The laws shouldn't create a situation where big, slow-moving corporations get huge built-in advantages over smaller, more innovative companies (I know apple is more innovative than many big companies but stay with me here). Particularly, they shouldn't be getting those advantages by paying a bunch of blood-sucking lawyers and accountants to move money around and create nothing. The law should, if anything, be providing support for smaller businesses.
Go check out bls.gov.
Assuming you're using the typical "500 employees" definition of small business, US census data doesn't seem to bear you out. For the period 1988 to 2003, see table 2c here: http://www.census.gov/epcd/www/smallbus.html
The percentage of paid employees employed by organizations with 500+ employees increased in the period 1988 to 2004, to 49.1% - as the total number of employees has increased by 30%.
Are we looking at different things?
Consider that Google's now a very large employer but were a very small business 10 years ago. The way you view that and similar cases probably influences the outcome quite a bit. Small companies get big, they get bought out, or they fail. Either way they created jobs for a little bit, and all 3 of those cases wouldn't be captured by the single year snapshot of data you linked to (why 2002?).
Your original argument seems to have been that the government should encourage innovative businesses, and I strongly agree with you there. I don't think business size is particularly relevant to that.
Success in business is highly complex. I'd guess that your assertion that small businesses get big, bought out, or fail is incorrect. Many small businesses remain small businesses for many years - think your corner dry cleaner or grocery.
The chart I pointed to looked at the years 1988-2004, not just 2002.
Of course, this post is no longer based in facts, just guesses. (If you're not interested in finding out the truth, I wont waste my time with real data any further.)
I have heard statistics that a lot of the creation of jobs occurs with small business. Also, that a lot of the job losses occur at small businesses. The net jobs created are reflected in the bls statistics that show increase in employment among different kinds of businesses.
Joe average 9-5 worker doesn't create jobs, or employ hundreds or thousands of people, and he does get tax breaks for certain things in his everyday life (dependants, mortgage payments, whatever) - a large corporation occupies a completely different place in the economy, and can indeed take advantage of different things.
(joe average 9-5 worker, even if a staff of 10 tax wizards helpded him out, wouldn't be able to save much on his income tax legally - because his financial situation is simple)
And where would all the companies be that sell to Joe Average if Joe Average was out of work? How many of those jobs would vanish for all those other Joe Averages?
Joe Average also doesn't create books or movies or music -- but we depend on him to spend his money so those who do can keep doing so.
Spit on Joe Average and you are cutting your own throat.
But small companies have advantages too - being nimble and able to innovate much quicker than big companies, to name just two. It's important to recognise these advantages and exploit them as well as possible.
Also it's worth bearing in mind that Apple was once a small company in a garage too. They had to grow big and become profitable before they could hire people to minimise their tax bill.
An example with invented numbers: if the US Govt wants to tax corporations at 30% and individuals at 25%, but corporations are 10% better at avoiding taxes, than the actual corporate tax would be 33.33%.
This is nowhere near as bad as IKEA, which is the largest charitable organisation in the world, pulling in billions of dollars a year, and paying out a million to help design new furniture.
In other words, the burden of funding of the state - the security, infrastructure and social consensus which is the foundation of all citizens' wealth - proportionately falls least on those that benefit from it most.
Richer people pay lower taxes as a percentage of their income than the middle class. Much lower. It'd be lower even if they did it all by the book and didn't hire expensive accountants and use offshore accounts, tax havens and all of that. Once you add that stuff in it's significantly lower.
It's a bug, not a feature. Meanwhile, presumably you're not a multi-millionaire, and you're actually cheering for them to pay less off their income in taxes than you do. Pretty funny stuff.
While "the rich" might pay a lower percentage of their income in taxes, it's just flat-out false that the middle class pay "most of the taxes." Whether this should or shouldn't be the case is a discussion for another day.
No, the linked Wikipedia page says:
the top 5% with gross income of $137,056 or more pay 57.1% (earning 33.4%)
After 100k your FICA payments taper off to nothing. That's money off the top, right into your pocket. Additionally, the capital gains taxes are only 15% compared to much higher for income. This means that the wealthy have a hugely advantageous tax situation.
Although, I thought that the bottom of the top 5% was higher than 137k. Another wiki here: http://en.wikipedia.org/wiki/Household_income_in_the_United_... puts it at 157k, which is probably high enough to tilt the math towards what I was saying. Certainly over 150-200k your tax burden as a % of income starts going down, due to the decreased FICA contribution and potentially a share of income from capital gains.
Since your SS benefits are also capped, it's unclear why you think that capping the taxes is wrong.
The folks who set up SS thought that the tax and payout cap was a good thing beause it kept rich people from caring about SS. If you uncap both taxes and payout, you end up paying Ross Perot $400k/year in retirement. If you uncap taxes but cap payout, rich people start caring about SS.
What is your alternative to capped payout and taxes?
FWIW, SS payouts are progressive - the less you contribute, the better your return.
But if you're a salaried worker earning over 150-200k, the percentage of your income going to federal income tax is greater as your income increases - more of your income falls into a higher bracket. (Also, FICA doesn't drop to nothing, it drops to 1.45% from 7.65%, saving you 6.2%.)
See e.g. http://en.wikipedia.org/wiki/File:US_income_tax_2008.svg
You are assuming that as income rises above 150-200k, it takes forms that are taxed at a lower rate, not just "potentially".
Meanwhile, people who are supremely highly paid (in the > 500k -> millions range) usually get a big chunk of it in options. That's fine as a payment plan, I even agree with it, but they should pay the going rate on their income. And that's not even getting into my real beef, which is the culture of "tax avoidance is honorable" that's pervasive in higher-end business - it diverts labor into parlor tricks and disadvantages actual innovation.
Direct stock grants are also taxed as income, with the same caveat that stock value appreciation can be taxed at the lower capital gains rate.
It sounds like your beef is with the capital gains tax rate, not income tax itself. :)
I can't speak to the culture of "tax avoidance is honorable", but if the federal government is trying to incentivize people to behave in a certain way (say, to invest in stocks in the long-term) by giving folks who do that a tax break...then your beef is really with the government wanting people to invest long-term in stocks. That seems like a more difficult argument to make.
EDIT: That doesn't mean I think the system is perfect or that people don't cheat, or that the wealthy are somehow innocent - money is power, and those with more money will exert more influence on how to keep more of it - that's natural.
Good for him. Seriously. But if he doesn't feel obligated to pay back towards that society then he's either missing something inside or fell victim to a convienent ideology that told him it's good to be selfish.
Whatever happened to noblesse oblige?
Not to mention, of the millionaires I've met, most aren't entrepreneurs and didn't create any jobs, they just worked in finance.
EDIT: To add: If your friend has those millions and likes the society he earned it in, it's probably worth him paying back into it purely as an investment. If we actually funded infrastructure and education in this country, we might see better returns from them.
Your argument is essentially that we have a duty to pay as much tax as possible. But this is predicated on the belief that paying taxes is the best way to benefit society with your resources. Obviously, this is a long-standing debate that we won't solve here, but I would argue that the government is a terrible, terrible steward of resources, and I'd much rather have the money in the hands of "the rich", who seem far more likely to invest it and create jobs and institutions that better society. And yes, enrich themselves along the way. I'm fine with that. A rising tide floats all boats.
Again, I find it humorous that people who get all worked up over someone minimizing their tax liability through tax avoidance (completely legal) seem really interested in raising tax revenue, as long as it's someone else's money. None of them are sending donation checks to the IRS, which seems the height of hypocrisy. You have shit you don't need and someone else needs shit you have, so why not donate the money and let the IRS help those poor folks out? If you truly believe the government is the best way to allocate limited resources, why wouldn't you do this?
It's not about "small govt" or "big govt", those are just buzzwords. The government's hugely in the red either way. Who convinced you that this was ideological, rather than a matter of simply paying their fair share?
We're not living in caves, definitions of fair should include upward mobility.
And who says they're not getting the same service? Wealthy corporations and individuals get a ton of services from the US gov't, from subsidies to infrastructure to direct benefit from the State Dept and military.
Are we talking absolute upward mobility, or relative upward mobility? If absolute, then we already have that. If relative, that's impossible...not everyone can be simultaneously relatively upwardly mobile :)
Which is actually a good reason to make taxes lower and less burdensome, so the most productive members of our society (as measured by income) will spend their time producing, instead of defending the fruits of their labor from the tax man.
But those same big companies with the same high priced lawyers, accountants and lobbyists never tend to actually advocate for making them simpler. Oh, they might say that in public and at your Ayn Rand book club, but it's not what they say when they're speaking to the congressmen.
EDIT: Hey guys, I wasn't dissing Ayn Rand, don't get so defensive. Just, you know.. who's got a really big interest in making sure people believe all this stuff? Might be worth thinking about.
Big corporations don't actually have an interest in a simple tax code -- more complicated means their accountants give them a competitive advantage.
I would consider the vast majority of the top 10% to be middle class, however.
They pay hundreds of millions in income tax on their profit in California, plus everything else - property tax, payroll tax, sales tax on purchases in CA...
I think a better question is why have CA voters voted in so much spending and extra taxes, putting them at disadvantage to other states. Nevada actively encourages companies and individuals to come set up shop there.
Capital gains tax by state - http://www.thereibrain.com/realestate-blog/2007/10/capital-g...
I can imagine a scenario where something like that might happen, but I think it would have to be fairly egregious, probably more something like deliberately setting up a new tax structure to increase a company's taxes (maybe because you know the mayor and want to help him out with his budget or something).
The flippant view that a board is obligated to maximize profit (especially short-term profit) is pretty simple-minded. See also http://crookedtimber.org/2008/07/24/fiduciary-obligation-vs-... and http://crookedtimber.org/2008/07/25/what-obligation-maximise...
The "right thing to do" is a much fuzzier question, which can include a lot of possible concerns. Perhaps there is an "ethical duty to shareholders to jurisdiction-shop", but certainly you'd have to analyze more than just obligations to shareholders, since there are potentially conflicting ethical obligations to all sorts of other people as well. In the other direction, there might be an ethical obligation not to jurisdiction-shop, depending on your ethical precepts.
If you don't like that, you can become an activist shareholder (or just an activist) and campaign for changing this company policy.
This is no question of company ethics. It might be a question of the ethics of shareholding.
Also you could argue that doing what you were elected to do, within the legal limits, is fine.
I'd say tax minimization is a patriotic duty.
Making sure you never give to charity either is a mitzvah?
Just make sure you also campaign for closing loopholes.
A share in something could be a share in any social contract. A share in a nation, for example, accords one vote and a host of other rights and duties. A share in Whole Foods implies a share in some of the profits going towards nonprofit activities. A share in Google implies only a 1/10th control over their direction -- they come along for the ride.
I'm guessing that if Apple returned its nest egg to shareholders as a dividend, rather than investing it, California wouldn't see much out of it.
"Designed by Apple in California
Assembled in China"
EDIT: Granted, he was talking about Australia, but the same applies to every government.
To which contract/obligation are you referring?
Per http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1013744 :
"Among non-experts, conventional wisdom holds that corporate law requires boards of directors to maximize shareholder wealth. This common but mistaken belief is almost invariably supported by reference to the Michigan Supreme Court's 1919 opinion in Dodge v. Ford Motor Co ... U.S. corporate law does not and never has imposed a legal obligation on directors to maximize shareholder wealth."
Tax evasion is illegal. Tax avoidance is not.
Last I heard, Exxon-Mobil, the most profitable corporation in the entire world, doesn't pay a dime in US taxes. Meanwhile, I pay every other week. This is BS.
You heard wrong: http://blogs.forbes.com/energysource/2010/04/07/exxon-says-i...
So at least there's that. Meanwhile, google for "exxon subsidies us" brings up a 3 billion subsidy last year and who knows how much over the last 10. But at least we're probably not in the red. Although I'd say Exxon is getting a better-than-fair deal with all that the State Dept and US Military do for them.
No doubt. I'm always amused by claims that nuclear power or alternative energy is "too expensive", when they ignore the huge explicit and implicit subsidies that oil gets.
Nope. CA has a spending problem.
CA is taking in about what it spent in 2008. Unless you think that 2008 was a disaster, spending that amount now should be perfectly acceptable.
CA has a deficit because it is spending far more than it spent in 2008.
As to my "spending plan", it's rewind the spending until the budget is balanced. If the legislature and governor want to keep any specific new spending, they get to cut an equivalent amount of old spending.
Of course there is currently no legal way for the state government to file for bankruptcy. But I except that within the next 10 years it will default on its sovereign debt.
If individual income tax were eliminated, while it sounds good, it would be one less thing for people to get riled up about and take an interest in politics.
many would say that just because one is involved in a business activity does not exempt one from being ethical. regardless of what some piece of paper says.
I guess nobody "makes" Apple products...
So I remain realistically optimistic. After a hem and haw, I’ve settled on believing that business with a capital B-for-billion is a much different animal with greater responsibility. But only in that their duty is to succeed for their shareholders, for their employees, and for their customers; in that order.
Taxes suck, life is short, and none of us ever feel that our share is spent wisely. Seeing a company do their homework to pay less shouldn’t feel any more like salt in a wound than meeting an octogenarian. If you knew that was your future, you’d play a similar game.
Like the McIntosh, the Braeburn is a type of apple, known for a unique combination of sweet and tart flavour and its ability to store well.
Some will be ripping their hair out over such a comment. Apple is successful and therefore worthy of punishment, they will tell you. I respectfully disagree.
Texas seemed a lot more business friendly to us, the only downside we can see is the humid climate.
Personally, I'd prefer a little more honest accounting, and maybe some more money going the workers' way, a little less going investors' way.
Additionally, both Microsoft and Boeing more directly support the state economy in other ways (many donations, and support of public works, etc etc). Obviously, these tax breaks do lose the state some money
Are they supporting the state economy or not? I doubt they can support the state economy by making the state lose money.
(Honest question, I'm not American and don't live in the state of Washington so I have no clue)
Why does Doctorow think its improbable that Gates Sr hasn't discussed this with his son?