I don't know how this solves anything. Governments can't do everything so companies have incentives to create jobs and produce goods. To solve the issues, you need to incentivize the companies to do what you want. Even if you pass a law like this, companies will offshore their profit making entities which makes this worthless even if it could be passed.

Today, we want stock market growth above all else and that is what we have. People complain Amazon pays no taxes (corporate) but they pay lots of payroll and property taxes and employ tons of others and enable other companies to thrive. This isn't strictly good or bad. We want our 401k going up 20% a year but also want companies to not make profits. These things are interconnected.

Amazon's absolute tax burden ain't the only problem.

Every other retailer, employer also pays payroll, property, sales taxes too.

Superior tax avoidance as a competitive advantage is a serious problem. Would Amazon be so dominant today if they had had to play by the same rules as everyone else?

There would be some monstrosity anyway. Just like there's just one Google-like search engine, one Facebook-like social network, one LinkedIn-like job-network, etc. Network effects lead to having a very steep distribution between market participants in each sector.

Taxes or no taxes Amazon got big because they relentlessly pursued these effects, and after reaching critical mass, there was not much anyone else could have done.

Now, of course these advantages should be taxed.

At least some portion of those network effects are to do with economies of scale as relates to tax avoidance and creative accounting. Levelling the playing field can only increase competition in the marketplace.

Just competition is not enough on the long term, some technological change is needed too to push prices down. (If there are a lot of small vendors all just on the verge of bankruptcy that doesn't really help anyone.)

The typical case is small shops in all the cities around the world that are in very efficient markets. For example here anyone can start a hairdressing salon and can employ anyone. No qualifications needed at all. Only the venue has to pass some basic cleanness inspection. Consequently there is no big hairdressing chain, there's not much going on in hairdressing for the past decades. There's not an Amazon of hairdressing, and no one is investing billions into hairdressing R&D to become more profitable. It might change if automation reaches that level.

I'm not sure that's true though, If large hairdressing technological advancement was indeed possible then why hasn't somebody done it yet?

It's not like there is any shortage of people pivoting to entirely disrupt new industries when technology allows.

As for whether competition in that market is effective, I find that hairdressing is a great healthy market. No price gouging, plenty of options for the consumer. The price reflects the amount of time of individual attention spent by a trained professional with little to nothing on top. (Don't like your barber? literally just go for a walk and you can probably find a new one)

Of course it's possible. You can always do something better, faster, cheaper, with more accuracy, precision, style, etc.

There is R&D in the tools used for hairdressing (scissors, chemicals, hairdriers, chairs, hairwasher chair), just as there is R&D in shaving tools (even if it's just adding one more blade, or using a better battery for electric ones).

Automation will eventually eat the world, why would hairdressing and shaving be the exceptions? Maybe that doesn't count as technological advancement strictly in those fields, but it'll certainly have an effect on those markets.

> If large hairdressing technological advancement was indeed possible then why hasn't somebody done it yet?

There's always a first. And likely it will come from some unexpected place, enabled by either some very general change (automation) or from some obscure thing.

I'm not sure if you read the chapter in the (free) book but it explains it better than I can.

I don't think that solves anything, it creates a whole host of problems, and of course, the notion of the government taking a % ownership of every business is a kind of ideology I don't need to describe.

Governments don't want a stake in future profits, they want to tax income. Dividends payouts are taxed 'again' at the time of payout. Share buybacks are taxed 'again' as capital gains and FYI that has nothing to do with the corporate tax rate, that's part of personal income.

Your Amazon example is flawed:

If Amazon is worth $100B it's because people think they will eventually have $100B in the bank. Or a financial equivalent of cash flows. Either way, it means people assume profits. If that's true, then the taxable income will also be there, in which case they'll have to make $150B in income, then pay tax THEN have the $100B in the bank (or financial equivalent).

So the government 'taking an equity stake' at formation, and sitting on the stock is moot: they already get a 'stake' of the income stream that forms the basis of that valuation.

That Amazon pays no tax is not such a bad thing - it means they're making $0, which means the surpluses are going to their suppliers, customers or employees etc. All of whom are taxed for those surpluses (except for consumers).

I have absolutely no reason to invest in Amazon if I think that there will never be a profit share in it for me. Amazon could sit on a lot of cash and then eventually spend it all down, go bankrupt, and leave the shareholder with nothing. If I figured that would be the case, then I would be only speculating that I could get out of it before that happened. Speculation is not an investment.

On the other hand, if the share price has increased because the company is more valuable, then the government shares have also increased. If there is, in the future, a 1% quarterly dividend, then the government will partake in a 1% dividend on its higher-valued shares as well. The federal government doesn't need to pull in all the money now. It has a large ability to borrow where it needs and corporate taxes make only a fraction of tax revenue.

The current problem is that, in theory, it is worth it for a company to pay accountants and lawyers $99M to reduce the tax bill $100M. Economists call that waste. I'm pretty sure just about everyone else thinks it's problematic to create industries that get rich off of nothing but moving money around to avoid paying taxes.

The whole problem is that the public is not getting a "stake" of the income stream. The law says we do but in practice we do not because the money is being very cleverly moved around.

Arguing that there should be no corporate income tax is a different thing. This discussion is about how to collect such a tax.

>>>>>> "Amazon could sit on a lot of cash and then eventually spend it all down, go bankrupt, and leave the shareholder with nothing."

"On the other hand, if the share price has increased because the company is more valuable, then the government shares have also increased"

These two statements are completely contradictory.

>>>>>>> "The current problem is that, in theory, it is worth it for a company to pay accountants and lawyers $99M to reduce the tax bill $100M. "

This is not remotely true.

First, complicated taxation is the decision of the government, not the industry.

Second, Amazon's low tax burden is not a function of $99M in lawyers, it's a function of the fact they don't make any profits.

"The whole problem is that the public is not getting a "stake" of the income stream."

This is again, is not true. The public is absolutely getting a stake of Amazon's income stream. The problem (as some see it) is that Amazon has very little income.

Amazon, as it stands today is like a non-profit NGO. They make very little money. Their surpluses are given away to some other part of the value chain: suppliers, customers or employees.

We're not talking about Amazon specifically. The issue is profits hidden to the tax man that can still be paid out as profit to the investors. I mentioned Amazon solely to talk about a company that doesn't return much profit but may in the future. The corporate income tax isn't touching them anyway. But a company like Apple, which has hidden a lot of its profit in schemes that pass money through other countries, would have less incentive to do that sort of thing if it didn't reduce the effective tax. Investors wouldn't be happy if Apple's tax machinations also reduced their returns. This plan just makes it so that the public gets a percentage of the same returns the investors get.

"The issue is profits hidden to the taxman that can still be paid out as profit to the investors. "

This is specifically an issue of international repatriation and has little to do with anything else really - and your OP doesn't really aim at that.

Amazon is a poor example because they're not in the business of fancy IP arbitrage: this is what Apple, Google and FB do. Less so Amazon.

But the problem is that US taxation with respect to repatriation is messed up.

1) US corporate tax is very high - the highest in the developed world. 2) US expects companies to pay 'full tax' when repatriated money, even already taxed money. Every other country just expects a 2-5% repatriation tax.

The US tax system is not designed for globalism.

What the US and the world need to do is find a new harmony which will entail:

1) Lower US corporate taxes 2) Close all the special loopholes 3) Get rid of double-taxation on remuneration 3) Especially for digital and IP - taxes need to be paid in the local state where business is done. FB is selling ads and consumers are consuming them in France, then a good chunk of taxes need to go there. Same for Google. The US is going to have to eat this or face punitive war forever from EU and other nations.

Exactly. Why would you do all this fancy dealing if you can just keep the money as needed, and pay it out to your shareholders when you see fit? In the current system, you're penalized for recognizing profit in the US. Instead, you send it around the world and hold onto cash so that it doesn't get taxed. In this system, there's no incentive to do that. Foreign profits can be recognized where it makes sense, and payouts that benefit shareholders benefit the public.

If Apple has no reason to recognize profits in the US, I assume Matsushita has less reason to, so it doesn't really matter if foreign companies don't pay out to the US. If anything, it makes it more useful for the US government to prefer to give business to US companies.

I'd love to see how one would "close all the special loopholes" and force the companies to "pay taxes in the local state where business is done". This is exactly the problem. You reacted to the "ideology" of having a government share of the company, but your solution would require a much more invasive bureaucracy to accomplish the goal.

Could be like the overseas holdout stuff though. Don’t pay a dividend or buyback ever, but spend money lobbying on a one time holiday where a big dividend will be paid to everyone but the government share holder, or paid to them at a reduced rate. Eventually an admin comes in and makes it happen like Trump with the overseas money tax holiday. Holding out makes more sense than ever paying out.

Would you be willing to invest in a company that refused to pay a dividend until an unpredictable event in the future? Perhaps, but it wouldn't make a lot of sense.

Many did exactly that for the overseas tax repatriation.

This idea is pretty clever, if it could be made workable.

The main issue is that we have multiple tax jurisdictions. If a corporation is, say, based in the US, but also sells to Europe, what should be the rate the US and Europe charge?

Well, we can't split based on profits, since we already decided that profits are easy to game.

Maybe equity ought to be allocated on the sales split, since sales are harder to manipulate? But let's pretend in this scenario the US has a higher rate than Europe. I'm a tech company, my staff is in SV, let's say for discussion that that is a big reason why my company is successful.

Here, I have an incentive to not sell anything in the US. I get the best of both worlds: access to a great engineering team, and also a lower tax burden.

And what if I'm a startup, and I don't have any sales yet, but my valuation keeps rising because I'm actually doing valuable engineering? Which countries get a claim?

Maybe charge based on expenses? But we already saw that profits are easy to shift, which implies that expenses are easy to shift.

Ultimately, a fair regime would allocate equity to governments based on the future economic value to the corporation due to that country existing, but I can't think of any easy way to measure that split. This is the key point. Does the book detail how to solve it?

Also, you get weird effects, like clawbacks. Let's the US owns some large fraction of a company because it sells products there. A large recession hits the US, Americans buy fewer of its goods. Under this regime, the US should give up some of my equity stake because it's responsible for a smaller proportion of future profits.

Sales tax (and value-added-tax) is different from corporate income tax. CIT is due where the profit accrues. So the "tax shares" should be allocated upon the registration of the company to the corresponding state/municipality/country.

I worry though that relying on dividends will result in little actual income for the government. It relies on stability in the company, but companies are always either in growth mode or collapse.

For example, amazon dividends have been $0 for a long time because like many companies in the modern economy, they reinvest profits. Shareholders are okay with this, because their shares increase in value, and a tiny bit because future bonds could exist.

However, in the modern economy companies seem to always reinvest profits right up until they collapse under their own weight.

I love the idea, I just have one question. What happens if we want to raise the tax rate in the future?

As far as I can see we can either dilute the shares of the other shareholders, which really wont go down well with the shareholders, or we can buy shares in every company in the country, which will cost the taxpayer a mindboggling amount.

I mean I suppose diluting the other shares isn't all that different in absolute shareholder returns to what we have now, but the optics of seem somehow different and likely to cause trouble to me.

In theory, if you could collect the corporate tax rate perfectly, an increase in the rate would lower the price of all the shares, and a decrease would increase the price of all the shares, according to the amount of expected return.

Terrific, novel, innovative suggestion. Thank you for sharing.

Nicely compliments the policy advice of bailouts taking the form of debt, convertible to assets.