
American big business faces the G20 in a fight for $2.1T in unpaid tax - kevindeasis
http://www.theguardian.com/business/2015/nov/28/tax-inversion-big-business-g20-fight-unpaid-tax
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ars
> “For too long, powerful corporations have exploited loopholes that allow
> them to hide earnings abroad to lower their taxes,” said Democratic
> presidential candidate Hillary Clinton. “Now Pfizer is trying to reduce its
> tax bill even further.”

You don't like the loopholes? Close them. Do not blame people for using every
single option they are given.

The right thing to do is lower the tax rate and remove the loopholes. The
total tax paid could stay the same, but the distribution would be different.

The current system is unfair, you need to pay a lot of money to work out these
complicated scenarios, this hurts smaller businesses, and costs a lot of money
to implement.

"Any one may so arrange his affairs that his taxes shall be as low as
possible; he is not bound to choose that pattern which will best pay the
Treasury; there is not even a patriotic duty to increase one's taxes." \-
Gregory v. Helvering, 69 F.2d 809, 810 (2d Cir. 1934)

"Over and over again courts have said that there is nothing sinister in so
arranging one's affairs as to keep taxes as low as possible. Everybody does
so, rich or poor; and all do right, for nobody owes any public duty to pay
more than the law demands: taxes are enforced exactions, not voluntary
contributions. To demand more in the name of morals is mere cant." \-
Commissioner v. Newman, 159 F.2d 848, 851 (2d Cir. 1947) - dissenting opinion

~~~
jacobolus
One problem, which the article discusses just after the parts you quoted, is
that there’s a huge amount of lobbying of and money flowing to politicians
willing to thwart reform efforts. Closing tax loopholes would be easier if we
also had publicly financed elections or stricter limits on campaign
contributions, and if the media wasn’t a consolidated corporate cartel.

> _“[...] Many influential Republicans, already uncomfortable about the Peru
> reforms, are expected to use committee hearings to launch an attack on the
> European commission’s ongoing state aid investigations into suspected
> sweetheart tax deals granted by Ireland, the Netherlands and Luxembourg to,
> respectively, Apple, Starbucks and Amazon. ¶Well-resourced rightwing
> lobbyists are agitating in Washington for a final push against the G20 tax
> reforms. [...]”_

There’s a feedback loop involved between corporations saving billions in taxes
-> donations of some portion of that to politicians willing to play along (and
offer to give them board seats and high-paid speaking gigs after they leave
office, etc. Just look e.g. Bill Clinton’s post-officeholding career.). Same
story with industries that receive large government contracts, or which are
under heavy regulation. In every case, there’s big money to be made in helping
corporate interests at the public’s expense.

Candidates running for public office have great incentive to talk about how
they want to close tax loopholes, etc., but once they are elected, the only
thing holding them to those promises is personal integrity, and none of the US
presidents since Jimmy Carter have been able to face down that kind of
temptation. The pressure might be even greater for Congress, as smaller
amounts of money directed at unseating particular troublesome Reps goes
further, and there’s less direct public attention on each one.

~~~
danieltillett
The root cause here is the amount of money required to be elected. Get rid of
the need for money and you get rid of the corruption.

I personally like the idea of increasing the number of members of congress so
each member only represents around 25,000 people like they did 200 years ago.
If your electorate only had 25,000 voters you would not need much money (nor
staff) to get elected.

~~~
dccoolgai
It is _not_ the root cause. Money would mean nothing if the idiots sitting on
the other end of the ad the money paid for bothered to form their own opinion
or research something. Politicians need money because ads cost money. They run
vapid attack ads, because vapid attack ads work. Vapid attack ads work,
because we are stupid and lazy.

Worked in politics for many years: trust me. Money is not the root cause. We
are.

~~~
jMyles
I think you are saying the same thing. The commenter to whom you are
responding didn't say that _money_ is the root cause, but that the _amount of
money_ required to win is the root cause.

And the reason that it costs this amount of money, as you point out, is that
attack ads (inter alia) are often successful.

~~~
danieltillett
Exactly right. It is the scale of money required to get elected that is the
issue. When you have districts with upwards of a million people then they only
way you can have any contact with any voter within that district is via
adverting.

A 15 second ad is not a good way to get across a complex idea, hence we end up
with campaigns built around personal attacks and dog whistles. Get the
electorate down to the size where each politician knows the majority of their
electorate personally, where you can call up your representative and talk to
them rather than some staffer, and where public meetings can work, and then
you will change the whole dynamic of politics. It won’t be perfect, but it
should be more resistant to corruption as the root cause will be removed.

~~~
jMyles
Although, anybody who has been involved in municipal or campus politics can
attest that, at least occasionally, oversimplification and attack ads work in
those markets as well.

All things considered though, I agree with you.

One other thing to overcome though, is gerrymandering. If we have 10x-100x the
number of house districts, the gerrymandering algorithms will have a field day
unless we take action to stop them in practice first.

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boreas
What needs to be done is change the unique incentives for American companies
to participate in such byzantine international tax avoidance schemes in the
first place. The US is practically the only country that taxes profits
internationally regardless of origin. It should remove all taxes on bringing
foreign profits into the US and lower the overall corporate tax rate while
closing the loopholes that render the 'headline rate' so ineffectual in the
first place.

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sjtgraham
Corporate domicile is essentially a market and corporations have a choice
where to domicile themselves. So instead of governments making futile attempts
to legislate their way to a solution why don't they do as participants in any
other market do and actually be competitive? This means reducing costs and
finding savings to compete on price, i.e. lower rates of taxation. If
government was a private enterprise, it would go out of business.

~~~
danieltillett
Government isn't a private business so it makes little sense to make such a
comparison. Tax should be paid in the jurisdiction the profit is earned.

~~~
DVassallo
> Tax should be paid in the jurisdiction the profit is earned.

Why should it be that way?

One problem with these loopholes seems to be that it is not easy to determine
where the profit is earned.

~~~
danieltillett
The reason why is you will end up with every country in the world taxing each
company on their worldwide income. Any company operating in more than one
country will be taxed out of existence.

It is not that hard to determine where the income is earned provided countries
share data.

~~~
gabbo
It is hard, though: not least because determining where income is earned
depends on defining "income". Revenue is maybe easy enough, but what about
expenses? Depending on the industry, there's plenty of opportunity for
chicanery which makes it far from "not that hard".

Example: you're a large tech company who can afford good accountants and
complicated legal structures. Your high-tax jurisdiction European subsidiaries
can "license" a whole bunch of "intellectual property" from their counterparts
in Ireland/Luxembourg which significantly beef up their costs to the point
that net income in the high-tax jurisdiction is minimal and it all gets booked
somewhere which will charge you less.

Kind of like how Apple manages its assets via a Nevada subsidiary to avoid
paying tax in California, and how Microsoft does something similar with
software licensing. Except at least in the US case there's still tax revenue
going to the federal government.

~~~
danieltillett
When I said not hard I should have said it is possible :)

Intellectual property is certainly a major way of avoid tax, but there are
many ways of solving this. You could only allow each country to apportion IP
costs on the basis of where income is earned. Alternatively, you could prevent
deduction for IP licenses to entities owned by the parent company. Once you
have the information of where the money goes then you can certainly tax it
fairly.

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molecule
This is certainly an issue to be discussed and addressed, but the headline,
directly from the article, is incorrect, re: "$2.1T in unpaid tax":

 _> In total, US multinationals are sitting on an estimated $2.1tn in untaxed
offshore profit..._

US corporate taxes on $2.1T are @ least 65% less than the $2.1T profit,
itself. The correct title would phrase it as "unpaid taxes on $2.1T".

~~~
danieltillett
This is graudian sub-editor's mistake - we should be happy that the headline
is even close to the article content.

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forrestthewoods
Paying the minimum amount of taxes you are legally obligated to pay is the
most noble of endeavors. Good luck and God bless.

------
kondro
Wouldn't moving taxes from income to sales-based resolve many of these issues?

~~~
danieltillett
The problem with basing company tax on sales is some industries have higher
margins than others. If you introduce a flat turnover tax on business then you
effectively tax low margin businesses more than high margin businesses. It
also creates an incentive for businesses to vertically integrate even if this
is not the optimal economic structure.

~~~
analog31
Out of curiosity, does value-added tax solve this problem?

~~~
danieltillett
Value added tax is a consumption tax, not an income tax. The tax is paid by
the consumers and is highly regressive (i.e. the poor are taxed more than the
rich).

There have been some attempts to tax companies based on gross income, but it
tends to only be applied to a limited range of companies like utilities [1].

Personally I like Land Value Taxes [2] since they are impossible to avoid, but
this makes them very unpopular with the rich and powerful who own most of the
land.

1\.
[https://en.wikipedia.org/wiki/Gross_receipts_tax](https://en.wikipedia.org/wiki/Gross_receipts_tax)

2\.
[https://en.wikipedia.org/wiki/Land_value_tax](https://en.wikipedia.org/wiki/Land_value_tax)

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dools
And yet, this doesn't "cost" governments anything, because governments don't
need tax to fund spending.

In fact, corporate taxes are stupid, they should be 0%, so should income tax.
I like Randall Wray's model of a broad based consumption tax offset by
transfer payments to low income earners, a job guarantee and a tax on the
volume of your house. Genius.

It's a pity no-one understands how the economy actually works, though!

~~~
andrewjf
But doesn't a consumption tax just dis-incentivize consumption? Is that bad?
(willing to accept LMGTFY link!)

~~~
dools
Everyone has to consume. Consumption is a necessity, and is unavoidable (and
therefore unevadable). Some level of taxation is required since it determines
the level to which government can spend without devaluing the currency, and
it's also a tool that can be used to drain money out of the economy. But it's
not required to "fund" anything -- what you want out of a tax is one that
allows you to apply policy effectively. Putting tax legislation in place and
enforcing it are two very different beasts. Having a consumption tax with
sufficient offsets for low income earners is far less likely to result in
evasion because everyone must consume, and no-one will refuse being GIVEN
money (income tax is sort of the opposite: we don't tax consumption, but we
tax income and try to tax high income earners more, which they do their best
to evade; low income earners would never "evade" their transfer payments).

Prices and spending habits will adjust accordingly -- you're giving people a
huge tax break in one area and adding a burden in another. There wouldn't be
any impact on aggregate demand, but fiscal policy would be much easier to
implement.

Video on how this works:
[https://www.youtube.com/watch?v=i35uBVeNp6c](https://www.youtube.com/watch?v=i35uBVeNp6c)

Book on how this works: [http://www.amazon.com/Modern-Money-Theory-
Macroeconomics-Sov...](http://www.amazon.com/Modern-Money-Theory-
Macroeconomics-Sovereign/dp/0230368891)

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mschuster91
I don't care much about the US, more about the EU region - and I take a wild
guess here that the amount of unpaid/tricked-away taxes exceeds the amount of
taxes due to the US.

Still, the situation has to be tackled, and better fast. Many countries in the
EU suffer because Big Capital doesn't fulfil the tax obligations.

~~~
such_a_casual
You should care about the U.S. We live in a global economy (this isn't new).
What's good for your neighbor is good for you (and vice versa).

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pcurve
It is so infuriating to read articles on this topic over and over again, year
after year.

~~~
hwstar
That probably indicates it's a festering problem which needs to be solved.

