
Warren Has a Good Beginning for Ending Corporate-Tax Avoidance - Apocryphon
https://www.bloomberg.com/opinion/articles/2019-04-15/warren-has-a-good-beginning-for-ending-corporate-tax-avoidance
======
andrewstuart
Taxes are a good thing.

They pay, or should pay, for education, health, military, roads and
infrastructure and a wide variety of other stuff that is good for everyone.

It puzzles me that people hate taxes so much.

~~~
rb808
I'm not sure if you're in America, but in the US it federal income taxes
largely goes to 14 giant aircraft carriers, a huge network of nuclear weapons,
corporate farmers intensely growing carbs that makes our nation fat and
payoffs to various politically well-connected lobby groups. State and local
taxes probably are more useful for the things you think benefit society.
Social Security and Medicare are of course funded separately. There is nothing
for the endless army of homeless people living on the streets.

I know in many countries people are happy to pay taxes, if I saw everyone was
treated well, got free healthcare and free universities I'd probably be
happier about paying tax too.

~~~
jcranmer
> largely goes to 14 giant aircraft carriers

How much do you think the Navy actually costs? Crunching the numbers, the tax
the corporation I work at (admittedly, not a small company) is by itself
sufficient to pay for running one of those carriers.

~~~
max76
The Department of Defense's budget is about Six Hundred and Fifty Billion
Dollars. It appears too high for peace time. We have friendly relations with
both neighboring states. We have huge natural defenses (oceans) to the east
and west. We have the nuclear deterrent. We have a well armed population.

We don't need 355 deployable navy vessels. Improving education and health care
of our citizens would do more to improve America's economic position than
jostling for terrority in the Indian Ocean. Climate change is a bigger treat
than terrorism.

------
rland
Tax for revenue's sake (as opposed as one legislated to change behavior, like
a carbon or environment tax) should be 0% on businesses. The rhetoric I see
coming from the left is very worrying. "We will pay for this by just taxing
'corporations.'"

What happens under high corporate taxes is that executives of the corporation
manage to extract their share, while using the share of those not in control
(the workers) to pay the tax. The end result is that the government does not
decide who must pay; instead, those with power in the corporation decide. This
outcome is always unfair to the worker: a line cook at McDonalds cannot decide
whether McDonald's should cut wages or decrease dividends to pay for the
corporate tax this year.

That doesn't even describe the case where a business cannot operate under a
heavy tax burden and ceases doing business, which is a loss for everyone in
the economy.

Taxes on corporations should be reserved for those situations where we need to
control behavior at the corporate level, where a tax at the individual level
cannot efficiently be used. For example; a carbon tax levied on a corporation
to effect the corporation's behavior re: carbon.

This is not an argument for lower taxes.

------
gnicholas
The Bloomberg article links to a blog post by Warren, which is headlined by a
graphic that says: _You probably pay more in federal income taxes than America
's biggest, most profitable corporations_.

This strikes me as an inflammatory — and generally untrue — statement. Even if
you assume that all of these corporations pay zero federal income tax (they
don't), then roughly half of Americans don't pay more (recall Mitt Romney's
impolitic-but-true statement about 47% of Americans not paying any federal
income tax).

But of course, most companies do actually pay federal income taxes, and when
they don't it's often because of loss carryforwards. This particular aspect of
tax law is not a "loophole", and lumping it in with lobbied-for tax
credits/deductions doesn't help move the discourse forward.

The scope of the proposed tax hasn't been fully fleshed out, and I won't
comment in-depth on it (as a former tax lawyer) at this point. But when I
click through to see the original proposal and am greeted by this inflammatory
and untrue statement, I am reminded that even the wonkiest of policy wonks
will spin things pretty hard when it's election season.

~~~
tschwimmer
Mitt Romney's statement was not primarily in character a factual observation
that 47% of people pay no income tax. It was something far more opinionated
and in my opinion, deeply inhumane and unethical. The full quote:

"There are 47 percent of the people who will vote for the president no matter
what. All right, there are 47 percent who are with him, who are dependent upon
government, who believe that they are victims, who believe the government has
a responsibility to care for them, who believe that they are entitled to
health care, to food, to housing, to you-name-it. That that's an entitlement.
And the government should give it to them. And they will vote for this
president no matter what…These are people who pay no income tax."

This is Protestant work ethic taken to a corrosive extreme. This is Romney
playing to an audience that believes those who take government assistance are
conniving malingerers looking to squeeze every penny they can out of hard
working taxpayers. It is an indictment of people who had the audacity to be
born without the ability to fully support themselves. It begrudges them for
daring to ask for a home, food, healthcare and maybe even a few spare moments
of happiness.

In my opinion, this type of thinking is the greatest moral failing of the 21th
century. It frees the thinker of any social responsibility by demonizing those
least equipped to defend themselves.

I do not agree with many of Elizabeth Warren's policy proposals. Her thinking
on technology is dangerously benighted. I will not vote for her. But the
essence of Warren's argument is that we need to rethink the relationship
between the most successful members of society and the least. Tax loss
carryforward is a standard accounting practice that makes rational sense.
Nevertheless, it's the type of policy that helps those who need help the
least, and I think we need to start to rethink these kinds of policies.

We as a society can continue to pass legislation that favors the strong and
punishes the weak. What we can't do is look at ourselves in the mirror
afterwards and continue to believe that we live in a humane, compassionate,
egalitarian society.

~~~
gnicholas
> _Tax loss carryforward is a standard accounting practice that makes rational
> sense. Nevertheless, it 's the type of policy that helps those who need help
> the least, and I think we need to start to rethink these kinds of policies._

Get rid of this and you will find all manner of foolish inefficient corporate
behavior. Companies with huge losses will be bought by companies with gains
they want to soak up that year. Companies will make investment decisions based
on their current year's tax position instead of the needs of the business. The
end result will not be a more equitable system; it will be a system in which
tax lawyer and accountants are the only ones who come out ahead.

And to be clear, I only mentioned Romney's infamous 47% line because it is
well known and makes the point quickly. There's no need to rail against the
larger message he was giving, which doesn't bear on whether Warren's headline
is accurate or misleading. It leads us down a rabbit hole of discussing
whether it was appropriate in the context (stumping to potential donors,
IIRC), etc. I only referenced it because many people are aware that he said it
and that it was a controversial comment but a true one.

------
nordsieck
All these sorts of schemes are doomed to fail for the very simple reason that
corporations are more agile than the law making process.

Here's an easy plan to end tax avoidance:

1\. Any company that sells more than $X/year to people living in the US needs
to be registered in the US.

2\. Flat tax with no exemptions (all corporations would be taxed like
C-corps).

3\. No more rules.

A plan that won't work is one that adds even more rules on top of the the
enormous mound of rules currently in place.

~~~
AdamM12
Just a thought. How about abolishing corporate tax and then making every
entity as pass through entity for tax purposes? At the EOD all entities are
owned by someone and that income is taxed at a progressive rate. From what
I've read the corporate tax is only 10% of the federal budget anyway.

Edit: This wouldn't stop a company from doing what Amazon did and reinvest all
the time but at least given a profit an entity would be pressured to pay out
cash in order to cover tax liability of owners. Would help avoid hoarding of
cash on balance sheets.

~~~
reitzensteinm
We have that in Australia & NZ, called Franking. When a corporation pays tax,
it receives credits which can be distributed with the dividends it pays out.

While strictly better than the alternative for business owners, I always felt
the incentives were a bit weird; if you left profits in the company to expand,
you'd pay tax on that up front which would slow growth. So it would bias you
towards withdrawing profits (at least compared to the tax policies of other
countries).

[https://en.wikipedia.org/wiki/Franking_credit](https://en.wikipedia.org/wiki/Franking_credit)

In my opinion, corporate taxation should be tied to liability; essentially
being the compensation to society for the risk that your company will go
though bankruptcy. If you are willing to be personally liable for your
business, you should be able to operate it as a simple pass-through vehicle.
And this should apply even to something the size of Apple - investors willing.

It's commonly argued that capital gains combined with corporate tax is double
taxation, but limited liability has a huge amount of value; making the link
between them explicit and optional would (I think) be the best of both worlds.

~~~
AdamM12
I believe double taxation actually refers to paying the corporate tax rate as
well as the shareholder paying their dividend tax rate. Not capital gains.

~~~
reitzensteinm
I misspoke and meant to say corporate tax which would be more correct. But the
tax rate also effectively applies to capital gains, since the value of a
company is the NPV of its future distributions.

If Apple were suddenly permanently excepted from income tax tomorrow through
some bizarre legislation, its future dividends would be proportionally
increased, and its market cap would (should) rise to match.

The water is muddied due to a few factors such as inflation, uncertainty
around future tax rates, potential tax holidays for overseas income etc. But
they're in very general terms two sides of the same coin.

------
olliej
Can’t we just say “your profit for the purposes of taxation is the profit you
report to shareholders?”

~~~
rb808
Yeah I think this is the real problem. Most people think Amazon makes a lot of
money. They even say they made $12B, but they gave billions to of RSUs to
employees so the IRS wisely says they didn't make much. The truth is they
didn't make much/any money which is why their tax is low.

~~~
olliej
The problem I have is being able to report different profits to different
groups - you should be required to have a single pretax profit number, and
that is what you report.

If you really don’t make money then you should be required to report that to
your shareholders, and conversely if you tell your shareholders you’re making
money, then you should be required to report that value to the irs.

I don’t care which one you use (I mean I do, but in this case it’s not the
specific point), what I’m saying is you don’t get to make money by having
overvalued shares (by giving one profit number or the market), while not
paying tax (by reporting a different number to irs)

~~~
rb808
Choose the tax number.

"Accounting for Growth" was a classic book written after the late 80's stock
market bubble in the UK about how people were fooled by bad accounting and how
to spot fraud. One of the main pieces of advice is that the tax number is
usually more correct. If a company says it makes huge profit while paying
little tax its likely not real profit.

------
jonknee
Corporations are owned by people, start by taxing them simply. Income should
be taxed the same whether it comes from a dividend, capital gain or as wages.

~~~
skybrian
It's a nice idea, but tricky to do. The difference is that wages and dividends
get taxed in the year they happened and capital gains can't even be calculated
until you sell an asset, because you don't know the price it's sold at. And
capital gains taxes can sometimes be delayed forever (by not selling).

You could mark to market, but it's tricky for investments that aren't liquid.
Do you want to pay capital gains tax on your house every year because the
market price is supposedly higher? Do you get it back if the market goes down
again?

~~~
int_19h
Capital gains are taxed when they're realized, and I don't think OP proposed
changing that - only adjusting the rate so that it's not less than tax on
regular income.

------
comnetxr
According to the model in this proposal, corporations report their "true"
profits to shareholders, and artificial "profits" to tax authorities using
corporate accounting tricks (i.e.
[https://en.wikipedia.org/wiki/Double_Irish_arrangement](https://en.wikipedia.org/wiki/Double_Irish_arrangement))
to lower tax liability.

This proposal assumes that, when the tax rate is based on the value of
reported shareholder profits, corporations will continue to report their
"true" profits to shareholders, rather than just reporting the values returned
by corporate accounting tricks to shareholders. I doubt that would be the
case. The best argument for it I've seen is "Presumably they want the stock to
go up so they will report a profit", i.e. investors will move to companies
that are on paper more profitable. But actually, investors do their research
and can update their profit models of companies; a higher reported profit
number will be seen as (and will actually be) a liability to the company.
Companies that forgo accounting tricks will be seen as forgoing potential
profit by paying taxes that they don't need to. (The same is true today; if
Google announced today that they were voluntarily giving up tax accounting
tricks and paying full rate, their share prices would go down.)

The one caveat is whether the SEC enforces that the reported profits really
are the true profits. But that model of enforcement (self reporting, cheaters
rarely get caught and if they do settle the cases for amounts less than their
profits) is silly. If we want taxes paid on true profits, we should implement
tax law that precisely defines what those are and instruct the IRS to
determine those exactly and send them a bill. Reporting requirements to the
IRS should be set up with incentive structures that make cheating unprofitable
or impossible.

------
Eridrus
Why should I care about the corporate tax burden? Taxes come out of people's
pockets, not corporations.

There's an argument to be made that we can get foreign shareholders to pay
taxes they otherwise wouldn't, but that's a much different argument than
"corporations aren't paying their fare share".

~~~
andrewstuart
>> Taxes come out of people's pockets, not corporations.

That's not correct - corporations are meant to be paying significant tax.

~~~
asdfasgasdgasdg
It is correct. People own corporations. So if you're taxing a corporation,
you're actually just taxing the people that own it. (And/or its customers or
employees.) The only point in taxing corporations vs. people directly is if
you're trying to target a set that's difficult to tax otherwise, such as rich
people who own big corps but don't realize a lot of income on their own
balance sheet.

Which IMO is a fair group to target. But that's the point. Corporations are
just things that are owned by people. People, ultimately, pay the taxes. So
the question ought to be, which _people_ do we want to pay more taxes, and
what's the best mechanism to get them to pay those taxes?

~~~
Terr_
> The only point in taxing corporations vs. people directly is

I disagree, you're skipping a _huge_ governmental benefit that almost all the
biggest corporations request/receive: "Limited Liability."

If Nuclear Asbestos Infant Toys goes bankrupt, everybody else is picking up
the tab for land-cleanup and tumor-removal.

In other words, those owners have _chosen_ to socialize their company's risks,
so it's only natural and fair for some of the company's profits to be
socialized at the same junction.

~~~
asdfasgasdgasdg
I dunno if that's very different. Personal risks are socialized too -- via a
mechanism known as bankruptcy. Anyway, again, it's a question of who you're
targeting. If you think limited liability specifically is something that ought
to incur a tax of that amount, then, sure, tax them that amount.

But then company owners ought to be able to drop the limited liability feature
and receive a lesser tax burden, right? I'm suspect Apple's owners would be
happy with that trade. Unlimited liability in exchange for a zero percent tax
rate? Bring it on. What, realistically, is the most damage that a computer is
going to cause? The damages from patent infringement are often limited by the
economic harm, which is at any rate likely to be far less than profits.

Not to put words in your mouth, but if I had to guess you would not be willing
to offer companies this out. I think that should make you question whether
limited liability, specifically, is why companies should be taxed.

~~~
int_19h
Not OP, I'd be perfectly fine with a tax specifically on limited liability,
and I think you vastly underestimate the value of that arrangement to the
company owners.

------
calibas
Don't elect wealthy politicians who are in bed with industry lobbyists and
watch things change overnight.

------
malandrew
So much of the tax avoidance tactics ends up as more investment and propels
our economy forward. Amazon is a prime example. The government taxes profits.
Amazon instead of making a profit, reinvests the money into its business.

Even when corporations do stock buy backs, it's not like most of the money
goes to the investors to spend frivolously. Instead most of it just gets
reinvested in different businesses that have a better plan for the money than
the company that did the stock buyback.

Any way you slice it, Warren's plans just reduces reinvestment and puts the
brakes on economic growth. You can't tax your way to prosperity unless the
taxes are used strictly for things that are an investment in the economic
future of the country such as education and infrastructure. Taking the money
from those investing it and blowing it on entitlements is a terrible idea.

At the end of the day, all this reinvestment creates jobs and allows
individuals to provide for themselves instead of being dependent on sucking at
the teat of the state.

~~~
aeternus
Sure, we should be encouraging reinvestment but how do you resolve the
unfairness of companies that choose to reinvest themselves vs. pay out a
dividend and allow investors to re-invest?

Amazon benefits from many government-funded programs: educated workforce, road
& rail infrastructure, national defense, judicial contract-enforcement, etc.

Is it fair that a company that reinvests gets all that for free while a
company that makes a profit pays substantially?

~~~
SamReidHughes
This is true for any form of taxation, such as income/payroll taxes when
paying for daycare versus watching your kids yourself.

------
qmanjamz
Corporate taxes shouldn't exist in the first place. They're just a sneaky way
of double-taxing people.

Corporations are really just groups of people. Those people already have to
pay taxes on the income they receive from the corporation. They shouldn't have
to pay taxes on it again when the corporation reports it as income.

~~~
tomhoward
I'm sympathetic to the argument in principle, but it hinges on the system for
assessing income of/collecting taxes from individuals being adequately
rigorous and efficient.

The presence of loopholes, tax havens and other mechanisms (including
corporations themselves) for hiding personal income means the bucket is very
leaky.

Given that corporations have to maintain complete records of their cashflows
and disclose them to investors and authorities anyway, using this data for
intermediate tax collection seems reasonable.

