I think you are fundamentally missing the nature of the loopholes being exploited. They have less to do with the complexity of the taxes in one country but rather the complexity that emerges naturally from different countries having different tax codes. How would a flat tax help avoid this scheme for example?: http://www.nytimes.com/interactive/2012/04/28/business/Doubl...

The whole point is they skip the U.S. tax code entirely.

If you don't have control over foreign loopholes, you eliminate them by applying to companies what you apply to individuals in the US. I.e. that US companies may not pay less taxes than they would pay if their activity was all in the US.

It would of course increase the effective tax rate in for US large companies a lot, but the US corporate tax rate is very high vs other countries. If it becomes efficient you can afford to reduce it.

I don't think getting rid of these foreign loopholes is as simple as you think it is. 1. What counts as a "US Company"?

2. So you're proposing that Apple pay the U.S. taxes on sales in Germany? Also that every country should do this?

1. Companies which parent owner is based in the US. Companies are already paying taxes based on consolidated regime, it is just that they consolidate all entities within a tax jurisdiction. So the concept exists, it could just be extended.

2. You wouldn't have a double taxation. You would apply to companies what the US applies to US individuals. If you have a subsidiary in Germany and paying local taxes of 10, but that would be paying 15 if you had the same income in the US, then you owe 5 to the US taxman in addition to the 10 you owe to the German taxman.

Alright here are my new loopholes to evade your amendments: I'll set it up so that my other company in the other country is sharing profits with my main company. Maybe I'll have a family member or someone I trust actually own that company. Perhaps this doesn't work for some reason that already exists in the tax code, but I've already met the letter of the law that you spelled out here. Obviously that would be easy to fix with some further amendments but the problem is that this back and forth we are having is happening at a larger scale through the years. And in real life I have 10-1000 times as much money to figure out how to defeat or get around your tax codes.

I think what you are describing is a company not based in the US not having to pay this tax. Effectively companies fleeing the US. Agree that this would likely be a consequence. But that's the price to pay to maintaining high tax rates. Countries don't like competition but the reality is that this competition exists among them.

I don't think Apple and Google can flee to Bermuda or Ireland and that's not what I was talking about. The employees aren't going to move.

I was just pointing out a simple loophole in the specific rules the you proposed as a rhetorical tool: it's very, very hard to write a loophole free tax code in light of the inherent complexity of having many nation states and multinational corporations. At the very least, it should become a cultural norm for companies like Facebook, Apple and Google to report tax loopholes even as they exploit them.

You still have double taxation because of dividend taxes. The US has one of the highest corporate tax rates already, as a country we’d be far better off making it zero.

> You still have double taxation because of dividend taxes.

Corporations are distinct from their owners, that's the whole point of a corporation. That's not double taxation, it's single taxation of two separate entities, one of which acts as a liability shield for the other.

> The US has one of the highest corporate tax rates already,

Nominally, but one of the lowest effective corporate tax rates

Whether it’s two seperate entities or not, the disincentive is still the same. Investors who want to start a business in the US have to pay > 50% of their profits to taxes before they receive them.

And the high US Corp tax rate isn’t nominal, it’s real. Apple appears to pay a lower rate, but that’s only because of most of it’s profits are earned overseas.

If it paid 10% on two thirds of its earnings earned overseas, and 40% (state and federal income tax) on the one third earned in the US, it looks like only an 19% total income tax rate.

But when it returns the foreign earnings it pays another 40% state/federal on them, for a blended rate of 43%. And shareholders owe dividend and state taxes on top of that.

Tax deferral isn’t avoidance. Even if Apple gets a 10% repatriation holiday, their blended rate is still over 30% and total for shareholders over 40%.

Money is taxed every time it changes hands or moves around. When I get my paycheck, I pay taxes on it. Then, when I buy a ham sandwich, the shop owner pays taxes on it. Is that unfair "double taxation?"

We aren't talking about taxes on "money", we are talking about taxes on investment.

Investments are made to return profits, the more of the profits society takes, the less incentive investors will have to start and grow companies. So you should think about what tax rate you think we should have on investment.

Right now if you and friends start a business in the US, for every dollar in profit you'll first owe state income taxes, and federal corporate income taxes, which is anything from 35-45% depending upon your state. That's even if you re-invest every penny of profit into the business, into new jobs and higher productivity improvements. Why as a society are we reducing earned capital by more than a third every time it's reinvested?

Then, if you ever want to pay a share of those profits to your investors as dividends, now there is another 15-35% tax, based on state/income tax brackets. That's the double layer that means US companies lose at least 50% of profits and up to 70% to taxes before their owners get any.

Do you really think business owners should pay 50-70% of their profits in taxes? Then don't mind if some decide starting their business in a lower tax country makes sense.

There are taxes that are harder to skip than others. (At the risk of sounding like a broken record, land value taxation is basically impossible to avoid if you are using land.)

Would that really be effective? A lot of very large companies may just own very little land.

You'd pay for land by value, not amount.

So Google owning an block in Manhattan to put their office on would probably garner a higher bill than a farmer with a bunch of fields.

But yes, you can side-step the tax by using less land and eg more capital. (But that's fine, somebody else will use that land you are not using, and pay the tax for it. And if everyone is doing that substitution, it'll make land more expensive in the end.)

Apple doesn’t skip the US tax code, they pay huge amounts of US taxes. They don’t repatriate foreign earnings because it would cost shareholders over a 50% tax rate.

It is not believable to me that such a high fraction of Apple's profits are happening in Ireland. Clearly something is being distorted or manipulated to avoid either the U.S. or some other country's tax code.

If this was all so above board and not a loophole or gray area, why do they want to be so secretive about it? "“For those of you who are not aware Apple are extremely sensitive concerning publicity,” wrote Cameron Adderley, global head of Appleby’s corporate department, in a March 20, 2014 email to other senior partners. “They also expect the work that is being done for them only to be discussed amongst personnel who need to know.”

https://www.nytimes.com/2017/11/06/world/apple-taxes-jersey....

Virtually none of Apples profits are made in Ireland and Apple doesn’t claim they are. Ireland is where they’ve invested the profits, after paying taxes on them to the countries they were earned in.

The controversy is only on how much tax they should pay on the interest on their profits. Ireland gave them a sweet deal because it cost them nothing to let Apple deposit $100B+ in Irish banks.

And all corporate decisions have basic levels of privacy attached. No accountant, tax or otherwise, should talk about their clients tax and business decisions.

>All they are doing is arbitraging loopholes in the tax systems. Politicians have been trying to solve way too many problems by taxes (taxing differently x and y) or giving tax gifts to donors and various organised interests. As a result it creates an arbitrage-able tax system.

The loopholes themselves are gifts to friends, lobbyists and donors.

>I wouldn't point your annoyance to those who are optimising their taxes (after all this is merely their fiduciary duties to their share holders) but to the designers of this tax system.

Why are you pretending that those optimizing their taxes are not furiously lobbying to keep them "optimized"?

>Create a flat tax and pretty much all tax avoidance schemes disappear.

The flat tax is possibly the most regressive tax system ever conceived. If you want to reward owning for a living and punish working for a living then it's almost the perfect tax.

A flat tax on income would help, but it's still a tax on income, and so you can move that around with clever transfer pricing etc.

Land value tax works even better: it's physically impossible to move or hide land.

Somehow I doubt the person making $20k/year paying the government 20% would see it the same way as the person making $100k/year.

What do you mean?

A few points, but I am not sure which one you are referring to:

- interesting enough actual taxation in the US seems to be mostly flat in practice (after a certain threshold): rich people get more deductions and can hire lawyers to use all the loopholes

- you can have a mostly fixed marginal rate of taxation on income, but still have progression in average rates. Eg give everyone $10k/year as an allowance, and tax at a fixed 20%.

- for taxes on income there's a trade-off between equality, ability to pay, but also blunting incentives and raising revenue. Luckily, if you tax land value instead, you can tax away essentially the whole of land rent without blunting any incentives to work or invest. (So the whole conundrum about the right way to tax income can be mostly side-stepped.)

I'm about to move to Singapore. They have a progressive income tax system with almost no deductions, but the maximum marginal rate is 22%. (VAT is 7%.) Since there system is so simple and rates are low, it's usually easier to just pay instead of trying to find loopholes.

I mean that flat-tax rates punish the poor. One may have to miss a meal to pay their taxes. The other will have a few less bottles of champagne to purchase.

Even in your follow up post as soon as we make provisions for the reality we live in the flat tax goes back to being a progressive tax, again.

So what we really need is a simpler progressive tax rather than a gradually complex flat tax.

The main argument for a flat tax is to simplify the system and make it harder to game. What really punishes the poor are complicated taxes--the kind that people who can afford lawyers and accounts don't pay.

Singapore and Hong Kong seem to do the right thing in terms of taxation: their systems are simple and the income tax is progressive, but the top marginal rates are pretty low by European standards (around 20%).

To help the poor, universal basic income seems like a good idea. It pairs well with my favourite kind of taxation: land value tax. See https://medium.com/basic-income/why-land-value-tax-and-unive... for a pretty insightful rant.

If an income tax is necessary at all, giving everybody a flat allowance per head plus a pretty flat rate should be good enough on the poor? (Otherwise, do whatever Singapore or Hong Kong or Estonia are doing.)

Flat tax is not just about removing thresholds, but also using the same tax rate across the board. If you tax in the same way income, capital gains or corporate profits, don't give a tax exemption for debt, don't charge a stamp duty on property (or charge the same rate on the purchase of all assets, property or not), etc, then you kill all these tax schemes.

Isn't that usually called a broad based tax or so? I mean I mostly agree with what you are saying, just noting that I'm used to different terminology.

Yes, it's a good idea to put eg debt and equity on the same level; don't tax transactions that improve economic efficiency (tax consumption instead for example).

Land value tax is still a great idea for these and other reasons. Eg you can jack the lvt really high and basically tax away all land rent without negatively impacting the economy. So even in an otherwise 'flat tax world' like you describe, it might be a good idea to get the majority of revenue from taxing land rent (and in the wider sense, resource extraction and commons like pollution carrying capacity).

LVT sounds good in theory, but a large number of rich people _are_ acting as rent seekers (they own property, and extract value via rents on people who work/produce actual value on it). It would not be politically feasible, unless the gov't is prepared to fight against those powerful land owners.

Yes, the political feasibility is one big problem. (The other challenge is to figure out how much revenue you could raise---there are some good theoretical arguments that elimination a tax on something else like labour income should increase the local land value and thus land value tax by enough to offset that loss, but I don't know whether that works out in practice.)

There is some hope for the political feasibility: some countries already have land value taxes with various imperfections like Estonia, and some Australian states, and some counties in the US.