

It's time to give up on shaming big tech companies for their low tax rates - waxymonkeyfrog
http://www.theatlantic.com/business/archive/2012/04/are-apples-tax-games-bad-for-america/256519/

======
toddasmith
How is it unethical for companies to legally pay low taxes? First, realize
that a company's tax isn't money growing on trees. Companies pay these taxes
by decreasing profits for shareholders, decreasing wages for employees, or
increasing the prices of goods and services to consumers (and usually all
three). Someone is hurt by collecting these taxes. The idea that government
can then go on to spend this money in a way that is more beneficial to society
than the cost imposed underlies the assumption that it somehow a good idea to
take from some to benefit others.

Most people believe that the State must collect some taxes from its subjects,
but is this corporate income tax the best method? Increasing the cost of goods
essentially taxes consumers in a regressive manner, irrespective of their
ability to bear these increased costs. Lowering wages of company employees
discourages work and lowers the income taxes collected by the government on
these reduced wages. Finally, reducing the profits of shareholders reduces the
taxes that would have been collected on dividends and capital gains when the
shares are sold; more significantly, reducing the value of investing in
companies discourages the creation of wealth and jobs for all of us by
reducing the incentives to start and invest in companies.

If you think it is unethical to pay few taxes (and realize that for the
reasons in the previous paragraph all other countries of the world tax their
companies at lower rates than the USA), then you must believe that it is
somehow more ethical to pay higher taxes (than is actually owed). If this is
so, why aren't you sending in double what you owe in taxes? By your own
statements aren't you acting unethically?

~~~
rprasad
Money does not grow on trees; it does however grow in cotton plantations.

Corporate taxes decrease profits for shareholders, but do not decreas wages
for employees. By definition, corporate taxes are taxes on _profits_ , so
employee wages have already been deducted from corporate revenues by the time
the tax liability is determined.

Nobody is "hurt" collecting taxes. Taxes are simply a nonspecific bill from
the government for a massive variety of services rendered directly or
indirectly on behalf of the taxpayer.

Dividends and capital gains are taxed at lower rates than corporate tax rates.
Thus, it is preferrable (from a revenue-generating viewpoint) to collect taxes
from the corporation rather than from the dividend payments or the sale of
stock. Even if the dividend preference expires, dividends will still be taxed
at the individual's marginal rate, which is lower than the corporate income
tax rate.

Taxes do not reduce the value of investing in companies. Under the time-value
of money theory, if a tax can be deferred for 7-8 years, it is as if the tax
was never owed. Thus, high taxes increase the value of investing in companies
because the deferral opportunities of the corporate investment form offer
greater "savings".

Finally, your last argument is logical nonsense. Paying less than the
statutorilly declared tax rate is what people find unethical. Unethical does
not mean "less ethical", it means "not ethical".

~~~
JumpCrisscross
> _Corporate taxes...do not decreas [sic] wages for employees_

Given two companies, one that pays no taxes and another that pays 10% of
profits in taxes, the former will have something between (a) cheaper access to
capital (assuming equal expenditures), or, (b) more cash for R&D, employees,
etc. (assuming equal returns). Saying that corporate tax rates have no effect
on how much money a company has available to spend is absurd.

> _Under the time-value of money theory, if a tax can be deferred for 7-8
> years, it is as if the tax was never owed_

Assuming AAPL is a AA credit (pessimistic) it would pay an 80 basis point
spread for a 10-year borrowing [1]; with the 10-year Treasury at 190 [2]
Apple's discount rate by these assumptions for 10 years is 2.7%. The present
value of a $6B tax liability 10 years from now would thus be $4.6B, not zero.

[1]
[http://www.bondsonline.com/Todays_Market/Corporate_Bond_Spre...](http://www.bondsonline.com/Todays_Market/Corporate_Bond_Spreads.php)

[2]
[http://www.bondsonline.com/Todays_Market/Composite_Bond_Yiel...](http://www.bondsonline.com/Todays_Market/Composite_Bond_Yields_table.php)

~~~
rprasad
First, your are calculating the total collective wages of a corporation's
employees. I refer to the individual wages. Corporate taxes do not decrease
individual wages, though they may impact the total number of employees
hired...in smaller firms which have less resources. In larger companies (i.e.,
publicly traded companies), the company's tax rates do not affect hiring
decisions. Business considerations other than tax rates affect hiring.

Second, you misunderstand the time-value of money theory. The theory posits
that the money saved in taxes, if actively invested back in the business or
other investments, will result in sufficient income to completely offset the
eventual tax payment when it comes due. Low interest rates may change the
expected timeframe, but the theory assumes that the company will attempt to
maximize the return on its investments.

~~~
JumpCrisscross
Empirically, "approximately 50 per cent of an exogenous increase in tax is
passed on in lower wages in the long run" [1] through wage bargaining.
Generally this will happen through a reduction in real versus nominal wages
due to the documented stickiness of wages. Anecdotally, having worked at a
private equity firm, taxes are an input into not only hiring capabilities at a
firm but the wages and bonuses payable to those hired.

Regarding the time value of money, if a firm defers $1 in taxes today for 8
years it would need to earn about a 9.1% annualised return on that dollar to
have $2 at the end of those 8 years, $1 for the taxes deferred and $1 to keep
so that it is as if "as if the tax was never owed". Given that the S&P 500 had
an annual average return of 3.46% (1.42% annualised) over the past 10 years
your assumption that a 7-8 year deferral even nearly wipes out taxes includes
a substantial risk assumption. An American firm should expect to wait 26 years
for its tax deferral to be wiped out by time if we use the US's average GDP
growth rate since the 1970s of 2.7% [2]. _Note: above I was doing the inverse
of this, asking what the discount rate would have to be to discount $x in 10
years to almost zero today_

[1] <http://repec.iza.org/dp5293.pdf>

[2] <http://en.wikipedia.org/wiki/Economy_of_the_United_States>

------
mikeryan
Honestly I'd love to hate Big Corp for doing this. But this really is one of
those "Don't Hate The Player - Hate the Game" kind of scenarios.

I may run a tiny LLC but I damn well try to get my tax burden down as low as
possible too. I can't really fault the Apple's and Chevron's of the World for
doing the same.

If we want substantive change in the tax system we should be shaming those in
our Government who bend backwards to serve corporate interests.

~~~
beagle3
> But this really is one of those "Don't Hate The Player - Hate the Game" kind
> of scenarios.

You've got it wrong. There is no "game", there are only players. For YOU there
are game rules. However, when you are as big as Microsoft or Google or Apple
or Boeing, you spend millions (or tens of millions) to change the game rules
in your favor.

If you're Chris Dodd, a former senator who was chairing the financial
oversight committee at the time everything crashed and burned (how's that for
track record?), you later head the MPAA and you can threaten - on live TV - to
stop bribing politicians. Where's the referee who is supposed to enforce the
game rules? Ergo, there are only players.

Not that hating them is going to help. But the blame rests squarely with the
players, who get to redefine the game as they go.

------
jemka
Shaming big public companies brings more attention to the discussion, which is
a good thing, but I've always felt the entire focus was misdirected.

How about ... spend less. Streamline that bloated money burning monstrosity
called a government. "Who pays" is probably the last thing we should be
talking about.

~~~
archgoon
What do you feel should be cut in government? Where do you feel that money is
being misappropriated?

~~~
jemka
>What do you feel should be cut in government? Where do you feel that money is
being misappropriated?

I'm not for big government. So, I wouldn't go department by department and
audit to find fraud, waste, and abuse. I used to get paid to do that for the
defense department. It's a complete waste of time and ultimately a paper
drill.

But what I want is moot. What I don't understand is why many others sit idly
by and argue who is going to contribute X%, when they should be more skeptical
about where the money is going in the first place. Regardless of who's money
it is.

If the government was run more like a business (which there's no reason why it
couldn't be) we wouldn't be having this discussion.

But for starters, how about term limits and contractual accountability for the
leaders? This say one thing do another without recourse is getting old.

~~~
archgoon
I like the contractual accountability idea.

However, I'd like to point out that term limits is making government less like
a business. Imagine you told a CEO 'Well, you're here for 4, maybe 8 years,
but no longer." Zuckerberg's term would be over in 2014, Jobs wouldn't have
been able to return (or would have stopped in 2005 if you just want to count
his return in 1997).

That's not to say that term limits are a bad idea (however, I'm unimpressed
with their implementation in California), just that I don't think that people
really feel comfortable with having a government, that can make it's own
rules, run itself like a business.

~~~
jemka
Great points.

I like the idea of term limits if only to help prevent corruption. But perhaps
that solution is best left up to the contractual accountability. However, I do
feel that complacency and the "good ole boys club" plays a negative role in
the leadership, which limiting terms might help to prevent.

But not to stray too far away from my initial point, "like a business" merely
means efficient. "Here's my money, please put it to good use" isn't something
I think many people with the correct information feel is truly being honored.
And why that isn't being discussed more is interesting to me.

------
newbie12
There is no such thing as taxing a "corporation." Corporations are owned by
shareholders, and those shareholders pay taxes on the money they invest and
in-turn on the gains from that investment. Taxing corporation profits is
double-taxation. The proper corporate tax rate should be zero.

It is crazy that the government runs myriad business and job subsidy programs
while also tax penalizing the most successful, forward-looking companies.

~~~
gte910h
>The proper corporate tax rate should be zero

I actually suggest you do something that ends double taxation and the capital
gain tax tier:

<http://en.wikipedia.org/wiki/Dividend_imputation>

This is why:

>Elimination of Tax Incentives >It is also interesting to note that it was
soon realised that the system eliminated to a considerable extent the
effectiveness of tax incentives for corporations. If a corporation was given a
tax break then its incomes thus released from taxation would not generate
franking credits precisely because no tax was paid. In turn, this meant that
the shareholders received fewer credits along with their dividends, meaning in
turn that they had to pay more tax. The net result is that each tax break a
corporation itself got was countered by a matching increase in the tax burden
of shareholders, leaving shareholders in exactly the same position had no tax
break been received by the corporation. Thus, to the extent that corporate
directors acted so as to increase shareholder wealth, tax incentives would not
influence corporate behaviour.

------
ebbv
It's not shaming them for their tax rates -- we should shame Congress for not
raising taxes, if we all agree taxes should be higher on large corporations.

It's shaming them for legal, but unethical behavior.

There's a lot of behavior that falls into the area of "legal, but shitty."
Large corporations gaming the system to avoid paying taxes falls into that.

Don't kid yourself that we can ever totally eliminate this kind of thing. It's
a moving goalpost. You pass laws to stop one kind of thing, their highly paid
attorneys and accountants will find something else. It's cheaper for them to
pay smart people really well to find loopholes than it is for them to pay
their legitimate tax rates.

If we all behaved the way corporations do -- sticking only to the letter of
the law, and exploiting every other opportunity to better ourselves at the
expense of everyone else around us -- the world would be a really awful place.

We have to point out this behavior and shame the corporations, because
negative public opinion possibly affecting their bottom line is the only thing
they will respond to.

~~~
swombat
Is exploiting tax loopholes really unethical?

Some would argue that the government is the biggest waste of money there is.
I'm not saying that's my belief, but let's entertain that thought for a
minute. If you believe that the government wastes most, say 95%, of its money
on stupid things that should never receive a dollar from anyone (like the war
in Iraq, to pick a random one), and you believe that you personally can do
more with that money in terms of "making the world a better place", then it
follows that paying as little tax as possible is the ethical choice.

Let's take an example: Bill Gates. Bill Gates is currently the second richest
man on earth, according to
<http://en.wikipedia.org/wiki/Forbes_list_of_billionaires> . Did he use all
those tax schemes on his way there? You bet your bottom dollar he did. Now
he's using this money directly to solve problems like curing Africa of
Malaria. Do you think he's using that money more efficiently than a government
programme would? I'd bet on that too.

Would the world be better off if the US government had $20b more and Bill
Gates had $20b less? I don't think so. I think Bill Gates can use the money
much more intelligently than the US government ever could.

So, is it unethical to pour less money into the pointless furnace of wasteful
government?

I'm not saying this point of view is the _only_ point of view out there. But
to declare tax avoidance outright "unethical" is a failure in perspective.

~~~
mattmanser
Unfortunately you've missed the point of why it is unethical, everyone else
has to pay more to support your avoidance instead.

If they paid their way then the overall tax rate would be lower for everyone,
instead of just for the rich. The irony being they're the ones who need it the
least.

So effectively Bill Gates made the decision to make everyone else pay more tax
so that he could go and cure Malaria in Africa. Causing babies to die in
America instead. His tax avoidance can be indirectly linked to other people's
deaths. That wasn't his decision to make and was unethical.

It's stealing but in a weird way. And by people who don't actually need to
steal but just do it because they can.

~~~
beagle3
> If they paid their way then the overall tax rate would be lower for
> everyone, instead of just for the rich.

That is the truth in theory. In practice, the US federal government these days
borrows 30% of the money it spends; the percentage has been growing through
the years.

If they paid their fair share of taxes, then either (a) the government would
borrow less -- or, more likely (b) the government would spend more (and the
population in general you may or may not be the beneficiary).

The "if you pay less taxes I pay more taxes" only works in a closed system.
IIRC, the last time the US wasn't, at the end of the day, a pure borrower is
in the '70s.

edit: fixed 50% to 30%. There's an underlying philosophical discussion, but
I'll just use the official government number.

------
zerostar07
It's time there is an honest discussion internationally about the biggest
shame of western capitalism, tax shelters. It's not just big tech, it's
everywhere. What benefit does the world earn from this global sneaking around?

~~~
gte910h
It's not actually everywhere. Countries with imputation based dividend laws
have seen strong reductions in corporate tax avoidance.

------
cletus
I disagree with the premise that legally avoiding tax is somehow unethical or
wrong (or otherwise something to be shameful for). There's a strong
counterargument that not voluntarily handing over money you don't need to is
resisting the tyranny of government.

The real problem here is twofold:

1\. The tax system is too complicated and continues to get more complicated
with special interest riders and so forth; and

2\. Large companies are free to shop around for friendly tax jurisdictions.
The natural endgame here is that you need to treat money going to friendly
jurisdictions as avoiding income and tax it at source.

(2) is no doubt controversial but I see it as inevitable.

An example of (1) is the tax regulation surrounding the expatriation of
technology, something legal and blessed by the IRS. It goes to Ireland and
money gets funnelled there and then through the Netherlands. It's time to cut
that shit out.

For individuals I really do think it's time for the flat tax. Call it 25% of
what you earn above $20,000 with no deductions and be done with it.

~~~
rprasad
(1) The tax system is very simple if you're not trying to game the system _to_
(EDIT: changed from "or") minimize your tax burden. Almost all of the
complexity arises from the allowance for deductions and the related
regulations necessary to prevent abuse of those deductions.

(2). Worldwide, that is the standard tax practice. It is called "territorial
taxation." Source-based taxation is the U.S. practice regarding foreign
persons who are citizens of nations with which we have income tax treaties
(for purposes of determining which country gets to tax them). The U.S. is an
outlier in taxing worldwide income regardless of source. However, getting rid
of the Irish structure would require (a) a change in other countries' tax
policies or (b) a tax code even more complicated than the one we have right
now.

Note that I mean "game the system" in the sense of gamifying the outcome. I do
not mean game in the sense of "cheating."

~~~
beagle3
> Almost all of the complexity arises from the allowance for deductions and
> the related regulations necessary to prevent abuse of those deductions.

Unfortunately, that complexity also applies to taxpayers who are not trying to
game the system. And while they might only be, say, 5% of the population, they
vastly outnumber the outlaws for which these regulations were made.

e.g., if you have control of any asset outside the US, you can spend weeks
trying to satisfy the documentation and tax requirements, and still fail
because they are ambiguously worded. And you are automatically assumed to be
in the wrong and avoiding taxation, even if you overpaid. How is that for
simple? That is regardless of any deduction you may or may not be able to
take.

> However, getting rid of the Irish structure would require (a) a change in
> other countries' tax policies or (b) a tax code even more complicated than
> the one we have right now.

Neither is true. The tax code for persons already enforces that - no matter
how many entities you have in the middle, if you are ultimately in control of
a company or a bank account, you have to report it and pay taxes on the
profits.

It just takes the addition of one clause "Company X pays US taxes on every
cent it makes in itself or a company under its control (in proportion to said
control, ultimately determined by agency). Violation of this is considered
lying under oath w.r.t sarbanes oaxley reporting"

(or 10 in legalese, with this underlying meaning), and all of a sudden it
becomes the company's issue to prove it is not in control if it doesn't want
to pay taxes. Just like it is for your "real person" taxpayer.

~~~
rprasad
As I said, the "related regulations necessary to prevent abuse." The FBAR and
foreign asset reporting requirements which you are referring to are the direct
outgrowth of wealthy Americans using offshore accounts and investments to
evade taxes.

Prior to this abuse, investing in foreign assets or using offshore bank
accounts was siginificantly less complex.

~~~
beagle3
> related regulations necessary to prevent abuse.

While we could argue about the merits of FBAR in preventing said abuse
(apparently, the IRS and treasury do not believe it is useful given the recent
FATCA upgrade it got), I don't want to go there.

Your statement:

> (1) The tax system is very simple if you're not trying to game the system to
> minimize your tax burden.

Is demonstrably wrong. e.g. naturalized citizens who still have some assets in
their country of origin (or even natural born citizens who inherit such
assets), are subject to complicated tax filing whether or not they try to game
the system or minimize their taxes.

