> If companies reinvest the money into their businesses, that's good.

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.

Which is intentional- Amazon grew as a company, and we want companies to grow. Growing companies hire more people, and pay the people they hire more.

That's a good point. You think most of corporate america would notice Amazon and try to do similar, instead they buy back stock. Buying back stock is a less risky short term strategy to improve stock performance. Maybe tax stock buy backs?

So if I make billions via my genius SaaS company in the US, with 95% gross profit margin, get a nice apartment in Monaco and pay exactly 0% tax anywhere, ever on said billions, that's good?

Did these economists think this idea through?

> if I make billions via my genius SaaS company in the US, with 95% gross profit margin, get a nice apartment in Monaco and pay exactly 0% tax anywhere, ever on said billions, that's good?

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 make billions, you pay individual taxes (including on stock granted to you, and again for any capital gains if you hold them over a year). If the company makes billions, it spends it on things like salary and growth investment (buying goods and services), or dividends or buying out shareholders (all of which is taxed along the way).

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.

Why are you assuming US citizenship? My SaaS, and sucking billions out of the US economy, doesn't require it.

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.

This point has been made above, but you think foreign corporations with no meaningful connection to the US are paying significant corporate taxes here?

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.

Well, then we could just set a global minimum income 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

Any variations in this condition will risk to topple humanity (in the sense of conscious individuals with good experience of life), unless we can systematically prevent it (before it prevents us). It's not quite it, but a similar concept is Scott Alexander's Moloch[1]. I'm studying ways to defeat this opponent (if anyone is interested, I hereby invite you to join in!).

[1]: https://slatestarcodex.com/2014/07/30/meditations-on-moloch/

Because you’re able to pass benefits and productivity presumably to US citizens.

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.

> sucking billions out of the US economy

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.

This has been the dream of people around the world for a good part of the last century. It’s a lot harder to achieve than to write hypotheticals about. In practice, the US economy is very good at taking its cut.

I think you would pay taxes in monaco [1], barring any crazy corporate structure shenanigans that would certainly smell of tax avoidance.

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...

No because I have no corporate entity in Monaco, it's strictly a US company and I am sole shareholder. Monaco doesn't tax US companies unless they do business there.

If you lived in Monaco and operated your business from there presumably that would trigger a nexus requirement for "doing business there"?

No, the business has to be resident, which means it has an office there or sells locally. A resident shareholder or employee doesn't count. Monaco goes out of its way not to tax its residents, other than VAT on local purchases.

In that scenario you may create a permanent establishment in Monaco.

You may want to edit your original post with more context.

If "corporate income tax" only refers to tax on profits, then there is still a tax on dividends, which you pay regardless - US taxes dividends "at source" ("withholding tax"), precisely to prevent individuals to relocating to low-tax jurisdictions and escaping capital income taxes.

https://ibkr.info/article/938

The US happily imposes taxes on its citizens even if they are outside of its borders, and that apartment and all your other company perks would be considered taxable income.

You can renounce your citizenship, but you'll be subject to exit tax on the way out.

Yes, they've thought this through.

I was never a US citizen, I never even set foot in the country. I can do the same with every other country (except one small African country) because they tax according to residency. I'm only a resident of Monaco.

(I'm not a proponent of the 0% corporate tax, fwiw)

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.

I don't pay sales tax, only my customers do, if they are in a state that charges sales tax.

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.

In that situation you have nothing but deferred consumption (savings) accrued in your corporate bank account. You're just soaking currency out of the economy. It's fine if none of that money is taxed because it's not moving. As soon as you use it, it's taxed.

The usual way economists look at this is that proxy taxes aren't really effective.

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.

Does it actually work like that though? You own a US domiciled company, with US revenues. You’re effectively making US sourced income or capital gains in the US even if you don’t live there. Surely tax is due to the US IRS for that? If not, then easy - just make it so and your loophole is closed.

I see this stupid response in every thread about taxes. Do you have to personally benefit from something to advocate for it?

The point is people always complain about the tax implications of these made-up scenarios as if they matter. Yes there’s a loophole in the tax code if you make a 95% gross margin SaaS product and move to Monaco. Who cares? M

In this scenario how would you prevent individuals from routing their income through corporations in order to avoid paying personal income tax?

You can get away with free meals, travel, education, housing, clothes, pocket money and entertainment now. These become expensives and are not taxed anyways. So no change on that front.

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?

Let's say hypothetically John Smith makes $500k/year as a software consultant. Instead of being paid directly he starts John Smith Inc. and routes his income through his corporation. He withdraws $100k/year in dividends to pay his living expenses which is paid under capital gains rates, the other $400k/year is invested in the stock market and grows tax-free forever inside the tax-sheltered corporation. The vast majority of John Smith's income will never be taxed as he only needs to withdraw enough in dividends every year to cover his living expenses.

What exactly is the problem here? How is this meaningfully different from investing your own post-tax $500k into the market and growing it forever?

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...

> How is this meaningfully different from investing your own post-tax $500k into the market and growing it forever?

What's the difference between investing post-tax income vs pre-tax income? The amount of income tax you paid...

I don't think you can "withdraw" money from a company you own. Probably John Smith Inc. would pay John Smith the 100k/year as a salary... a salary which is taxed. But, then again, the Planet Money article says to eliminate income tax as well.

Their solution: > Instead, impose a consumption tax, designed to be progressive to protect lower-income households.

As the sole shareholder of a corporation you can pay yourself $0 in salary and issue yourself $100k in dividends instead.

Isn't that what rich people do anyways? Foundations and corporate shells to hide their wealth?

Not really. Or at least, not nearly to the extent possible if you were to zero the corporate tax rate.

I like these, but I think consumption tax is way too complicated to collect fairly. The simplest tax is literally no tax at all, just prudent spending on bond issuance. It works if the deflationary effect of greater productivity outpaces the monetary inflation. It fails when the money is wasted.

"Wasted" is doing a lot of work in that last sentence. Unfunded spending on primary education and healthcare is going to generate more current period monetary inflation than near term output, never mind transfer payments to the unemployed, but it's a helluva stretch to argue that this makes those areas of spending a waste of money

There is almost certainly a basic level of prudent healthcare spending which is current-period deflationary simply because healthy people are more productive (q.e.d. 2020), although the moral triage may not be palatable. Basic education is also deflationary because any expectation of increased productivity encourages current investment. The only caveat is if public spending on education reduces private saving for education, which would add inflationary pressure in the current period. I would also posit that the specific case of primary or trade education spending on the lower economic tier is immediately deflationary for many other reasons. Maybe unemployment insurance or even basic income is also deflationary, or maybe it’s not, but if it isn’t, then maybe it’s not such a great idea. I don’t think this rubric rules out any category of spending, but it certainly does limit spending to the point of negative returns.

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.

Everyone in the country gets x dollars per month/year/whatever to use on whatever they like.

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.

23% is is probably going to ignite a significant black market.

I think a tax system this simple would be similarly simple to audit. Or maybe you would calculate your consumption tax at the end of the year, and then it wouldn't matter who you buy from.

I was thinking "black market", not "hard to administer". For that much money, there are plenty of people who are going to be willing to do off-the-books transactions.

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?

What is consumption? Food? Sure. House? Car? Art? Insurance? Medical? It’s not easy. Neither is income.

Famously capitalist Sweden has a lower tax on corporate income than the US.

It's a good policy, and you should be for it even if you want to soak the rich.

Didn’t we have lots of people complaining that the Trump admin was giving away tax money by lowering the Corp tax rate down to 23%? I can only imagine the wild heckling of any present of future admin if they were so bold as to lower it to 0%. Krugman would probably have a fit.