https://www.npr.org/sections/money/2012/07/19/157047211/six-...
> Three: Eliminate the corporate income tax. Completely. If companies reinvest the money into their businesses, that's good. Don't tax companies in an effort to tax rich people.
This is a bit of a side issue, but if a company really does reinvest the money into its business, in most cases that reinvestment will be spent on things that are deductible as a business expense, so that portion of revenue won't be profit and not subject to corporate income tax. That's one reason Amazon pays close to zero corporate income tax: they book very little in profit, since they reinvest most of the their revenue into qualifying business expenses to expand the business.
Did these economists think this idea through?
I assume you have employees in the U.S.? Suppliers? Payroll and sales tax didn't go to zero.
If you don't, if you're supplying a product that has zero footprint in the U.S., and making a killing off it, I mean, sure. Fine. Keep your money. You aren't costing our system anything. And you're providing us with something of value.
More pointedly, if you have such a business, one which has zero assets or employees in the U.S., only income, it's trivial to zero out your taxable corporate income today. The only difference between that and this is the amount of accounting and legal paperwork required.
If you move to Monaco but stay a US citizen, you still owe US taxes on income. If you move and renounce your citizenship, you have to pay a significant sum of money based on your wealth (including stocks and ownership in companies).
Your scenario has nothing to do with the corporate tax rate.
I couldn't pull off 0% taxes without using corporate entities that are untaxed, all countries (at least try to) tax all income produced within their jurisdictions.
Spotify is a great example.
>We have significant net operating loss carry-forwards in Sweden and the United States. As of December 31, 2020, we had net operating loss carry-forwards of €100 million in Luxembourg, €1,293 million in Sweden, €461 million in the United States relating to federal taxes, and €315 million in the United States relating to state taxes.
>We have initiated and are in negotiations of an APA between Sweden and the United States governments for tax years 2014 through 2020 covering various transfer pricing matters. These transfer pricing matters may be significant to our consolidated financial statements. In addition, we are subject to the continuous examination of our income tax returns by various tax authorities which could result in assessments against us.
Those two lines more or less tell me that Spotify will not pay meaningful US corporate taxes for the next decade.
Might as well lose that non-existent tax revenue if that's the 'carrot' that gets the public on board with a wealth tax.
However... there's a great problem with this proposal. We're decreasing individual agency and increasing corporate agency.
Corporations are massive evolutionary self-defending systems. As this kind of system, they don't fundamentally care (i.e. their survival and reward isn't directly connected) about the wellbeing of their employees or the general population; their success doesn't mean success of employees or our progress as a society. Think about how our bodies don't really regard the wellbeing of our cells (only that they do their jobs to sustain what we do care about) -- and of course that's fine because cells don't think (individually).
Since corporations are non-conscious as individual entities (as far as I can tell), they don't have a well-defined wellbeing we should care for, unlike their employees and the population at large.
In this sense, they can indeed be seen as AGI overlords fighting with us. If they could replace humans with non-questioning (and without consciousness or well-defined wellbeing) robots they wouldn't bat an eye, as entities.
I call this The Great Problem of Consciousness: there are a great many of (abstract) forces and incentives in the Universe, and almost none of them care about the only thing that really matters, the Collective Conscious experience. Profit, nationalism, bureaucracy, authoritarianism, entropy, natural selection, energy gradients, and so on. None of that really cares about our experience (well being), yet they are the major driving forces of the Universe. The great battle is to try to align those gargantuan monsters into our own service. We only have control now because of the precarious situation where:
Power ~ Intelligence ~ Consciousness
[1]: https://slatestarcodex.com/2014/07/30/meditations-on-moloch/
Not just that, but fine, you win your arguments as they are perfect. So now, this founder/owners have pallets of US dollars. Where does one spend those funny looking pieces of paper?
Poof. There goes that argument of “sucking billions out” as those dollars are FORCED to come back to the US.
Nah.
Every-hypothetical-body in the US paying you billions is getting more in value from your SaaS product than they're paying you for your SaaS product.
Otherwise they wouldn't buy it.
So, the government of Monaco would tax the corporate profit from Year 3 onward, assuming your genius SaaS is a startup, at a rate of at least 25%. You wouldn't evade taxes altogether.
For the corporate tax, you'd either convert to Euros to pay taxes (at which point, your USDs flow back into the international monetary system that eventually leads back to Uncle Sam), or you'd pay in USDs, and the government of monaco would do the same dance.
But, you'd get 75%ish tax-free USDs, to pay yourself an untaxed salary with! That's a good amount.
[1]: https://en.service-public-entreprises.gouv.mc/Tax/Other-taxe...
You can renounce your citizenship, but you'll be subject to exit tax on the way out.
Yes, they've thought this through.
If you are running the SaaS from Monaco and only selling things in the US, isn't it right that you'd only pay sales tax?
It's the mismatch when work is done in one place (for some definition of work), but profits taxed elsewhere that's the issue, as I understand it.
0% corporate tax and higher individual income tax works as long as a company and its employees have to use the "full stack" of taxes, and can't mix and match across borders.
No one pays income or capital gains taxes in Monaco, but my SaaS is genius remember, so I have only a small number of employees at any rate.
I don't think anything of what I'm proposing is right, I'm just thinking though the consequences of a 0% corporate tax.
So your company makes a ton of income and it's not taxed - but if every viable path of taking money out of the company is taxed, economists will argue it works better.
So in your scenario they are arguing for a system where your apartment in Monaco either came from direct payments to you (taxed) or is a taxable benefit for you, etc.
This makes profit tax-free. Profit is usually split with the shareholders or invested back. Shareholders are taxed if a capital gains event occurs. Why tax profits on money that will be invested back into the company?
If you dislike this situation, what you need is wealth tax, not profit tax. As the value of John Smith Inc. grows over time, John Smith the person will have to pay increasing amount of wealth taxes...
What's the difference between investing post-tax income vs pre-tax income? The amount of income tax you paid...
Their solution: > Instead, impose a consumption tax, designed to be progressive to protect lower-income households.
I would hope also that this methodology may de-politicize government spending by achieving a baseline result that is hard to argue against: zero taxes, high productivity, and no inflation. Any cuts would be foolish, and any additional tax or spending is forced charity.
Re: “helluva stretch to argue...”
I see this pattern a lot in politics. Merely stating that something is hard to argue against, is not at all a convincing argument for that thing. It is simply an intimidation tactic, or an attempt to shift the burden of proof to the contrapositive. All contrapositives are hard to argue for, even if the positive is hard to argue for. For instance, prove to me why it is a bad idea to invade France. I have absolutely no reason at all to invade France, and now I’ve given you the chance to fail at your argument and thereby start a ridiculous war. The “hard to argue” pattern is even more convincing because it’s objectively true despite having no rational power to convince on its own. It’s hard to argue that we will never have to invade France. It’s much harder to argue that we will ever have to invade France, but somehow the former statement is interpreted as support for the latter.
Now a consumption tax is easy and indiscriminate. Everything is taxed at Y% at the cash register.
I think I read somewhere like a 23% tax would be sufficient to offset all income/corporate taxes.
And no, it won't be simple to audit. Can you prove that all the food you ate last year came from the grocery store? That you didn't buy any from your neighbor's cousin, who works at a wholesale warehouse?
It's a good policy, and you should be for it even if you want to soak the rich.
Both your proposal (corp rate of 0%) and the objections to your proposal (that individual income will be shifted onto corporate ledgers) are already extant, and addressed, in US tax code.
Any business can incorporate under subchapter-S, or as a form of LLC/LLP and pay zero taxes. Very common. Happens all the time.
The catch is, you cannot carry income on the books arbitrarily. For the most part, you are forced to distribute the proceeds among the shareholders/partners before the end of the year - thus subjecting it to regular and frequent taxation.
On the other hand, if you want to carry proceeds forward in the business and park them there, for whatever reason, you need to be a C-Corporation and are subject to double-taxation: corporate taxes and then, later, individual taxes once the monies are finally distributed.
So you have that choice. If you want the flexibility and fewer shareholder restrictions of a "C" corporation, you need to pay corporate taxes.
Personally, I prefer the simplicity of an S-corp and, as a bonus, the income is not double taxed.
Fair point, but then why are US companies still parking their profits off shore?
If you want to strike nearer the trunk, nevermind root, of the issue... the place to start is corporation law. Once a cascade of tax entities of different types/jurisdictions can own or control each other in cascades... it becomes impossible to tax anything in a simple way. Without that, it's impossible for corporate tax just apply to the individuals with a share. If it was, than we could (as you suggest) think of corporate income tax as a +/- to regular income tax. As it stands, it is a different sum and applies to different people/ tax entities.
In terms of economic efficiency.... I don't think any abstract economic theory beats current reality observations. If you look at some of the biggest current companies... they are obviously undertaxed. A company like google doesn't accumulate 10s of $bns cash unless they cannot find ways of putting it to work. In theory, no matter what their tax burden, they would have "produced^" and invested what they did anyway. The same is not (necessarily) true fro TSLA or JNJ. It probably is for FB or MSFT.
In any case... as "mainstream" macroeconomics rapidly turns in a loose money direction, "bring the money home, we don't have enough money here" is less of a thing. The federal reserve is making however much money they think the economy needs for monetary purposes anyway...
^Scare quotes because "production" measured in ad sales is a little abstract for me.
Unfortunately, for us non-uber-rich people, uber-rich people have a lot of money to hire people to help them "avoid" taxes, under the euphemism of "minimizing tax burdens".
I think we'd probably need to address that first, by simplifying the US tax code (perhaps making it X% full stop, across the board, no loopholes, applied to all income earned beyond Y/year), before experimenting with such a strategy.
Of course, there will still be some sleazy people hiding their wealth (and income) behind personally-directed "non-profits" and "charities". But, these are probably easier to litigate than the corporations those people work at/for.
Wouldn't that be a "win" situation as well? Because at least it will reduce the incentive to go all NIMBY on new denser development, which seems to be the main blocker when it comes to housing pricing (and, consequentially, ownership/renting).
Unless I misunderstood what you said, it seems like you are saying that this policy won't completely solve the issue. But it would make it at least better, while, at the same time, making "property as a store of wealth" less viable. Which would (in my estimation) make housing cheaper (directly) just due to people not hoarding the land anymore and (indirectly) due to decreased NIMBYism blocking denser housing developments.
So while it might not be a win-win-win, situation, it could definitely be a win-win situation. Or at least a singular win situation without much losses or negatives attached to it (at least as far as I am seeing this, which could definitely be wrong; in which case, please correct me, as I am thinking through this as I am going; I am far from being the expert on the situation).
This has been floated for some time, usually followed by a discussion of a sales tax increase. However, the groups floating these ideas tends to be the more fringe types, so they are almost always dismissed out of hand.
Stepping back, to look at whether such a tax would be useful.
The chief risk that thinktanky-people raise is that there are many desirable countries to live in, which don't levy taxes as such. So you'd get a lot of assets fleeing $TAXING_COUNTRY, which, the argument goes, would have a deleterious impact on people inside that country.
In practice, most income of these people is not circulated in the American economy, but immediately invested into "stationary" assets, such as securities issued by US Corporations or the Treasury. Regardless of where these people live or hold citizenship, much of that stationary income will continue to be invested in the US, where real growth rates have historically been sustainably-high.
(a simultaneous tax on US-held-wealth, not income, would throw a big wrench into this argument!)
In addition, I doubt many people would actually give up their American citizenship to avoid this tax (simply having a residence abroad would not be enough to escape this tax, if you're a citizen, since our country taxes citizens living abroad).
IMO, most of the people who would give up citizenship to avoid a mandatory income tax, would have already given up (or avoided obtaining) their American citizenship anyways, because of the tax implications that exist today.
---
This talk of emigration reminds me of a fun thought experiment.
I remember reading some argument whose thesis was, roughly, "one reason the US is able to accrue so much debt, well past the reasonable point of leverage for the average country, is because the US is the only nation with sufficiently-international tax-collecting, finance-monitoring, and military potential to effectively implement a wealth tax".
From the buyer's perspective, Country X can buy our debt, essentially as a securitization of a future wealth tax against the US. Furthermore, this effectively doubles as insurance against wealthy emigres leaving your country, since most of them take their assets to the US when they go! This means that the likelihood of US Debt being paid back is extremely high, even past the normal metrics of over-leverage (debt as a % of GDP).
To avoid a hypothetical tax on wealth generated in the US since the 1940s, you'd need to move yourself and your assets to a location outside the combined military+financial influence of the USA, that is willing to take your now-contraband, non-USD assets. Any USD assets held by most banks would be de facto seized.
Presently, maybe North Korea and Iran fit this bill. Russia, to a lesser extent, but this is a roll of the dice. Not the best places to peg a long-term future on. It's possible to imagine China (and the countries under its sphere of Belt+Road influence) fitting into this category one day, which would be interesting and probably invoke a war.
One interesting feature of this lens, is that the US shouldn't ever need to implement a wealth tax to justify the borrowing ability, the US simply needs to make it clear that such a tax would be possible to levy, if absolutely necessary.
Another interesting implication is that, if the US should ever lose its power to levy this tax (due to a sharp decline in military, economic, or financial policy strength), the US's ability to borrow way above our annual-GDP could evaporate overnight: causing all kinds of mayhem, probably.
Saying “tax the rich” doesn’t make it happen.
It’s almost as if these politicians and celebrities that come along and vomit hashtags into their twitter feed are under the impression it’s never been done because no-one thought of it before.
Tax the rich how, exactly?
Lowering exemptions and allowances to raise duties is a tax on the working poor.
Raising income tax rates is a tax on the working middle class (we hear plans to do this all the time because fiscally conservative politicians believe their voters are too stupid to notice the difference between income and wealth).
If you want to “tax the rich” you need to tax actual wealth - and you need to figure out a way to do that which doesn’t cause capital flight. This has proven very difficult to do successfully.
So, we can either re-visit wealth inequality when we have unilaterally matched global tax rates with no loopholes a few centuries from now after the robots have completely taken over, or act like grown-ups, put some work in and figure out a solution.
Tweeting shallow nonsense like “tax the rich” without offering a plan while ignoring the massive complexity in taxing wealth in a global economy is a cynical ploy on the poor while laughing hysterically in the face of the working middle.
The loopholes are the problem, and it’s a job for governance to fix.
Every time a politician says “tax the rich” or “Company X only paid Y last year and should apologise and pay more” all I can hear is “we can’t be bothered to do the job you elected us to do”.
Imagine if the police didn’t respond to crimes in progress but instead made sternly worded public statements after the fact saying that criminals should be very disappointed with themselves and should apologise and pay back 10% of what they stole as restitution.
The status quo is absurd.
land.
It's not really race to the bottom. It's just a terrible tax.
Taxation is hard, so far Sam Altman's capital tax is least worst option I've heard: https://moores.samaltman.com/ . It does have it's deficiencies... It's wealth redistribution, it might slow down or even completely stunt economic growth, and given current political climate and corruption and is highly unlikely to be implemented. At the same time humanitarian value alone it would bring is so astronomical that I believe we must try it. It would also greatly expand middle class which should boost the economy long term.
What if they don't? We will accelerate inequality further. Then, spend another decades to get "correct it" unsuccessfully.
If corporate tax is zero their ability to investigate companies sending money to each other to buy yachts is diminished
The rich threatening to live is just that - a threat.
It's not a new idea either. You just need to get the idea of "evil corps need to pay" mindset.
If my corporation owns a biz jet, then there has to be a purpose to the travel it offers. The IRS is going to look askance at trips to Hawaii with your spouse and kids being explained as “for business”. Best case, they identify it as a taxable benefit and then you pax tax, interest, and penalties.
In general, I think there’s an overestimation of what the IRS hasn’t already cottoned to WRT people trying to live within a corporation.
Now family trusts are different, but that’s not the subject of discussion.
> To pay for war. That is always the answer in the USA.
Almost every country in the world has income taxes, even neutral countries such as Switzerland ( https://home.kpmg/xx/en/home/insights/2011/12/switzerland-in... ), which haven't been in a war for 200 years.
I imagine most folks here are American, but not everyone is out to get the average US citizen, some ideas just are good ideas and at some point they basically become universal. The US government is not some special meanie, in this case :-)
https://en.wikipedia.org/wiki/Income_tax#Around_the_world
> US did not have one for half of its existence and when one was created it was tiny.
The US also didn't have highways, a public healthcare system, public education, etc. for a large chunk of its existence. When all you needed was a homestead and a rifle... you didn't need much to finance the government.
If you tax ONLY consumption, taxes will simply be passed on to the last mile which is consumers.
Your spending cash is just a loan from a bank to you backed by the value of your corporation.
All major assets are held by the corporation.
A global tax of some kind is the only way to slow the divide. As the growth of wealth is finally taxed, and inflation can start to eat away at it.
(ducks from the rotten vegetables that are being thrown at me)
Here me out...
America offsets the revenue loss by increasing tax burden on (rich) individuals, not corporations [1]. Hopefully, that would bring offshore profits back and increase hiring, r&d spend, capex, etc etc positive feedback loop etc. More likely, corps use the profits to buy back stock and layoff people (which has happened in the past with tax holidays [2]), but hey, at least those profits don't just sit in a bank account in Ireland or the Cayman Islands.
Here is a really crazy idea that won't work - Janet Yellen trying to compel the world to adopt a global tax rate standard, thinking that tax haven countries would comply for America's benefit. Yeah, not happening... the baby boomer generation really don't have any capability of second order thinking.
[1] The irony is that republicans love to say corps are people. With that logic they should be taxed like people. Dumb. They are not people, they are institutions. Don't tax institutions, just tax people more.
[2] https://en.wikipedia.org/wiki/Repatriation_tax_holiday