I enthusiastically agree with this. There should be little benefit to holding an asset for longer period to evade taxes. I have friends who regularly end up with losses on trades just so they would avoid being "taxed at income" for gains. It's absurd.
There are also plenty of loopholes for those who know what they're doing... like shorting a futures contract where you own the underlying asset, effectively locking in it's price until past the 12 month mark.
Instead of criticizing companies that do the math and determine it's a smart [business] decision to relocate or whatever just to reduce tax liability, why not instead focus on what is making these companies so inclined to make said decision?
Without more detail, I'm not entirely sure what you're referring to, but you seem to be conflating two concepts (the tax effects of a long-term capital loss and the tax effects of a short-term investment compared to a long-term investment).
IMHO, there absolutely should be a benefit to holding an asset for 12 months (compared to less), as buy-and-hold investing is better for the companies being traded, and reduces volatility in the economy compared to speculative day-trading[0].
> like shorting a futures contract where you own the underlying asset, effectively locking in it's price until past the 12 month mark.
This is a strategy that's beyond most casual investors who simply trade mutual funds, sure, but I'm not sure I would classify this as a tax loophole - if so, we'd have to call a normal covered call an "investment loophole".
[0] This has nothing to do with high-frequency ("ultra short-term") trading by computers; it's about encouraging long-term vs. short-term investing by individuals.
However politicians know it is easy to vilify corporations thereby allowing them to either out right lie about how taxation works or lie by omission.
Companies moving their head quarters out of your country should be a clear signal that your doing it wrong, except in the case of the US politicians want to punish them for doing what is right for them, their share holders, and their employees.
The power tripping in Washington is so extreme that punishing is their first reaction to anything they don't like.
Companies moving out entirely would be analogous to people moving. Companies moving out on paper while continuing to do business in the same location is analogous to tax evasion.
The analogy is more like that the location of you navel decides where you pay tax, and you discover that if you shift your weight around a little, your navel ends op on the other side of the line.
The problem is that the tax code fundamentally assumes that businesses are reasonably local and contained operations (analogous to a single body) and only deals with sprawling multinationals through monkey patching in an environment where policies appearing to benefit big businesses isn't exactly a big vote-grabber.
An analogy that might work is to move over the county line to reduce property taxes but continue to travel back into the original county to work or shop. Even then, you would still be paying some form of taxes to the original county; much like a company moving countries is not going to eliminate ALL tax liabilities.
By the way, if it is deemed legal then it is not tax evasion.
Wherever you, as an individual, move in the world, you are still supposed to pay US taxes. The US is one of the very few countries in the world to do this. The number of people renouncing their US citizenship to get away from this is on the rise.
He's been told that as of July 1 2014, renouncing US citizenship will have no impact, he still has to pay back taxes, and forward taxes.
I'm doing some googling now, and this might be it, or at least related, I'm not certain
http://www.cbc.ca/news/canada/fatca-facts-what-canadians-nee...
http://en.wikipedia.org/wiki/Foreign_Account_Tax_Compliance_...
Assuming she/he is willing to share that personal info.
Disappearing is not really an option - we're very close to the US border and going there on weekends is one of the major things we do, also, Canada will expedite to the US, and I wouldn't be surprised if they track him down, as we're talking many hundreds of thousands of dollars.
Note that is one thing US citizens cannot do, if you mean a different country versus a different state. The US is one of relatively few countries that tax citizens (and green card holders) no matter where you choose to live, or where your income is earned. (There can be some allowance for taxes already paid.) You can of course give up your citizenship, but good luck getting back into the country.
The amusing thing is that corporations are legally considered people. Why aren't these now foreign companies forced to jump through similar hoops foreigners are, and also subject to the same restrictions on applying money to the political process?
Essentially, this has major consequences on foreign investments which were built on the assumptions of a individual tax.
Further, there are trusts that can limit tax burdens. It is quite possible that the total taxation would decrease, and it would decrease on those at the top of the heap, not at the bottom.
We would have to figure out how to rebalance. Consider this a refactoring on code that is not easily unit testable.
We already tax capital gains on short-term investments as income. Taxing long-term capital gains at the same rate as income would have a number of other unpleasant consequences
- It would eliminate the incentive to hold investments for longer than 365 days
- It would reduce the incentive to invest in the market (since you would quite literally be paying double taxes on this income, instead of more like 1.5x the tax (which is what we sometimes misleadingly refer to as "double taxation"))
Regarding point #1 - if you sell a stock before 1 year, you already pay normal income tax on any gains. This encourages buy-and-hold, long-term investing, which I believe most people on HN would agree is good for the economy at large, as it reduces volatility and ensures that shareholder incentives are better aligned with growing the company.
Regarding point #2, which is mildly controversial (but IMHO only because it is misunderstood): it is good to encourage investments in the economy, because this is literally how business raise capital. Readers of Hacker News should be well aware of the importance of this in the private equity markets (ie, venture capital, which is technically a form of private equity). Similarly, in the public markets, it is good to create incentives for people to park their money in places which help spur the economy[0].
[0] In theory (obviously not always in practice), providing capital to a business has the potential to stimulate the economy more than providing capital to an individual, as the business uses that capital to pursue a profit, hire employees, etc.
Please distinguish between:
I make money. It is taxed at X%.
1) I put that money into the market, other people use it to make more money, I receive some money ($Y) for that (in dividends or raised stock price) and that is again taxed at X%.
2) I put that money into making myself a better worker. Next year, I make $(X+Y) more than I would have. The $X I spent, I got to write off as a business expense (maybe). The $Y is taxed at X%.
The corporate tax, on the other hand, is a heinous tax that hurts our economy substantially. We have to make the money somewhere.
Currently, we say "double taxation" when we refer to being taxed at the corporate level, and then again at the shareholder level (either as long-term capital gains or as income). Shareholders don't directly feel the corporate tax (though they are still effected by it).
What I meant was that, if we eliminated the corporate tax but increased the capital gains tax to be equal to the income tax rate, the tax rate that shareholders pay on the gains would be twice what they are currently paying.
(The actual incidence (burden) of the tax is more complicated to calculate; I'm simply referring to the direct tax rates.)
This is all very rough, of course, since marginal tax rates vary widely.
It is also indeterminate in how regressive it is[1]...some companies and industries can offload almost all of the tax burden (incidence) onto their workers, while others offload it onto their shareholders. Even in the case where shareholders shoulder the majority of the burden, ownership distribution can still heavily affect how progressive it is in reality.
The worst part is that it just isn't that great of a form of revenue. Doubling our effective corporate tax rate would be impossible politically. Superficially, rates can be raised, but tax lawyers will exploit the shit out of it anyway. A coalition might be able to raise it by an effective 25% max before every corporation in the US teams up to vote them six feet under. Seems like a lot of political capital to waste just to get a measly $80B/year. [2].
IMO, the perfect solution would be to eliminate the corporate tax altogether, and tax capital gains and dividends as income instead. At least then you can be assured that it is progressive, and you have more direct control over how progressive it is.
[1] http://www.urban.org/uploadedpdf/1001349_corporate_tax_incid... [1] http://www.kc.frb.org/Publicat/RegionalRWP/RRWP07-01.pdf [2] http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Doc...