
Obama presses to end corporate trick for evading taxes - dataminer
http://www.reuters.com/article/2014/07/24/us-usa-tax-obama-inversions-idUSKBN0FT13K20140724
======
saosebastiao
The corporate tax is an absolute mess. Compliance costs are insane. Closing
one loophole opens up another. It creates incentives for "paying" executives
with look-the-other-way corporate jets and luxury hotels and conferences in
the Bahamas.

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...](http://www.urban.org/uploadedpdf/1001349_corporate_tax_incidence.pdf)
[1]
[http://www.kc.frb.org/Publicat/RegionalRWP/RRWP07-01.pdf](http://www.kc.frb.org/Publicat/RegionalRWP/RRWP07-01.pdf)
[2]
[http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Doc...](http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=203)

~~~
Shivetya
What companies are doing is nothing more than citizens within the US can and
choose to do, they move to places where their tax burden is less. Where you
can get the same or similar services for less of your income.

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.

~~~
MereInterest
I'm confused. If I cut off my big toe and mail it to a different state, can I
claim that I should only pay taxes in that state? Why, then, can a company
move a small and inconsequential part of itself to a different jurisdiction,
then be taxed under that other jurisdiction?

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.

~~~
mseebach
If the tax code says that the location of your right big toe decides where
your entire body pays tax, regardless of where other parts of that body is
located (immediately adjacent to the toe or scattered across the world), then
yes, where the big toe is, that's where you pay tax.

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.

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crazy1van
"Economic Patriotism" as described here is a ridiculous concept. There is
nothing patriotic about demanding that another guy pay more taxes. Its like
signing up someone else for the military. Want to show patriotism? Write a
check of your own money to the Treasury Dept.

Edit: I don't mean to suggest the tax code shouldn't be changed. I just mean
compelling others to sacrifice, doesn't make a person patriotic.

~~~
SolarNet
But the argument here is that corporations are not paying their fair share of
the taxes. To pay your share of taxes is patriotic. Hence avoiding taxes,
while reaping the benefits, is not patriotic. People get angry when poor
people abuse welfare, why aren't they annoyed when wealthy companies abuse a
countries benefits. We have an educated base of people, a leading technology
base, a law structure which favors corporations in many ways, and a secure
place to put offices, all of which the government is directly responsible for.
(I would have also put, infrastructure but... we don't have that anymore, nor
do we have low crime rates, at least in comparison to other modern industrial
nations).

We aren't calling Obama patriotic for suggesting or implementing this. We are
calling the companies who do this anyway, who pay U.S. taxes when they could
avoid them, patriotic, and those who don't, who mainly operate here, who reap
the benefits of our country and don't pay their share? Parasites.

~~~
to3m
You seem to be describing tax evasion. Tax avoidance _is_ paying your share of
tax!

~~~
SolarNet
In the context of what is socially acceptable, tax avoidance and tax evasion
are the same thing.

Again, we aren't talking legality here we are talking morality. The result of
the discussion on morality is an attempt to change our legal system. To say
"well one of those things is legal" is basically a tautological fallacy in a
discussion on whether it _should_ be legal, which is what this is.

~~~
vixin
Socially acceptable to whom? Avoidance is reading the rules written at length
by presumably clever people and then acting accordingly to comply with them
while minimizing one's tax bill taking all considerations into account. Only a
fool would do otherwise.

As quoted "You must pay taxes. But there's no law that says you gotta leave a
tip". As to the morality, it's worth considering those of us who try to live
within our incomes so we can afford to pay taxes to a government that can't
live within its income'.

From a British perspective:
[http://blogs.telegraph.co.uk/finance/andrewlilico/100024862/...](http://blogs.telegraph.co.uk/finance/andrewlilico/100024862/companies-
have-a-moral-duty-to-pay-no-more-tax-than-legally-required/)

'Companies-have-a-moral-duty-to-pay-no-more-tax-than-legally-required'.

~~~
DanBC
Tax avodoidance used to be normal tax planning - reducing your tax burden
within the law.

But now it has a different meaning.

Tax avoidance is the legal gray area between outright evasion and tax
planning.

Avoidance is the bit that your lawyers and accountants say is legal, but which
hasn't yet been tested in courts. The plan might not last long before the law
is changed. And you might be asked to repay some tax.

Tax avoidance is the use of bizarre systems that serve no purpose but to
reduce tax burden. Starbucks is a great example here. They have a gajillion
shops in the UK; they employ many people; they're expanding. By any sensible
analysis Starbucks is a sucessful company in England. Yet the shops make no
profit. The only reason they make no profit is because they have to buy buy
coffee beans from one supplier, and that supplier prices the beans very much
higher than other bean roasters. That bean-roasting supplier happens to be
based in a tax haven.

Can you agree that there is a difference between "not paying tax that you
legally do not need to" and "going out of your way to create bizarre semi-
legal schemes in the hope that you get away with it; especially taking into
account the numbers of people working to create tax avoidance schemes and
people working to investigate such schemes".

The other moral point is that these companies make full use of the products of
the tax system - they would most certainly call the police if one of their
offices was burgled - and so they should consider making sensible donations to
that tax system.

(And before anyone mentions wage taxes or sales taxes: these are paid by the
employees or by the customers, and merely collected by the company).

~~~
to3m
There are also business rates. (For non-UK readers: property tax on commercial
property.)

I'm surprised at the implication that because of all this shit they're
spending money on - shops, employees, expansion, etc. - they must be
profitable. (Maybe they are, I don't know. Maybe they are stashing it away
elsewhere. It would certainly make sense for them to do that.) But it doesn't
automatically follow, because profit is what you have left _after_ you've paid
for all this stuff. All this expenditure is in fact bad for the bottom line.

You can't even argue that the money has to come from income, and that
therefore the very fact of their profitless expansion is evidence of sharp
practice. People have been known to lend out money! Sometimes they'll do it
merely in exchange for a share in your business. If they like the cut of your
jib, you don't even have to be making money yourself in the first place.

...which is why I'm sort of surprised to see this line of thought implied on
HN ;)

------
icehawk219
Maybe I've just become jaded about American politics but every time a
politician says something like this I tend to just assume that they're doing
it to gain favor with the public while knowing there's nearly a 0% chance it
will actually happen.

~~~
jasonwocky
These things look the same even when there is an actual chance of it
happening.

------
alwaysdoit
It's ridiculous that lawmakers to try to guilt or shame companies into paying
more taxes. If they want companies to pay more or not use loopholes they
should raise taxes or close the loopholes. Otherwise they are penalizing any
company that tries to "be patriotic" or "pay its fair share" by forcing it to
compete on an uneven playing field with companies that aren't paying those
higher taxes.

~~~
mmanfrin
To change a law, you don't just put up a bill for a vote; you first need to
drum up support, which means getting politicians motivated for it which means
riling up their political base. That is to say, to change a law, you have to
get _citizens_ caring about it -- hence the rhetoric about 'economic
patriotism'.

------
tyoma
Wait, US corporations are moving to Europe for lower taxes? I thought taxes
there had to be extraordinarily high to support their free healthcare systems,
paid maternity/paternity leave, and lengthy vacations?!

On a serious note, I wish articles like this actually gave some mechanics
about the actual 'tax evasion'. The issue is that the US taxes worldwide
earnings at the US tax rate. Other countries, such as the UK[1] don't do this.
So if you're a multinational with sizable non-US earnings, it makes a lot of
sense not to be domiciled in the US.

[1]
[https://www.gov.uk/government/uploads/system/uploads/attachm...](https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/183408/A_guide_to_UK_taxation.pdf)

~~~
talmand
I believe you answered your own non-serious question.

If the foreign nation only taxes the company for profit inside the nation and
the US taxes profit worldwide, then it isn't too hard to see the better deal
even if the foreign nation's tax rate is higher.

~~~
tyoma
The UK corporate tax rate is lower, 21% vs 35% in the US.

------
mark_l_watson
Actually, the US government is behaving very rationally. Realizing the
pressure on the US dollar, especially since progress is already happening in
moving to SDRs (special drawing rights) as the world's reserve "currency" and
trading blocs are increasingly using their own currency for bilateral trade.

President Clinton signed a bill that confiscates part of someone's net worth
over a threshold for renouncing US citizenship and moving to another country.
Bush and Obama are taking similar steps to keep assets in the USA. While it is
reasonable to go after money laundering, it is becoming increasing difficult
to do some business transactions internationally, open bank accounts in
countries where one spends a lot of time on vacation or has residency, etc.

------
peapicker
Bad headline. The "trick" is not a trick, it is allowed under the current law.
Should read, had the headline been written by an objective journalist, "Obama
presses to close corporate tax loophole."

~~~
talmand
I would even say that referring to it as a loophole is not fair.

"Obama presses to reform badly written corporate tax laws."

------
doctorwho
Sounds good, but they damned well better apply the same rules to individuals
who use offshore tax shelters too. How unpatriotic is that? Deserters!

~~~
wyager
>How unpatriotic is that? Deserters!

Yeah! Nationalism! Everyone should put the interests of a blob of land
delineated by imaginary lines above their own!

Can we stick to arguments not based on nationalist fervor?

~~~
diminoten
...he says while sipping a glass of nationally funded water, on his computer
which arrived via nationally funded sea ports, which sends data over
nationally funded computer networks, using a protocol developed with national
funding.

~~~
wyager
>he says while sipping a glass of nationally funded water

The water wasn't created by the government, the government didn't build the
pipes carrying it to my house, and _any_ first world country could have helped
to facilitate this glass of water just as much as the country I happen to
inhabit.

>using a protocol developed with national funding

Along with contributions from Xerox, BBN, UCL, a number of US universities...
And why, exactly, does the fact that a government partially funded a nice
project mean that nationalism is a good motive?

~~~
diminoten
This is a tax debate, and with any tax debate, it's worth remembering what our
tax dollars get us. It seems like you're equating "nationalism" with
"government", which is most certainly too broad.

~~~
wyager
>It seems like you're equating "nationalism" with "government", which is most
certainly too broad.

No, this is precisely what _you_ are doing. I mentioned that we should not
make arguments based on nationalism, and you responded.

>...he says while sipping a glass of nationally funded water, on his computer
which arrived via nationally funded sea ports, which sends data over
nationally funded computer networks, using a protocol developed with national
funding.

which, as you just mentioned, has to do with government, not nationalism.

~~~
diminoten
Your comment came in response to someone calling not paying taxes,
"unpatriotic", and saying the US is a "blob of land delineated by imaginary
lines", when in reality the _whole point_ of this debate revolves around the
fact that entities residing in this "blob of land" are expected to pay taxes,
in return for which a whole host of benefits are granted.

It's not nationalism to malign those who benefit from the collective tax
paying body without contributing to it.

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nateabele
I feel compelled to bring up, as a public service, that 'patriotism' has
nothing to do with one's government, and using it in an attempt to manipulate
people into financing more and more mass murder is disingenuous and
disgusting.

