yes, monetary velocity is the lifeblood of an economy, but no, lowering corporate taxes would only increase velocity at the top, and velocity in the upper echolons of the economy is not good for the economy overall. instead, you want to create incentives that create velocity in the middle and lower strata of the economy, where it will do the most good.

one option is to tax the money regardless of accounting technicalities that assign revenue to international subsidiaries. then it doesn't matter where the money resides accounting-wise, since there would be no special treatment of overseas cash.

another tax-advantaged option that's entirely within apple's control is to distribute more of its income to its employees (especially retail employees who generate above average returns on investment for the retail industry), who in turn would spend the money rather than hoarding it, thereby increasing overall economic velocity (particularly in the lower tiers of the economy).

we should hold the IRS (and government economic policy overall) to the singular task of making sure tax law is applied evenly and fairly across all economic strata, so that we all have an even playing field. we should not tolerate corporate welfare in any form. corporations are not babies.

"another tax-advantaged option that's entirely within apple's control is to distribute more of its income to its employees "

You mean "shareholders's income". It's not Apples income to run social programs with.

Lowering (or preferably eliminating) corporate income taxes benefits investment at every level, from Apple all the way down to startups. If your business plan shows that if you hit plan you will generate $1M in profit your first year, and will reinvest $600k in the business, the rest going to CA and US taxes. Now contrast that to the reinvesting the full $1M in the business. In the second case the business will be able to grow faster and increase company asset/equity value faster, of course it will be more valuable. And this means it's more likely to get funded.

no, i don't mean shareholder's income. the income of a firm flows to many constituents, not just shareholders. the idea that a shareholder is the only important stakeholder is, frankly, myopic and self-centered. that's not to say that shareholders are unimportant, but they are but one part of a whole that makes a firm successful.

apple's situation itself disproves your central tenet that lower corporate taxes equates to value generation. apple is fully taking advantage of lower corporate taxes, yet it's unable to invest its massive hoard of cash fast enough to generate any additional value. that money is literally wasted by sitting in apple's bank account.

if more of that cash had been distributed to employees, some of it would have gone to buying more consumer products, like iphones (economic velocity), and some of the more enterprising employees would have decided to start a new venture (value creation).

It's money is being loaned to thousands of businesses, creating massive value.

Shareholders own the company, all its assets and all its profits. Without their willingness to allow their investment, assets and profits to be kept in the company, it doesn't exist. Suppliers and employees are only part of the equation because they are paid to be, and if they don't like their pay will walk at the drop of a hat.

If your business becomes unprofitable your shares can be rendered worthless, and you can't "quit" and exchange worthless shares for ownership in a better company.

> You mean "shareholders's income". It's not Apples income to run social programs with.

I know you didn't say this exactly, but it is not true that a company exists solely for looking after shareholder's income. They also have other things to look after, such as social obligations.

Here is an article with some more detail about it (PDF): https://centres.insead.edu/social-innovation/who-we-are/docu...

Yea that article is BS. The idea that corporations have obligations beyond their owners is pure parasitical nonsense. Obviously they have an obligation to behave legally, but their profits and assets are owned by shareholders.

Tim Cook is worth around a billion dollars, he has massive personal resources to pursue charitable activities on his own. Should he reduce the dividend an aging widow depends on to use corporate resources instead?

The article you cite says that it's about what a corporation "ought" to do. It's not currently part of the corporate charter in the US, and unless explicitly called out, a company is ultimately only responsible for shareholder value. If that means tossing money at the local community so they can continue to do business there, they will do that.

Wouldn't you be able to write off those investments against the $1 million in income? In that case it shouldn't matter what the tax rate is.

Wages, salaries, sick leave, health insurance, and retirement funds are social programs?

I think the contention is that paying more if these than us. Ecesssry for staff recruitment and retention is basically that.

My own take is that paying staff more than necessary can be counterproductive because it can lead them to retire early or feel wealthy enough to leave for less stressful or more enjoyable jobs, thus disadvantaging the company.

> one option is to tax the money regardless of accounting technicalities that assign revenue to international subsidiaries.

So wait, how do you handle the Chinese who want to tax Apple as well? And would Apple be at a disadvantage to non-American companies like Lenovo or SAP, so we would have to tax all companies in the world on all business they do anywhere if they have a business presence in the USA. Otherwise, all companies would simply stop being American because they would be severely disadvantaged otherwise.

Not workable.

Does a VAT work?

The regressive nature could be removed by an income based rebate or UBI.

> The regressive nature could be removed by an income based rebate or UBI.

Like Universal Basic Income or Mincome, this sounds great and even conservative intellectuals like the concept (Milton Friendman was a major proponent of mincome).

In practice - the problem is this gets framed as "sending YOUR TAX DOLLARS to LAZY POORS". So we're likely to end up with the regressive consumption tax and no rebates or UBI, whether that's day-1 or a decade or two down the road.

In practice I've also noticed that many EU retailers will attempt to charge VAT even on export goods (which should not be taxed), and I'm sure they're reporting them as exported and just pocketing the extra 20% tax.

You can get your VAT refund at the airport, retailers can't give it to you directly.

I mean internet orders. That's the point of export as far as VAT is concerned.

EU retailers should not be charging VAT on orders they deliver overseas.

VAT is how most countries that aren't the USA handle this problem. But even then, this isn't global taxation that the USA wants to implement uniquely, if something was made and sold outside of the USA, the USA would never have a chance to VAT it.

I honestly can't tell if you're being ironic/sarcastic here. If this is seriously what the US wants to do, no amount of domestic tax reform is going to achieve it. Military conquest would be the only option (at least for unilateral global taxation). Then 'domestic' tax reform afterwards.

I think it would. I'm starting to get that familiar 'realities are diverging' feeling reading some of the comments on this post.

Other than the options you have suggested to deal with the regressive nature of consumption tax (which seem sensible to me), I thought the Republican tax proposal is essentially to: lower tax on returns to capital (by reducing the corporate tax rate) and institute a value-add consumption tax (in the form of a cash-flow tax).

The republican proposal equalizes American taxes with much of the rest of the world with respect to imports and exports. Basically, in most countries, goods coming in (imports) are charged VAT while goods going out (exports) get a VAT rebate. Since the USA doesn't do that ATM, goods going into Mexico get VAT applied to them on the Mexican side but do not get rebated on the American side, while Mexican goods coming in get rebates from Mexico but nothing occurs in the USA beyond normal sales tax.

This is a different thing from taxing global profits, which is uniquely American (well, and Eritrea). VAT is something else.

Overall corporate tax revenue is only 9% of revenues and 6% for C-Corps with remaining in pass-through S-Corp, LLCs or sole-proprietors[1]. I think the tax revenue we get from corporate taxes people think is immense but it is not in terms of collected revenues but it is massive in terms of each businesses tax rate hit (35%+ non competitive today) to mostly small/medium biz. Companies having up to 1/3 more revenue to use for other things I think will end up in larger pay and will make up for the loss in corporate tax revenues going to income tax and a possibly dividend tax increase

[1] https://taxfoundation.org/us-corporate-tax-revenue-low-becau...

I'm curious where support for the idea that spending by upper echelons does not help the economy while spending by lower echelons is comes from.

Just think about two scenarios.

1. A person struggling to make ends meet ends up with an extra $200 a month.

2. A person who makes enough to meet all of their needs and many of their wants ends up with $200 extra a month.

Which one is more likely to spend that $200?

I'm not rich but I am in group #2. If I got an extra $200 a month it would probably go into savings or debt payoff. That's good for me, but it doesn't help the economy.

Why does debt repayment or savings not help the ecoomy? It's not like the cash goes under someone's mattress. It goes back into the system.

Consumption drives demand. Which drives the economy.

People with 2 million in bank are not going to spend that. It's sitting there. After a point there's on so many investments that can be made.

contrast that with people who need cash to buy things right now.

The second stimulates the creation of work.

> It's sitting there.

No, it's not. The bank loans it out. There's a reason the banks offer free checking - it's not because they're in the charity business, but because they loan out the deposits and make money off of that.

Yes, banks take that money and use that to fund loans, which are assets for banks, which then earn interest and the loans go out into the market for people to use. Usually to fund houses or investment, or certain other big ticket purchases for consumers.

There's more to it, and you can go deeper, but for the context of a simplified comparison, loans and investment were excluded.

The full explanation is that investment focused money has to be supported by consumption. You cant keep investing without people consuming stuff. Otherwise there's really no economy.

So consumption in the middle of the pyramid and bottom of the pyramid, generally has more impact on the economy:

2 million distributed between a bunch of people who will spend all of it immediately in purchases (toilet paper, food, clothes) has an immediate and direct impact on the economy.

Vs.

2 million to 1 person, who spends only 50k on daily expense, buys 1 car, and invests the rest, (there's only so many houses/cars and big ticket purchases people are going to make with their money. You don't need 7 dryers for example.)

That's the reason. Investments aren't going into the economy directly. They need someone else to be creating demand, thus creating investment need.

All invested/loaned money gets spent. That's the whole point of getting a loan or an investment - you need to spend the money.

Nobody gets a loan or sells their company in order to store the cash in their mattress. Nobody hoards cash. Nobody with any fiscal sensibility, that is.

Money in a mattress is not working, and wealthy people especially always put the money to work (otherwise they become not-wealthy). Putting the money to work means it gets spent.

Investors are seeking high ROI and low risk too, though. This creates challenges for "putting money to work".

If risk is ignored and the money is thrown down a pit through ineffectual business, it's pushing on a string, velocity-wise. The company added the same kind of temporary stimulus you'd get by hiring people to dig ditches or do a cash transfer, but in a less efficient way than either one of those. Sometimes you get a hit, but dealing with direct investments is high overhead and introduces more conflicts of interest.

Capital that prefers lower-risk bets, on the other hand, ends up pooling in financial instruments designed for a low nominal risk: indexes, bonds, treasuries, real estate, and more sophisticated cocktails like the repackaged subprime mortgages that contributed to the 2008 crisis. These tools act indirectly on businesses, and so the money only gets "spent" in the sense that someone in finance is getting paid to handle the trades, somewhere along the way. Hence you get the effect of "velocity at the top", because money is sloshing around in a musical chairs game disconnected from goods and services, going from one large institutional investor to another. Each trade raises the pressure to speculate, allowing the market to trend upwards without actually doing much of anything for consumers, gradually increasing the likelihood of a crash.

And that is why Apple can end up sitting on $246B at the same time that the economy runs at less than full employment. Their strategy is already executing at full funding. They're financed for anything they could ask for, so if they're not doing it, they didn't want to do it. So they have to make a decision as an investor instead, and one of those options is to sit out if they perceive the market to be too risky.

> Investors are seeking high ROI and low risk too, though. This creates challenges for "putting money to work".

Hoarding cash has a negative ROI (inflation). They are still going to put it to work. Apple is not sitting on $246B in idle cash.

> Each trade raises the pressure to speculate, allowing the market to trend upwards without actually doing much of anything for consumers, gradually increasing the likelihood of a crash.

There's no evidence of that.

Simple evidence for that is from the experience of many funds - there are only so many investments that can be made around the world that have higher than benchmark returns.

So its normal for funds to return their capital back to investors as they say "hey, we really cant find more targets".

You seem adamant on assuming that investment = money at work.

This is like saying that pressing on the pedal = accelarate, while magicking away all the work done by the engine, and various other moving parts. The transmission mechanism.

Investment, is not consumption.

It is investment, in order to take advantage of consumption.

Directly providing consumption, is a far better method of improving economic activity, than by investment, in the current market scenario.

Oh wait - maybe I have a bead on where you are coming from:

In the scenario where all infrastructure and all factories were working at max capacity, any further investment in Infra/capex, will lead to an improvement in demand.

In the current scenario though, that is not the case, and adding more factories will not result in an increase in economic output.

Simply put, building a factory, but having no customers is investment with 0 return.

Banks can't loan 100% of their assets so, at least 5% does just sit there.

I know, that is the "reserve requirement". It's a government requirement, and not particularly relevant to this discussion.

If you compare 100 with 95 clearly 95 is less efficient. QED.

> Consumption drives demand. Which drives the economy.

That's one way to look at it. But obviously at an extreme it doesn't work. The best way to increase monentary velocity and consumption is hyperinflation, but nobody is advocating that.

If consumption were truly driving the economy, Venezuela and Zimbabewe would be monentary powerhouses.

Debt repayment destroys money.

http://positivemoney.org/how-money-works/advanced/how-money-...

Banks don't have a shortage of money if less people save. In theory yes, but in practice, banks can borrow money at basically a 0% interest rate from the government. If the government sees that there isn't enough money in circulation, they will just put more in circulation.

It does but no value is created.

So we should encourage a system where people struggle to make ends meet as long as it's not you?

How did you get that out of their statement?

History. If you for example compare US growth per capita with top tax rate you find the highest growth during high tax periods.

The dirty secret that many people don't want to acknowledge is that government spending can create economic activity (as opposed to just moving it around).

The roaring economy of the 50s was the result of massive government intervention during World War II - literal central planning in many cases - as well as numerous social and public-work programmes (GI Bill, National Interstate Highway construction, etc) funded by intense taxation on upper brackets (95% tax rate).

> The roaring economy of the 50s...

That's a huge oversimplification. It helped that Europe and Asia were devastated by the war, and our gearing up industry for war led to huge dividends for us because we still had factories and raw materials which remained intact.

And evidence on the new deal is equivocal [0]. It didn't seem to have much impact until the war.

https://www.wsj.com/articles/SB123353276749137485

Does correlation equal causation? You could also argue that the threat of a Soviet war led to the highest periods of economic growth as well.

Clearly it was bell-bottom pants.

The highest growth occurred when there was no US income tax at all.

Only if you ignore population growth.

The US went from subsistence farming to industrial superpower before the income tax. The case for high taxes causing greater economic growth needs a lot more work.

The greatest equalized economic growth. Go ahead and ask miserly monarchs how it works to grow the wealth of the few at the expense of the many. The U.S. could not long have tolerated robber barons without major social trials.

> The U.S. could not long have tolerated robber barons without major social trials.

Then, as now, there was a lot of envy/dislike of wealthy people. That doesn't support the idea in this thread that wealthy people are bad for the economy.

There's lots of evidence that the concentration of wealth is bad for the economy, but I suspect from your posting history that you'd ignore it all in defense of the ultra-wealthy (which you're not one of and will never be, of course).

https://www.google.com/#q=concentration+of+wealth+effect+on+...

It's your right to believe whatever you want, but that's what this world-view is, belief, and nothing based on evidence or reality.

Extreme concentration of wealth reduces competition which is bad for the economy. Further, wealthy people tend to spend money on less economically scalable things. A paying a 5 star cook may move money around but you can't turn a 5 star cook into a factory the way you can automate a fast food kitchen.

Sure they invest, but that also tends to hurt the economy by driving up relistate prices etc without actually increasing output. They also tend to do vanity investing which is why VC firms for example average such terrible returns.

> Extreme concentration of wealth reduces competition which is bad for the economy.

There's no evidence of that. The canonical robber baron, Rockefeller, steadily drove down kerosene prices by 70%. They did not go back up. See "Titan" by Chernow.

> wealthy people tend to spend money on less economically scalable things.

This makes no sense to me.

> hurt the economy by driving up relistate prices etc without actually increasing output.

This is claiming that rich people spend more money than non-rich for the same item. There is no "rich premium" paid for things. Even so, the person who gets paid that money then goes and spends it - it doesn't disappear from the economy.

> They also tend to do vanity investing which is why VC firms for example average such terrible returns.

You're asserting that wealthy people are terrible at managing their money. It's like saying an Olympic athlete doesn't know how to train effectively.

Would you prefer to take financial advice from a rich person or a poor person?

>You're asserting that wealthy people are terrible at managing their money.

Or maybe, the assertion is that wealthy people are good at managing money in ways that benefit their entrenched holdings, but not good at finding the Next Big Thing. Or in ways that simply improve the economy overall.

Your entire argument can be countered simply by the example of the Ford Motor Company and its decision to pay workers more than the bare minimum so that they could actually afford to purchase the vehicles they were making. This lead to huge gains over other boutique automobile manufacturers at the time which produced vehicles that cost several times that of the Model T. And improved the economy of the area immensely.

In general, extreme concentration of wealth is bad for the economy because it does not allow enough people to make decisions that cause growth overall and improve the wealth of the nation. The most obvious historical example is that of the high middle ages where all of the land, currency, military power, etc. was in the hands of the few and 90% or more of the population was at a subsistence level. The wealth of the nation was not spent on improving the lives or economy of the people, but on defending the holdings of the rich from other wealthy people.

In contrast, the renaissance started when that wealth was distributed among merchants, craftsmen, and bankers who were able to invest their income and gains back into technology that improved productivity for everyone (but most especially for themselves) and resulted in an overall wealthier nation.

Monopolies are well studied, fungible global commodities like kerosene have complex interactions. But, nothing in Titsan says a more competitive market could not drive down prices by 71%. However a more obvious counter example is Mexican telecom market.

You can't automate million dollar paintings. If you sell 300,000$ watches the cost is part of the appeal, it's just conscious consumption.

Supply demand curve, if someone wants to buy land as an investment there is no new land created which increases prices somewhere. See any city with significant vancant housing stock from foreign investors.

JK Rowling did not become wealthy by being a wise investor. The Walton family includes someone who diversified and guess what they have less money than the others, demonstrating incompetence. I could go on but having lots of money and being a competent investor are very different things.

Does someone pay you to defend billionaires?

US was well past subsistence farming in 1776. Guns and Ships don't grow on trees, and people don't eat cotton. Further with a population of 2.5 million and huge tracts of land there was a lot of low hanging fruit such as fur trapping.

Just track GDP in (1776 vs 1913 / population in 1776 vs 1913 ) / (1913 - 1776). Well don't do exactly that you need to use logarithms because exponential growth. You end up with significantly less than 2% annual growth.

> US was well past subsistence farming in 1776.

Not really. Nearly everything a farm family needed was produced on that farm at the time. Note that Jefferson made his own nails on his plantation. People were short, malnourished, and bone evidence of having worked incredibly hard. There was no farm mechanization.

A consistent food surplus was not produced until around 1800.

That's not what substance farming means. Plantations sold crops for profit to buy thing such as slaves or raw materials. Nails require mining to produce Ore and have nothing directly to do with farming. So, yes plantations may have been reasonably self sufficient, but that has more to do with transportation and transaction costs than everyone working in a field somewhere.

PS: Rememebr prior to the revolution the US was sending a great deal of wealth back to England. The even then the colonies enjoyed a relatively high standard of living at the time.

Not having a consistent food surplus means subsistence farming.

(There's always been some level of trade.)

Your definition of basically spending what you make would end up with subsistence fortune 500 CEO's. People who don't directly farm are by definition not subsistence farmers.

PS: Yes, subsistence farmers can include minimal trade, but not support more than local governments as that would imply a significant surplus.

The more widely used definition of subsistence farming implies literal self sufficiency and living in a simple self constructed dwelling, not sending your children to college while slaves work in the fields or hiring local artisans to construct a grand estate (Monticello).

The relative sizes of the two groups.

Corporations don't pay taxes, customers do. Lowering taxes means prices go down which increases economic velocity far more than redistribution. Dead-weight loss is a real thing. $1 collected in taxes results in < $1 in economic benefit. $1 in tax cuts result in $1 in economic benefit.

Well, you're correct in that taxes usually create dead-weight loss. But this is not always the case (e.g. taxes that price in negative externalities). And tax dead-weight loss varies depending on the type of tax: http://i.imgur.com/NxWo7DP.png

If you lower taxes to encourage overseas profits to come home then won't you drive what you already consider to be a strong dollar even higher.

Tax policy is typically used in the opposite way, if the dollar drops and the US government wants to shore it up, it will alter tax policy to encourage repatriation. The Bush administration did it in the early 2000's if I recall correctly to help strengthen the dollar.

The policies to drive down the dollar are probably less likely to happen long-term (reserve currency, oil pricing, military purchasing, manufacturing offshore cheaper and to get around labor/environment/healthcare issues, Bush doing it also raised the cost of oil during war which benefits some people), lower taxes has wide support.

If more money/investment is back in the US then it may actually help wage stagnation and get people raises. It will at least happen in the small/medium business arena which would also love to have healthcare removed from employment.

To help small/medium business, lower taxes and remove benefits from employment. They will have more to pay employees.

Better to have a strong dollar with lots of capital and high productivity, than the inverse.

Forgive me but the dollar is already relatively strong, interest rates are the lowest they've been in centuries, there is no lack of capital floating around the US economy for those who can use it. I am questioning what the point of encouraging overseas profits to come back under such a situation? You drive the value of the dollar even higher which at a certain point forces companies to offshore faster.

You are using the word "relative". I'd say the US has gradually become capital starved, our tax system is eating our seed corn. Our growth rates have been pathetic the last 40 years.

More capital is always better. It lowers the bar for investment. It increases productivity, allowing us to get more of the best jobs. The strong dollar is a sign of success.

And don't forget that reprinted profits aren't always revinested, lots of it is paid out to shareholders who consume some of them, creating demand.

Your "seed corn" argument is not obvious to me, especially since we are talking about corporate taxes. Care to elaborate?

I think one of the unintended effects of the loose monetary policy at home and abroad is the extreme rise in home prices in all major cities. I think most of this was not intended by the policy makers. But investor dollars follow safety and returns - real estate has been an amazing investment since 2008 (look at major cities like Toronto, Vancouver, SF, etc.). We're talking about doubling you capital in less than 10 years. This is not stopping ... I don't think it will until rates go much higher.

We could always raise property taxes and enact laws that encourage the treatment of homes as the necessity of life they are, rather than as investments to be bid up in the hopes that a greater fool will come.

We don't have to lower taxes. We just change the tax law to tax that money whether they bring it back to the US or not.

You could do that but it would create more games with headquarters being outside the US and even small businesses/medium businesses would start doing that. There would be a million loopholes around it.

I say corporations won the war, they have the legal teams to keep winning. As a response let small/medium sized businesses compete better by just lowing business taxes to really low levels, or progressive taxing as you grow. Right now the high tax rate only really affects our engine small/medium businesses who provide 50% of GDP, 65+% of jobs and 33% of exports.

The only companies paying taxes are small/medium businesses, the tax system here almost is a competitive advantage to large companies over small/medium. If larger companies aren't going to invest here, get competitive help to the small/medium companies and entrepreneurs that are to challenge them.

I don't know about corporations having all this wrapped up. There is a lot of pressure on them since 2008 plus one leak after another - Lichtenstein, Luxembourg, Panama, Switzerland etc hasn't made it easy to be tax haven. If they had "won the war" we wouldn't be discussing it here.

Many of those were personal income tax dodging, corporate tax dodging is usually island tax havens or Ireland recently (Apple/Facebook).

Personal income tax dodging is bad as that is where most tax revenue comes from. Taxes should probably be lower on income as well though to discourage tax games and retaining more tax whales (wealthy tax payers). People of all brackets need more money in their pocket for this consumer economy that hasn't really rebounded.

"Bloomberg: Sorry America, Your Taxes Aren’t High"

https://www.bloomberg.com/news/articles/2017-04-11/sorry-ame...

How low is low enough? Pay your damn taxes.

Only takes into account federal taxes (30%ish). There are state (3-5%), sales (6-10%), property (based on property), county taxes (less than 1%), self employment/FICA tax (15%). For small/medium business or pass-through business sole-proprietor/LLCs etc have a self-employment tax of about 15% on top of the income (for Social Security / Medicare i.e. FICA, regular employees pay half while the company pays the other half).

There are lots of taxes beyond income tax. Basically taxes take about .35-.50 out of every dollar earned through income, sales, other taxes. Business expenses for businesses, kids, credits and other things can help bring it down as well as standard deductions but it is still high.

This seems a lot until you notice that really rich people don't pay these taxes. They make capital gains or receive dividends, which are either tax free or taxed at a much advantaged rate. This is why there is such a great separation between the 1% and the rest of the population.

The article specifically states that the OECD analysis estimated 'payroll taxes, federal income tax, state and local government taxes.'

"Excluded are the countless other ways that governments levy taxes, such as sales and value-added taxes, property taxes, and taxes on investment income and gains."

They also don't include self-employment tax (15%) and sales tax (6-10%). Sales tax and self-employment alone are over 20% close to 25% not counted in the article. Property tax can be close to 1% (depends on property), dividend taxes also aren't included (10-15%).

So you are saying that you want Samsung to be able to build phones tax free in China, but Apple should pay 40%+ income taxes (CA+US) for doing so?

Please let me move all my retirement savings into foreign stocks before you pass this law, please.

California has enormous advantages in intellectual capital that outweigh a high tax rate.

Imagine it is 2007 and you can choose to invest in Apple and receive 60% of profits, or Samsung and receive 100% of profits. What's the better investment?

>...Imagine it is 2007 and you can choose to invest in Apple and receive 60% of profits, or Samsung and receive 100% of profits. What's the better investment?

Imagine it is 2007 and you can choose to invest in Yahoo and receive 60% of profits, or Samsung and receive 100% of profits. What's the better investment?

That's a good point. But surely you accept that California has some inherant advantage? If the effective tax rate is 15% in South Korea and 20% in California, investors will still pour money into Silicon Valley won't they?

>...But surely you accept that California has some inherant advantage?

For now at least, it does seem to have an advantage and draws capital. (For example, Samsung has a huge R&D center in silicon valley.) Of course for every successful IPO in the valley, there are many others who don't make it near that far.

The original poster was saying "...We just change the tax law to tax that money whether they bring it back to the US or not.". This would mean for example, that when selling in China, Apple would have to pay Chinese AND US/CA taxes on the profits made there and Samsung wouldn't - this would put US corporations at a huge disadvantage to their competitors. While I can see the goal is to get more tax money from corporations, it is obvious to see there would be a number of unintended consequences.

I'm still not sure the original poster is wrong. Yes, Apple's would be at a disadvantage due to higher tax rates but maybe that would be offset by the inherant advantages that California offers tech companies. If such advantages are strong enough to overcome a 5% difference in tax rates with South Korea, maybe they are strong enough to overcome a 40% difference. Investors will moan and complain but ultimately they will continue to find startups in California because it still offers the best return on investment.

>...Yes, Apple's would be at a disadvantage due to higher tax rates but maybe that would be offset by the inherant advantages that California offers tech companies.

What you are forgetting is that US law doesn't discriminate against foreign owned companies. (Which is good - it encourages investment in the US.) So if a corp with US headquarters would pay 30-40% taxes on profits made in non-US countries, this would make those companies very uncompetitive against a foreign company.

>...they will continue to find startups in California because it still offers the best return on investment.

If something like this was done, there may still be lots of money invested in CA, but eventually it would be mostly companies with a HQ outside of the US.

The thing is, Apple hasn't really made those profits in a foreign country - there is very little profit to be made from manufacturing mobile phones in China which is why Apple outsources this task to Foxconn. There is also little profit to be made in selling phones - if Apple's retail arm was a separate company it would have no leverage to negotiate a good deal.

The bulk of Apple's profit has come from design, marketing and engineering by employees, plus outstanding judgment and leadership by Steve Jobs. Those things were done in California. The problem is that Apple uses accounting tricks to transfer the profit to Nevada or Ireland or some other low-tax jurisdiction.

It doesn't matter where the company's headquarters are located. If Samsung has profitable operations in California it should be taxed on that activity at the same rate as any other Californian business. That leads to another point - there are plenty of Californian businesses which cannot use the same accounting tricks that Apple uses. So you have a situation where two businesses that draw from the same pool of resources pay different tax rates. It could be that Business A uses those resources more efficiently but Business B gets funding because its tax rate is lower. That strikes me as inefficient.

Running a business in California is like growing crops in a particularly fertile field. You get a great yield, but you should also pay high rent.

You are bringing up a few new issues here.

In regards to Apple, Tim Cook in his testimony to congress said:

>...The Company’s FY2012 total US federal cash effective tax rate was approximately 30.5%.1

>…Apple does not use tax gimmicks. Apple does not move its intellectual property into offshore tax havens and use it to sell products back into the US in order to avoid US tax; it does not use revolving loans from foreign subsidiaries to fund its domestic operations; it does not hold money on a Caribbean island; and it does not have a bank account in the Cayman Islands. Apple has substantial foreign cash because it sells the majority of its products outside the US. International operations accounted for 61% of Apple’s revenue last year and two-thirds of its revenue last quarter. These foreign earnings are taxed in the jurisdiction where they are earned (“foreign, post-tax income”).

https://www.apple.com/pr/pdf/Apple_Testimony_to_PSI.pdf

>...It doesn't matter where the company's headquarters are located.

If you are a US company, it does.

>...If Samsung has profitable operations in California it should be taxed on that activity at the same rate as any other Californian business.

It is. The difference is that Samsung subsidiaries that make a profit in Germany don't have to South Korea corporate tax when they want to invest in South Korea. In fact, the US is the ONLY country (other than Eritrea) that does this - every other country has figured out that this discourages bringing investment capital back to the home country. The guy who posted the original snarky post about just taxing all the worldwide income of a US corp didn't try to defend it when people posted some of the more obvious consequences. US companies need a level playing field against the companies from other countries

>...That leads to another point - there are plenty of Californian businesses which cannot use the same accounting tricks that Apple uses.

I think you are referring to how some of the big corps essentially pay no US corporate tax. A number of economists have said a much better system would be a revenue neutral system where you remove the corporate tax and increase taxes on capital gains and dividends as that is much easier to tax and corporate taxes tend to hurt the workers in a company and hurt the consumer by increasing prices. But that is a different issue.

>...Running a business in California is like growing crops in a particularly fertile field. You get a great yield, but you should also pay high rent.

CA has unique strengths and weaknesses for a business. There are smart people all over the world so there is no absolute guarantee that CA will do as well 40 years from now as it has done over the 40 years, but that again is a different issue and worthy of its own discussion.

Feel free. Enjoy your already bond-level returns that asset class enjoys.

Technically, that would require taxing a foreign company for foreign business activity. It's out of the US's jurisdiction.

It might work if we use our military to make all companies pay USA taxes no matter if the money is earned abroad and/or by a foreign company. /s

No, this isn't workable.

Pay your taxes or don't sell your products in the country.

Don't say something can't be done when it can easily be done. We'll embargo your goods at container ports and land borders if necessary. If you're a digital company, we will drop your ASN traffic at the border.

Donald Trump becoming president is fairly indicative that nothing is off the table.

Hey, there are two companies, IBM and SAP. They both do a lot of business abroad, pay taxes abroad, and whatever.

Now which one do you want to pay all their taxes on all their international income? IBM? SAP? Pick carefully: why should SAP have a competitive advantage over IBM?

Digital companies ALREADY pay taxes for everything that happens INSIDE of the USA. What we are arguing about is stuff that occurs OUTSIDE of the USA.

Donald Trump becoming president simply means crazy idiotic proposals are now on the table. But then again he is realizing "gosh, this is really hard, not as easy as I thought" like health care, wall building, labelling china a currency manipulator, tax reform, etc...

> Donald Trump becoming president simply means crazy idiotic proposals are now on the table.

I'm actually pretty fond of some of his proposals, such as deporting illegal immigrants who have committed crimes and making it much more difficult to hire H1Bs (I don't like many other policies he's put forth, but you can't get everything you want); but then, that's what happens when both parties ignore a large chunk of America. Public policy starts coming down the pipe that gets called "crazy idiotic", and then its policy.

American citizens are taxed on all worldwide income, why is it crazy that businesses should be as well? If you pay taxes to some other country, sure, you get a deduction for that. But tax accounting fuckery where you're paying no taxes on a large amount of income? Nope.

https://en.wikipedia.org/wiki/Double_Irish_arrangement

Illegal immigrants who committed crimes were being deported before Trump, H1Bs were already difficult to hire and so on. To be honest, I don't care what Trump does as long as he doesn't start a huge ass war or crash the economy, and I have honest fears that both of those are a possibility from someone who finds every so much harder than he thought.

Nah. Apple's "foreign business activity" in Ireland is a tax dodge.

It is, but it's a dodge based on money from products manufactured and sold outside of the US, owned by a company not in the US, so it's still not clear how the US could legally insert themselves into there.

Isn't Apple Ireland owned by the US company?

What is Samsung's foreign business activity? Cause it doesn't pay US income taxes on it, ever.

Why? It was earned outside the US so how does the US have any moral claim to it?

The US lays claim to income tax on its citizens' earnings outside the US, even when they're wholly resident in other countries, so ...

That doesn't make much sense in this case. You can't arbitrarily tax foreign corporations that aren't on US soil.

I hope you never hold public office. Please, if you plan to run, let me know so that I can adjust my investments accordingly.

I don't care about your investments, I care about entities paying their taxes.

Why do you think a foreign company should pay US taxes?

Apple isn't a foreign company.

Except that the foreign company which profited by 246B is foreign. If it weren't foreign, then taxes would have been paid to the US on the monies as they were made, and there wouldn't be close to that amount of money offshore. As the article says, "Repatriation is front and center. That is good for the country and Apple." That is different from envious theft.

There is more than one company called Apple. Which one do you mean?

Is the point not about tax evasion?

No. It is not even clear this is tax avoidance, let alone evasion. No country on Earth taxes companies that are foreign to it, unless they do business inside the borders.

So are you recommending that a foreign company should only pay taxes on what they earn in the US, but a US company should pay taxes on everything it earns everywhere? (i.e. the US government should get 36% of the profits even if something is built/sold in another country, just because the company has its headquarters in the US?) You do realize this would put US corporations at a huge disadvantage to corporations in any other country, right? You can imagine some of the unintended consequences.

I think only Eritrea and the US taxes corporations when brining back money into the country. For obvious reasons other countries realized this was not a good approach and don't do that.

That would massively disadvantage US companies operating abroad, compared to foreign companies. E.g. Ford builds a car in Spain, ships it to France and sells it. They pay a US tax to do so. VW does the same, but pays no US tax, therefore the VW car will be cheaper. It would kill US companies global competitiveness.

You would have to radically change tax laws and likely it would not stand up to the courts.

How close to zero do you want to get?

So just to be clear, you think the government should provide Apple employees in the United States with healthcare, but you don't think Apple should contribute to the cost of that?

What could America possibly ever need dollars for? They can print them at will..

(And yes, individuals might want to work for dollars. But the American domestic economy as a whole only needs to accepts dollars in order to make other people accept them in return for their useful goods and services.)

Also, a strong dollar is useful for all consumers---not just rich people.. (The limits to dollar strength are not in export, but in making monetary policy too tight for the domestic economy.)

Alternately, just crack down on Apple's tax evasion.