they're just too far away. Maybe protesters could block flights or boats that go to those tax havens?
If the tax havens are democratic (and most are) then government boycotts + divestment + sanctions could go a long way.
Imagine being a panama citizen, your government is hellbent on protecting foreign billionaires from paying taxes in their home country. Now the Panama Canal is seeing only 50% of the traffic with resulting job-loss, the national team is no longer allowed to play in Copa America, and your countrymen have to play under a different flag if they go to the Olympics. And all because of a government policy you don’t agree with.
You will probably factor that in when you decide who you will vote for in the next election.
Panama is probably the one country that could hold it out - retaliation on the Canal would escalate matters to a point where rich countries have to choose between a dangerous military occupation or sitting at the table with the local government.
But yes, isolation of countries like Bermuda and Cayman Islands could achieve a lot very quickly. To be brutally honest, the UK government could shut down most of them tomorrow, if they wanted to; but they have a few incentives to do only just enough to appear like they want to, without actually doing so (going from nefarious "their own moneyed citizens want to keep money flowing" to relatively innocent "they risk losing whatever little formal power they still have on former colonies that they can't directly occupy anymore").
I wonder how essential the Panama canal actually is. If the Panamanian government decided to play rough and use it as a threat, there are several alternatives for global shipping. Some could use the Suez canal instead with only a minor increase in shipping time. Others could use rail, and the worst affected could still go through the Magellan straight.
The US left has nothing to do with the historical classic liberalism. And no, I'm not trolling, let me know of any socialist system with hasn't turned totalitarian ?
Europe right now has all the characteristic of a totalitarian society, but only beneficiate from a relative prosperity so everybody is riding along. Give it 10 years of crisis and deflation and you'll see a lot more uprisings (yellow vests & alike) and associated "security" measure.
The US is on the edge, and arguably has been in a state of sporadic civil war for over a year now.
One thing I rarely see discussed anywhere is that a corporate tax is essentially a subsidy to existing companies and is anti-capitalistic.
The reason is that an existing corporation turning a profit can tax-free reinvest their profits in, for example, product development to improve their market positioning and profits in the future.
If they were to book that profit and pay it out as a dividend to their owners, who would then invest it into other companies, the money would get taxed twice before ending up in the investment target. The first time as a corporate tax and the second in the form of a capital gains tax on the owners.
Intuitively, it seems like this could have a significant effect on markets and might be one of the reasons we see so many markets dominated by big companies, even in non winner-take-all markets.
Putting the safety nets in place so the nations can gear up against corporations when time comes due to reap back everything that has been poured int the economy during the pandemic. Your can’t really raise interest rates and taxes if corporations will just move to Ireland. And you can’t fault Ireland for accepting them with open armes in times when they need money.
The US tax code is absolutely riddled with tax loopholes. Many of these loopholes were designed to act as an incentive, such as tax breaks for hiring former felons, building factories in certain locations, investing in R&D etc etc. Major corporations often pay far lower than the US corporate tax rate precisely because they respond to these tax incentives (and sometimes abuse them, but that's a different story). Does this deal mean that the US will close these loopholes? If so, then 'rich nations' have lost a major tool for creating desired outcomes. If not, then how can this deal prevent other countries just offering whatever loopholes they want that reduce the effective tax rate below the minimum?
> Many of these loopholes were designed to act as an incentive, such as tax breaks for hiring former felons
I wouldn't call all of those incentives loopholes. There's an incentive to hire felons because it's better to have them working secure jobs than having to spend more tax money getting them through the legal system and months/years of jail again. It's an incentive because it's a cheaper solution overall. It's not the same class of an issue as double-Irish.
I'm not sure what the solution for mixing this with the minimum tax is, but if there's a good reason for the incentive, it may even be beneficial to the country to essentially match the missing tax itself. That's assuming the incentives have the real impact they should.
This is a minimum with the corporate tax rate in the US being above that. Therefore, the difference between them minimum and the official value is the incentives margin that the government can use to nudge corporations in the desired direction.
Yes I understand that, but I believe that many corporations today pay even lower than a 15% effective tax rate. I suppose you're saying that these loopholes will be closed up to that minimum?
I think your choice of words here is confusing the issue a little, and would propose “incentive” for a tax break the government would like you to take (employing felons), and “loophole” for tax avoidance the government doesn’t want you to take (eg: sending all your profits to the Cayman Islands).
Given that, if min tax rate is 15% and standard corp tax is 20%, the government is happy for you to get to 15% and would like you to get to there with incentives, but not happy for you to get any lower however you do it. The incentives are generally not powerful enough to get you there anyway
Amazon has enjoyed an effective tax rate of 4.7% over the last 10 years by using tax breaks, tax credits, and depreciation, that have nothing to do with offshoring cash.
Depends what you mean by loop holes. In the US, you can deduct R&D or capital costs like building a factory. That can make your tax bill nearly zero. I wouldn’t call that a loop hope. It’s something out there to incentivize capital spending and job creation. Other countries have the same
Right, so the question is will those 'deductions' still be allowed or not? If so, then get ready for endless deductions from countries that want lower tax rates than 15%.
I would hope they're still allowed, wouldn't you? Incentivizing new factories incentivizes new job creation. The income from these jobs are taxed perpetually. Otherwise, companies will sit on the cash or distribute it to shareholders in the form of dividends, which increases the wealthy shareholder's wealth, with only a one-time 15% going to taxes.
This isn't to say that I don't want businesses taxed, but if a business had 10B in profits, but deducts 5B for capital improvements, then the 5B in remainder can be taxed at 15%
We can't know for sure until the text of the deal is published, but it is the likely scenario. plus, all the accountants and tax lawyers on the world will be unleashed upon this agreement to find ways to avoid paying up. So, this is my hope, but it is not certain.
For anyone wondering if this will actually have a sizable impact on FAANG and their aggregate tax burden, my guess is no based on the following quote:
> Tech firms say they welcomed the move. Facebook vice president Nick Clegg said they recognised it could mean the company "paying more tax, and in different places".
Paying taxes, just like employing people, gives you leverage and generally more friendly conditions (including court rulings). With Facebook (and FAANG in general) coming under increasing scrutiny I imagine they would happily pay a bit more if their tax is spread over more territories and thus influences more politicians and courts.
> It was reported this week that an Irish subsidiary of Microsoft had paid zero corporation tax on $315bn (£222bn) profit last year because it was resident in Bermuda for tax purposes.
This is just flat wrong, right? MSFT's profits last year weren't even close to that.
I think the consensus is that Microsoft shifted some assets from it’s Irish shell company to another shell company and recorded a bunch of “profit“ because of it.
Not convinced, they may appear to be taxing them more, to the public eye
But the offset from new "grants" and "funding initiatives" will result in the same outlay for these corporations
Basically all politics and double speak
I'm thinking that this will be a entry barrier for new global startups. How are a self funded entrepreneur supposed to support any country tax at day zero?
Taxes where business takes place is nice, but an easy way to pay taxes globally would be better.
The deal - from the US, UK, France, Germany, Canada, Italy and Japan - will put pressure on other countries to follow suit, including at a meeting of the G20 next month.
I can imagine what those other nations responses will be.
There was a time that companies paid back into their local communities, funding schools and parks and infrastructure. It was normal until relatively recently for a pretty big chunk of profit to be "distributed" in this way. And it made sense. A company needs the community it sits in as much as the community needs the company. Then everyone went all single entrepreneurial / maximise profits for shareholders; a tiny sliver of people got astonishingly rich and incredibly greedy, and we ended up where we are with a huge poverty gap.
Companies are making enormous, enormous profits - of course they should be taxed. Tax them more. Bring back more money to the services that need them. Redistribute the wealth, because the alternative is absolute insanity.
Seems that most comments here are negative on the
prospects of this. Almost as if they want things like this
to fail, but of course it can also be seen as valid and
informed critical thinking.
Regardless, in my book this is at least a mildly positive
bit of news even if the road to implementation will be long
and difficult.
Obviously, while no law can be enforced to 100% or be free
of loop holes that is not a strong argument to be dismissive
of the rule of law, international treaties or democratic or
other political processes.
Think about this Microsoft Irish subsidiary that "made" $200 billion with ZERO EMPLOYEES.
Not even a single person to go buy a sandwich at lunch and "help the local economy".
Nobody.
The only beneficiary is Microsoft because nobody gets any tax revenue. And Microsoft can just hoard cash, it's not like they are going to rain it down to everyone's paycheck.
This is a global problem, it requires a global solution. As much as that answer is anathema to some, it seems necessary here.
> Microsoft Round Island One, the registered address of which is at an office of the law firm Matheson in Dublin, states in its accounts that it has “no employees other than the directors”.
What the Guardian is not saying (but I am not surprised, since it's a rag) is that MS has a huge presence in Ireland, in a different company, probably.
Ireland has been MS base in Europe for decades, they have 2000 employees there, and it's where Azure had it's first European data center. I know because I applied to them back in the day, and my company had a one day outage in 2011 because of a lighting strike to the data center...
MS should pay a minimum of 5-10% of those money in taxes, where they are produced, for sure. But let's get our facts straight, so we have a better voice when we say this.
As there are some misinformation and confusion, I try to summarize a few points:
What is it:
Pillar 1 tries to tax the digital economy (FAANG etc., scope still under heavy discussion). The goal is to prevent a digital tax in each country. Basically, the profit will be taxed in market states (i.e. Google pays tax in Germany).
Pillar 2 tries to impose a global minimum tax rate. Countries levy a top-up tax on the foreign operations of their headquarter companies (i.e. difference between minimum global tax rate and effective tax rate)
Who will be affected:
This is different for Pillar 1 and Pillar 2 but both only want to tax multinational corporations defined for example by sales (> EUR 750 m turnover for pillar 2) and only if you have some minimum foreign operations. So your typical small company is not affected at all.
What's so genius about this project:
The OECD is very worried that there are still some loopholes, so they want to close them. They do it by basing the effective rate on IFRS income (or US GAAP) with some adjustments. IFRS income is also the basis they report to shareholders, so companies have a problem: Higher IFRS -> more taxes to pay
How do the countries ensure that all countries participate:
You don't have to impose a global minimu rate. If one country doesn't do it, other countries can levy the top-up tax through a different system (undertaxed payments rule for those who want to look it up).
What's the position of the Biden Administration:
The USA has their own system called GILTI which is accepted as well. It looks like the USA gets away again by participating but in the end, they will decide we won't follow the rules.
Is this fair?
Opinions differ. Why should highly developed economies like Ireland, Switzerland, Singapore not be able to set their own tax rates. They invest a lot in the education of their people. And if you think tax is fair, you don't know life. What countries will do is increase tax on profit but decrease other "taxes" (i.e. price on mining rights, social contributions etc.).
If you have questions, AMA. I devote a large part of my life on this project.
If country A undercuts taxes below a set minimum of 15%, country B is within its rights not to recognize taxes payed in A for the purpose of avoiding double taxation. As a result, country B can demand tax payments on profits generated in B regardless of what taxes were payed in A. Unfortunately, in the real world governments are beholden to the commercial interests and rarely use the mechanisms available to them. Given enough willpower offshore tax havens can be eliminated in a split-second.
pretty sure google and facebook would be just as big even if they didn’t dodge taxes. especially as they were already sizable before they started doing it.
it’s mostly to disincentivize all this creative accounting
why corporations have to pay tax at all?! They are owned by investors who pay tax on dividends and capital gains. And employees pay taxes wherever they live.
which of the FANG companies is going to take the biggest losses? They all seem to be very good at dodging taxes, but are there any differences between them?
Any increase in market productivity is quickly compensated by aggressive, wasteful government interference. Citizens can never enjoy the benefits of increased productivity, only politicians and government.
Taxation is a barbaric practice that humans need to move past. Refusing to pay taxes ensures the state will dispatch a team of armed thugs to assault you and likely kill you if you resist.
If you actually looked at any western country's budget, you'd see the vast mmajority of tax revenue is spent on welfare (and in the US case, warfare); only a miniscule amount is spent on infrastucture. Singapore for instance has way better education outcomes and infrastructure than most western countries in spirte of way lower taxes.
> The money actually going for care is pretty minimal.
That is literally the point.
Welfare = Welfare bureaucracy + Welfare Benefits
This is true of everything the government does. Government = bureaucracy + benefits, with a larger percentage going to support the bureaucracy than in any other organization or context.
And even if you increase money for benefits, the same (or sometimes larger percentage) goes to supporting the bureaucracy of those benefits.
That's a lie. The idea of Government was sold to the general population as "we'll make your lives better", not "we'll become that humongous monster you'll serve".
HN rules: apply the most gracious interpretation to my comment.
> you'd see the vast mmajority of tax revenue is spent on welfare
That is the point from the prior comment I am supporting. I am emphasizing that this is true because of the inevitability of bureaucracy inside of the very notion of "government".
Government was never capable of efficient utilization of taxes for maximizing benefits to society. It can never promise that due to basic incentive structures and the mathematics of game-theory. Of course, politicians can lie about it (and many do all the time).
It can only promise an attempt and some degree of benefits provided.
Finally a politician (Joe Biden) is fixing one of the major area of the rigged economy. If workers auto-deposited their paycheck overseas and didn't pay taxes, they would be in jail. If small businesses did fraud that their profits were over seas, they would be in jail.
Our politicians have been selling us out, as big corporations did this. Big corporations are doing fraud at saying their profits are happening in these other countries.
Hopefully Joe Biden can actually fix this. Big corporations will fight him hard.
Even if the state does it in NL, there is a difference between imprisonment and detainment. They are even physically different : they are different buildings.
No, openly agreeing with other government to prevent tax evasion and thereby benefiting all countries involved is not the same thing as clandestinely using resources of a foreign government to influence an election for your personal benefit.
I think this is long overdue, and I'm glad they recognize the challenge of smaller nations offering lower tax rates in order to "seduce" companies to do business there. For me, that is the insidious problem where if BigCorp paid 5% in taxes in a country with a GDP of a few hundred million $ they would provide all the tax revenue for all the services that country could need. This "it's a good deal for both sides" situation has made progress here difficult, and it will make getting this through the G20 hard as well.
I would imagine that in the ideal situation a government would tax some percentage of GDP which would spread the tax burden across the economy evenly, but making that work seems impossible.
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.