
A Corporate Tax Dodge Gets Harder - hvo
http://www.nytimes.com/2016/04/07/opinion/a-corporate-tax-dodge-gets-harder.html?&moduleDetail=section-news-1&action=click&contentCollection=Opinion&region=Footer&module=MoreInSection&version=WhatsNext&contentID=WhatsNext&pgtype=article&_r=0
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ksdale
"while tax laws have failed to keep pace with tax-avoidance strategies made
possible by a complex mix of corporate offshore accounts and global capital
flows"

It would be more accurate to say that tax laws have failed to keep pace with
tax avoidance strategies made possible by tax laws. MNCs don't operate in a
vacuum. Every decision they make is informed by laws that were written by
Congress and can be rewritten by Congress just as easily.

I'm very sympathetic to arguments that tax rates should be higher, but this
quote places the blame on corporations, like "tax-avoidance strategies" exist
independent of tax law.

~~~
abawany
Extremely naive question (not asking rhetorically - I really want to know):
what is the point of taxing corporations?

Some thoughts on why I ask:

* given that they must disburse their income eventually in the form of dividends, salaries, payments to vendors, etc. this adds pointless complexity to the tax code

* if one eliminated corporate taxation, one could also eliminate the special (lower) tax rate on dividends and a whole rat's nest of loopholes

* it might help deflate the (IMO) dangerous idea of corporate personhood

~~~
jandrese
> Given that they must disburse their income eventually in the form of
> dividends, salaries, payments to vendors, etc.

Apple is just sitting on $300 billion (with a b!) dollars currently, and they
are just one company.

If anything we should be taxing those war chests higher because sequestering
that much money is bad for the economy as a whole.

Also, eliminating the corporate income tax would open up a gigantic loophole
in tax law. People could simply incorporate into a single person corporation,
then make sure the corporation makes all of their money and just happens to
provide services that help the person (like buying food and shelter).

~~~
bpodgursky
> Also, eliminating the corporate income tax would open up a gigantic loophole
> in tax law. People could simply incorporate into a single person
> corporation, then make sure the corporation makes all of their money and
> just happens to provide services that help the person (like buying food and
> shelter).

Given that corporate income tax is basically completely ineffective right now,
I don't know why you think this would possibly be any harder to enforce
against.

> If anything we should be taxing those war chests higher because sequestering
> that much money is bad for the economy as a whole.

If you eliminated the corporate income tax, this money would instantly be some
combination of (a) disbursed in dividends (b) brought back into the US and
spent on expansions or acquisitions or (c) spent on stock buybacks, which
would then be captured as capital gains tax. There's no need to make this more
complicated.

~~~
abawany
Thank you - that was sort of the source of my question as well. It seems that
since the current complicated scheme has perversed incentives to make the
corporate tax ineffectual, why not try to simplify.

------
Gratsby
Protecting tax revenue is not an answer. Accountants can move faster than
lawmakers, and lawmakers may or may not prioritize this kind of a thing at any
point in time.

The solution is to encourage and foster economic growth. The outliers like
Apple with large cash reserves being held offshore should be dealt with
individually. (Not calling them out, it's just that they are well known for
it) You don't penalize them for being smart with their money, you simply
incentivize them to use the money in-country.

The news this election cycle seems to be a flurry of anti-1%/anti-corporate
propoganda. There seems to be a feeling of take-take-take from these entities
that took-took-took from us. That mindset simply does not work long term.
Without real economic growth tax revenue is a finite and dwindling resource.

~~~
darawk
Two things: Making companies pay their legally required tax bill is not
'taking'. It's just making them follow the spirit of the law. Secondly,
accountants can only move faster than the law if there are loopholes - if you
close those loopholes it does in fact get harder and harder for them to move
around them, and it does in fact bring in more tax revenue. If it didn't, they
wouldn't lobby against it.

All that being said, the corporate income tax doesn't make a whole lot of
sense in the first place and we should probably get rid of it and replace it
with a more economically sound revenue stream. However, as long as the law is
on the books, it ought to be enforced, and even moreso ought to be enforced
fairly for large corporations and small.

~~~
matt_wulfeck
> Making companies pay their legally required tax bill is not 'taking'. It's
> just making them follow the spirit of the law.

They are following the law though. It's the law that allows this. If you
create more laws that disencentive the behavior people will just find more
loopholes.

spirit of the law is meaningless here. Generally we don't consider anything
illegal unless it is actually illegal. Are you following the spirit of the tax
law when you itemize your deductions and get a nice tax break?

~~~
darawk
I wasn't making a moral argument about the companies themselves. They are
following the law, and that's fine. But the authors of the law did not intend
for things like corporate inversions to be used to avoid tax bills.

Again, this is not a moral judgment of the company. It's simply a flawed law.
The law was poorly written and these companies have exploited that. That's ok,
but we should fix the law.

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white-flame
People shop around to get the best deal, especially on large or ongoing
expenses.

Corporations shop around to get the best incorporation deal, which includes
taxes, knobs on taxes, import/export regulations, legal climate, etc.

If X shops around and finds a legal means of getting what they need cheaper,
they go for it, whether X is a person or a company.

Both at the personal and corporate level, the more financially well-off you
are, the wider your shopping reach is. For somebody making $30k/year, a couple
of percent difference in exchange for upheaving your life isn't going to be
worth it. But for some entity making $300M/year, a couple of percent is a lot
of money, and it's worth seeing what they can do to shave those points off
their taxes. People with a lot of money also have much more mobility to move
to a lower tax area of their choosing, and still travel where they want.

So in the comparison to shopping around, you really can't fault this type of
corporate action, until they actually go illegal. You need to deal with the
incentive structure these people & companies are looking at from their
perspective if you want their money to stay in your jurisdiction.

~~~
devishard
> So in the comparison to shopping around, you really can't fault this type of
> corporate action, until they actually go illegal.

Watch me.

There are many times when people have incentives to take actions that harm
those around them, and yet somehow a lot of us manage to act ethically.

There are plenty of behaviors that are legal but unethical. I could, for
example, cheat on my significant other. There are some strong biological
incentives to do so. But nobody would say, "you can't fault him for cheating
on his SO until he actually goes illegal". Laws exist to disincentivize the
extremes of unethical behavior. When you consider that the rich have an
inordinate influence over what laws are passed, it becomes clear that often
behaviors which are unethical enough to be illegal remain legal because the
rich benefit from them.

The people exposed by the Panama Papers _knew_ they weren't behaving
ethically, otherwise they wouldn't have gone to such lengths to hide their
actions. I have no qualms about faulting them for their actions.

In business, "I was just following incentives" is the new "I was just
following orders". They're teaching this to business students in college, that
the only responsibility a company has is to its shareholders. Any person or
corporation with this ideology is effectively a sociopath, and society should
treat such corporations the same way we treat known sociopaths.

I agree with you that we should disincentivize this kind of tax evasion, but
any disincentive that assumes that there is no fault for following incentives
will simply plug one leak: the rich and corporations will simply find another
way to be avoid contributing to society. If you really believe that incentives
are the problem then we need to create a real disincentive: jail time for
persons and seizure of assets for corporations.

~~~
white-flame
Finding a deal on taxes is a completely different realm than surreptitiously
dumping toxic waste, or whatever else "harm those around them" and "just
following orders" tends to imply. The reductio ad absurdum doesn't really mesh
here. I agree with the sociopathic judgment of people using such excuses to be
predators against society. But we're simply talking about Place A offering a
better financial package than Place B.

Tax codes are insanely complex, and there's a bajillion ways to look at them
and apply them. Tax breaks are typically done for the government to
incentivize people & businesses to engage in behavior, and tax hikes are
typically done to dissuade behavior, without specifically outlawing things.
The sum total of these is a big mess in which if a few percent matters to you,
you can research and optimize. Given how the tax code comes into being, _that
is exactly the spirit of the law_.

> the rich and corporations will simply find another way to be avoid
> contributing to society

This is a moot and frankly prejudiced point. People & organizations with more
wealth & power have greater flexibility and mobility, regardless of the system
they're in.

~~~
devishard
> But we're simply talking about Place A offering a better financial package
> than Place B.

That's such a massive oversimplification of the truth that it no longer
resembles the truth.

Place B is the place where these people grew up, learned, and became wealthy
and powerful. They used the resources of place B to get to where they are. You
don't see the many of the wealthy starting off in obscure islands with
permissive tax codes. But suddenly when it's time to pay for all the resources
they have used, they're shopping around? Give me a break.

What you're proposing is equivalent to me going and stealing the shiny new
Porsche I always wanted, then claiming it's okay because I shopped around and
found a deal on an old Pinto at the local junkyard. I pay the junkman, I get
my Porsche, and we're even, right? The only difference here is that I'm not
rich or powerful enough to make that legal.

> This is a moot and frankly prejudiced point. People & organizations with
> more wealth & power have greater flexibility and mobility, regardless of the
> system they're in.

"Prejudice" means I've judged them before having any real information about
them.

The Panama Papers are far from the first indication that the rich leech off
society and don't pay their fair share, but they sure are the most damning and
specific. How much evidence so you need before you're willing to admit that
I'm being judicial and not just prejudicial?

------
matt_wulfeck
If you want to make the tax law more robust then we must make it simpler.
Every new law just creates a new vector for loopholes. Anyone that has filled
out something more complicated than a 1040ez knows that the current state of
things is very broken and the complication is a serious advantage to wealthy
corporations with tax lawyers.

Make it simple and accessible. Stop carving out special exceptions into every
nook and cranny. And for God's sake stop creating more laws that further
complicate it.

~~~
danieltillett
Complication is a feature not a bug. You can't solve this until you solve the
reason why the complication occurred in the first place (politicians need for
cash). Any simplification of the tax law will just slide back to the current
mess as each lobby group buys the loopholes they want. If you want to fix the
tax system you need to fix the political system's need for cash.

One of the more interesting things about this US election season is that the
population is starting to get this. I think the US Supreme Court were rather
clever ruling that injecting unlimited cash into the political system was Ok
as it has accelerated this process of voter education.

------
known
The significant problems we have cannot be solved at the same level of
thinking with which we created them.

1\. Impose tax on corporate revenues, not profits

2\. Regulate market capitalization of corporations

~~~
eru
> 1\. Impose tax on corporate revenues, not profits

Problem with that is that it encourages needless integration. If you tax
revenues, a company and its supplier will basically pay twice as much tax as
when they merge.

Or do you have a clever idea to solve this?

(Value Added Tax's structure does solve this problem to some extent.)

