Google is "flying a banner of doing no evil, and then they're perpetrating evil under our noses," says Abraham J. Briloff, a professor emeritus of accounting at Baruch College who has examined Google's tax disclosures.
Maybe it is the lawyer in me, but why wouldn't any international business do whatever it could legally do to minimize its taxes? I understand that governments might want to consider these as loopholes and seek to end the right of U.S. taxpayers to avail themselves of these tax-minimization strategies. But, as long as it is legal, why should a company voluntarily seek to expose itself to higher tax rates when it has the choice not to?
I guess when you as a company claim the high ground ("do no evil"), you will have people making their own judgments about what ethical standard ought to govern your conduct and this would explain this professor's remark. By that measure, though, one could argue that companies such as Google should seek to attribute all their revenues to California because that is where their main intellectual property development efforts have occurred and hence pay corporate tax rates at one of the highest rates around simply because they "owe" it to California.
I get this question all the time from web-based startups: why run our revenues through a high-tax state when we have the option of running them through all sorts of lower-tax venues and saving on taxes? The universal answer for smaller companies is "set your company up in a way that let's you pay the least tax you can legally."
Why should Google be held to a different standard on penalty of having its perfectly legal actions castigated as "evil"? Is it the view of some or many in the HN community, for example, that a private enterprise has a form of "social responsibility" to voluntarily subject itself to the tax rates of whatever domicile it happens to have its major operations in (in this case, California) when it legally has the option not to do so? That seems unwise by free enterprise standards and I am genuinely curious to know why refusing to do this would be called "evil."
> That seems absurd by free enterprise standards and I am genuinely curious to know why refusing to do this would be called "evil."
When taxes come up, it tends not to be a well-thought, cohesive, pros-and-cons thing. It tends to be an emotional/identity thing. Some people think and almost always argue it'd be a good thing if companies gave more money over to governments.
Me, I think it's very good for the world on every level for Google to pay less taxes. They're hiring the best people, acquiring companies and giving liquidity to founders, run amazing free services (search, Gmail, Google Earth, Google Maps, Google Finance, Google News, Google Voice, Google Reader, Feedburner, many many others). Also, they're internally investing in energy and robotics like the auto-driven cars thing, and their high level personnel seem to invest really well too (like in genetics research). Anyone who thinks that England would do a better job with the money than Google hasn't been to England, or hasn't thought this through very much.
The NHS employs a lot more people than Google and carries out research and development into saving people's lives. Sure, what Google does is great, but I'm really not convinced that thinking up ever more creative outlets to display targeted advertising is necessarily a better outcome for society than spending the money on the UK public sector, which has many worthwhile projects of its own. I'm going to go out on a limb here and say that sometimes multimillion sums are better spent on schools and hospitals than buying startups to wind up (big companies, like governments, have a tendency to overpay and make some blunders). The original article pointed out that Google owed its very existence to that paragon of state-sponsored inefficiency: the research university.
Calling it "evil" to carry out their fiduciary duty by legally shifting tax burden to the less well-off might be a stretch, but it's equally a stretch to suggest that we're better off because Google pays less tax. It's not as if they'd be dirt poor if they paid a tax rate comparable to that of profitable startups...
but it's equally a stretch to suggest that we're better off because Google pays less tax
In absolutely no way is it a stretch to say that and I'm terribly surprised you have any upvotes. Are you aware of how many services Google provides for free that make my life (and probably yours) better?
Google Navigation (on Android)
Google Patent Search
Google Book Search (Working with libraries to digitize old books)
Google Summer of Code
Thousands of tech talks made available online
and a lot more...
One of the core tenets of capitalism is that the success an innovation of private companies benefits the public. This isn't true in all cases, but most certainly it is in the case of Google.
sometimes multimillion sums are better spent on schools and hospitals
Do I even need to cite a source that says throwing more money at the public school system won't stop them them being so shitty? That's a pretty common thing to hear now -- especially on HN, and I very much think it's true (from personal experience).
And with hospitals, what exactly do you want more money for? More beds? More nurses? More money for the uninsured? Are you sure that will fix our nation's healthcare problem? I'm not an expert by any means whatsoever on this topic, but as far as I know, the quality of America's healthcare system, bad or good, is largely a function of governmental policy.
You're not saying much of anything. Health care is good and killing people in Iraq and Afghanistan is bad. Google doesn't have much to do with one or the other. Nor is the company responsible for the distributional choices British taxpayers make when they elect government officials who decide to underfund public health in favour of blowing stuff up.
"In absolutely no way is it a stretch to say that and I'm terribly surprised you have any upvotes. Are you aware of how many services Google provides for free that make my life (and probably yours) better?"
Not free. All of those things are paid for by Ads. Google is a for-profit company making billions of dollars.
There is nothing evil about doing legal things to pay less taxes (large public corporations are practically required to); but that doesn't mean that the government shouldn't fix the exploit. If i'm paying 30% taxes on my minimal salary, i think Google can cough up a bit more than 1% on its billions. (Billions which are made possible by government infrastructure, research, etc).
Which of the above services do you think wouldn't exist if Google avoided less tax?
There's an opportunity cost of private companies paying less tax too - either someone else pays more tax which marginally decreases their ability to be productive and enterprising or something purportedly socially beneficial doesn't get paid for. Even coupled with inspired management, the profit motive doesn't ensure that an acquisition of say, Dodgeball for the price of a hospital wing, is an optimal use of resources.
Which of the above services do you think wouldn't exist if Google avoided less tax?
You're going to have to explain to me how this is relevant.
What Google is doing is legal which means that you're trying to make this an argument about ethics. My point is that Google provides real value to millions of people around the world and has the resources, both human and monetary, to make real progress in many areas of technology which then benefit you and me. It benefits me more to have the money stay at Google than go to a failed school system or failing healthcare system.
We seem to be going round in circles here. As someone who has received healthcare and education for free courtesy of the UK government I find the earlier claim that this is of less value to me than a search engine and associated apps, even though I use them daily to be fairly ridiculous. Taking your arguments about us being better off with Google managing more money to their logical conclusion, would you prefer to pay your taxes directly to them, without any say in what they spend their money on?
Continuing to restate that Google provides a significant amount of value as acknowledged in my original post (and profiting directly from most of the value-adding-services to the extent that such services would continue to be invested in at a much higher tax rate) fails to defend the original bold assertion that "Anyone who thinks that England would do a better job with the money than Google hasn't been to England". As I'm a British citizen who has not only been to England but actually lives there and uses both Google and our government funded services, I feel I'm in a good place to dispute that claim.
Right now the principal problem with UK public services is a shortage of money; not a problem for Google and their profit-generating services. Google is not going to die if it takes them a little longer to generate shareholder return; people are going to die if they don't get hospital beds. Believing in the benefits to humanity from successful, innovative free enterprises != believing they and their investors should keep all the money.
Moreover even if one accepts the claim that Google and people smart enough to invest in Google are on average better at allocating resources equitably than the government I think it could be argued to be ethically dubious for them to pay lower tax rates than less profitable companies with equally ambitious and beneficial goals. Someone still has to foot the tax bill
By adopting the "Don't be evil" motto Google makes this about ethics. If you say that you are going to hold yourself to an ethical standard, that means you will be judged by your ethics, not by your adherence to the letter of the law.
But really, the continuing argument that because you like Google Maps it's therefore better that Google gets to keep all of its tax euros out of the hands of underfunded public services is close to incoherent.
Unless you can show that those services are in the same sort of existential danger as high-end cancer treatment is in the UK, the argument is specious.
But really, the continuing argument that because you like Google Maps it's therefore better that Google gets to keep all of its tax euros out of the hands of underfunded public services is close to incoherent.
Unless you can show that those services are in the same sort of existential danger as high-end cancer treatment is in the UK, the argument is specious.
a. I did not say that Google shouldn't pay any taxes.
b. Whether you believe something to be 'underfunded' is a matter of perspective.
c. Not funding cancer research is not equivalent to not doing good or creating value.
I think you do have a point in that Google's slogan does make this about ethics. I still maintain that Google can do more good with more efficiency than any government.
I still maintain that Google can do more good with more efficiency than any government.
That's fine, but there are plenty of other people who disagree with the assertion. If the money is in the hands of the government, at least those other voices get a say in how it is spent.
The opportunity cost for anything you spend $3bn on is very high. A government could choose to spend it on cancer research or space ships. Google can really only spend it on a very narrow range of products -- and can't combine it with other serious numbers required to do the really heavy lifting, like that required to fix the disastrous public plumbing in the US.
If Google paying its taxes would mean that it couldn't do all the stuff it currently is, that's one thing. But they've got $33bn sitting in the bank. They can more than afford to pay their taxes and continue creating Wave and AdWords.
If we're going to be strictly factual about it, Google is actually spending money on cancer research and spaceships; http://www.columbia.edu/cu/news/oncampus/08/10/google.html describes one of a number of grants that are going to researchers on, among other things, cancer; Larry Brilliant himself suffered from thyroid cancer. Also, Google bought SpaceShipOne, which is now on display at the Googleplex. Presumably Scaled Composites is using the proceeds from the sale for spaceship research. Sergey is going to space in a private space flight next year, assuming all goes well: http://www.spaceadventures.com/index.cfm?fuseaction=news.vie...
There are many other investments in cancer research and space travel being made by individual Googlers.
However, it is perhaps more to the point that both Google Search and Google Academic are crucial research tools for medical research and for aerospace engineering, as for many other fields.
Both directly and through its employees, Google is also funding substantial applied research in crucial areas such as renewable energy production, genomics, public health, and ground transportation.
I don't know what you mean by "disastrous public plumbing in the US". My experience with US municipal water supplies and sewers during the 29 years that I lived there was that they were inexpensive, reliable, safe, and efficient. My experience with water supplies (and sometimes sewers) in other countries has been much worse.
A personal note: I haven't ever tried to work for Google because of, essentially, ethical concerns: I am in danger of having to live in a world where a large fraction of our communications are intermediated by a single company, and I think Google's cultish secrecy is corrosive to the values of Silicon Valley. However, I think Google should only be dinged for its real faults, not imagined ones.
Sorry, that wasn't really the intention of my example, which was to show the range of government spending. Ultimately, though, it boils down to this: Google isn't doing anything with this money, except earning less than 1% interest on it.
Google can afford to pay taxes in the countries in which it operates. That it does not, while obviously legally defensible, reflects poorly on the other work it does.
Public plumbing: the US infrastructure is badly out of date, and unable to meet most projected demands for expansion. The US Geological survey projects that 1.7 trillion gallons of water are lost through leaks in the system each year -- about $2.6bn in value. http://www.epa.gov/awi/distributionsys.html
The fact that Google isn't doing anything with the money doesn't mean the money isn't being put to use. If the money is in standard banks, it is being used to fund mortgages and credit cards. If it's invested in the market, it is being used by other companies to expand their businesses. If it's invested in municipal bonds, it is allowing cities to develop infrastructure. If it's in various countries' treasury bonds, it is funding those governments directly (since many countries are funding themselves on debt instead of or in addition to raising taxes).
I don't know why you think paying taxes is morally commendable. So far Google hasn't, as far as I know, invaded any countries or funded any coups.
$2.6 billion per year is about US$9 per person. Another point of comparison, if you're worried about conservation of fresh water, is that the Mississippi River discharges 110 trillion gallons of fresh water per year into the Gulf of Mexico, where it turns brackish. So the plumbing doesn't sound like a disastrous problem to me, particularly compared with problems like 1% of the adult US population being imprisoned, companies being raided for selling chemistry kits to kids, a decaying passenger train system that commonly delivers passengers several hours late, and government bailouts to pay the bonuses of the bankers who wrecked the economy.
All the other stuff, maps, email, translate, etc... were incremental improvements of already available and competitive free services.
You also neglected to list the dozens of flops that Google undoubtly spent millions, perhaps billions on. Remember Wave, Answers, Jaiku, Dodgeball, etc...? And how much of those billions of unpaid taxes went to buying out the competition and thus reducing the capitalist drive for improvement?
From an economic perspective, that's an argument in favor of Google. When private companies miscalculate or mismanage, their products and investments don't make profits and fail, thus freeing up resources for better uses. When government programs are poorly run, they go over budget and often use that as a justification for asking for MORE money. There is no incentive to be efficient or diligent when someone else foots the bill.
You make it sound like no government program has ever been cut or removed. You also make it sound like private companies can do no wrong, and that customers always act in their best interest like rational agents. This is a fallacy learned in every ECON 101 class.
Millions, even billions of dollars are siphoned off in people buying useless products like Acai Berry or junk bonds labled as AAA that do nothing for society or even themselves. Now imagine what other useless industries these people would invest given that a company like Google could make so many flops? That is essentially X times more waste where X is the percentage that these junk dealers reinvest.
As someone said more eloquently than I have: "Why do I need your government nanny state telling me how to build my cars? If people who drive my cars die, then they won't buy more cars. THE FREE MARKET WORKS PEOPLE."
You almost seem to be proposing that, had this loophole not been available, you would have Google government funded for the same amount because the services Google provides are better than those provided by the government.
Here in the UK, we do not have a failing healthcare system, I would like to see corporations not waste their money paying people to do utterly non-productive work (like finding and exploiting tax loop holes).
And with hospitals, what exactly do you want more money for? More beds? More nurses? More money for the uninsured? Are you sure that will fix our nation's healthcare problem? I'm not an expert by any means whatsoever on this topic, but as far as I know, the quality of America's healthcare system, bad or good, is largely a function of governmental policy.
Just in case you hadn't noticed, the post you are replying to is about the NHS, which is not affected by US government policy.
To say any of these things have made anyones life better is quite a stretch. Has gmail improved your quality of life? Really? Choose your words carefully. Indoor plumbing and electricity made life better. Gmail has not. Your email was fine before Gmail.
Everyone that uses gmail (or any other Google service) does so because it's better (in some way that we can't know) than the alternatives. The very fact that people have chosen to use it rather than those alternatives means that it has made their lives better.
And Google should pay their F-ing taxes. I do.
By all accounts, Google is paying the taxes they're legally obligated to. If you don't like the way those obligations play out, then you ought to be talking to your legislators, the ones who are architecting byzantine tax systems. Their efforts to control our behavior, pander to buy votes, etc., by giving preferential treatment to some, is what created the problem.
The point of this comment is to provide perspective. Of course GMail has contributed to an improvement in life but compared to these other things the improvement is small. We are also assuming that had GMail not been created another company couldn't do it.
The ability to access my email from anywhere, organize, and quickly search through thousands and thousands of emails in seconds has improved my quality of life. Maybe not as much as indoor plumbing, but it has.
Your enthusiasm for gmail has blinded you to the reality. Sure it might be the best thing to you since sliced bread, but in every market estimate, gmail still trails behind hotmail and yahoo mail which means that for most people, gmail is not a radical improvement.
run amazing free services (search, Gmail, Google Earth, Google Maps, Google Finance, Google News, Google Voice, Google Reader, Feedburner, many many others). Also, they're internally investing in energy and robotics like the auto-driven cars thing
None of those products/services would be possible but for the government spending taxpayer money to develop the infrastructure behind those services (the internet, roads, GPS, etc).
>None of those products/services would be possible but for the government spending taxpayer money...
This is sloppy reasoning. Just because A contributed in some measure to B does not imply B could only have come about because of the contributions of A, nor does it imply that more of A will yield more Bs.
Further, absent a parallel world in which such different choices were made, one could just as easily argue on economic grounds that the resources confiscated would have been otherwise put to more effective, productive use in satisfying the wants of the common man.
Although Sebastian's original post stopped just short of doing so, it would be equally sloppy to suggest that Google's ability to come up with amazing free (but profitable) services was a consequence of their tax avoidance.
Only because calling it "tax avoidance" is overspecifying. Google's ability to come up with amazing free services without immediate profitability is a consequence of their considerable post-tax revenue.
Just because A contributed in some measure to B does not imply B could only have come about because of the contributions of A, nor does it imply that more of A will yield more Bs.
I'm not saying that at all. Google can offer the services that it does because it can ride on the back of the infrastructure developed beforehand and the taxes we pay now will enable future entrepreneurs to provide services utilizing potentially different infrastructure.
I'd argue that the infrastructure would have been built regardless.
It would likely be very different than the relatively free/open roads, GPS and internet we have today.
The "internet" would likely be similar to the mesh of networks we had back in the '90's (eWorld/AOL, Compuserve, Prodigy, the proposed Microsoft Blackbird/MSN strategy) and who knows if they would have played well with each other.
Roads would be toll roads each with their own restrictions (and I'm sure some enterprising roadway operator would block self-driven cars or charge them higher fees because they good).
And does anyone believe that a privately developed GPS system would be anything but horribly expensive or unreliably? Just look at satellite telephone. Satellite TV and radio have more reasonable cost structures, but they're partially underwritten by advertiser fees.
> It would likely be very different than the relatively free/open roads, GPS and internet we have today.
Oh, I'm in violent agreement with you on this one.
"The infrastructure" in my comment is meant to refer to something roughly comparable to our current infrastructure. For example, if the government didn't build roads, something would fill the void of a service that facilitates transportation -- not necessarily roads.
> And does anyone believe that a privately developed GPS system would be anything but horribly expensive or unreliably? Just look at satellite telephone.
Remember, public infrastructure isn't free. No infrastructure, no taxes for infrastructure, more money, which one could choose to spend on an expensive satellite phone. It's certainly not that simple, but that's my general point.
Perhaps the infrastructure would have been built, but I think you'd be surprised at the amount of basic fundamental research the government does that enables the infrastructure. Most corporations don't do what the US Feds call "R06" research, meaning there is no current application for the results. Pure research, others might call it.
My current field, public health, is an example. The US Gov't spends billions into research that doesn't lead to tangible products or services. But without it, we wouldn't know that cigarettes are bad, or that heart disease is correlated with red meat consumption.
There are lots of non-infrastructure advantages that exist only because the government has tax money.
To state what is perhaps obvious, scientific research and invention flourished before the modern, post WW2 world of state sponsored research.
Given things like the Broad Institue, the Allen Brain Atlas, Microsoft Research, the Google guys' funding of the Singularity Institute, DE Shaw's funding of protein folding, etc. it's pretty clear that billions in private money is spent on R06 research.
It's also not clear that the current system of indentured servitude for grad students and postdocs is optimal. Frankly, in biomedicine, it's the top 10-20 places (and really the top 5) that primarily invent and discover new stuff, as quantified by citation rates.
By contrast, a PhD from Directional State is unlikely to do so, and the government funding him or her at the same rate as an MIT scientist is a distortion which is less likely to occur when funding is controlled by individuals rather than politicians with an interest in pork. In the absence of government funding, said marginal PhD candidate would find productive employ as an engineer or scientist in the real economy. (I say all this as a lifelong academic!)
 Perhaps the ultimate proof of bibliometry's utility is that it was the inspiration for PageRank.
Anybody who dissected a smoker knew it was bad for you (ever seen a smoker's lung? I have. Horrific). Even in the 20's cigarettes were called "coffin nails", and doctors routinely advised their patients to quit smoking.
Epidemiological studies have been carried out since the early 1800's.
Counterpoint: well into the 1950s, doctors would routinely endorse cigarettes with menthol because they "cleared up your lungs." Even R.A. Fischer, the man who started modern applied statistics, died in 1962 believing that the conclusions drawn from cig studies were at best inconclusive and bad science.
And I'm curious if you could give me examples of a few epi studies that were done before Fisher's time. I was under the impression that he started everything to do with statistics (and that the field didn't really blossom until we could compute the coefficients digitally. Read "The lady tasting tea" for more background on the origins of this stuff).
> There are lots of non-infrastructure advantages that exist only because the government has tax money.
I'd posit that, for many of these advantages, government is not a necessary cause. That is to say, these non-infrastructure advantages can exist independent of government.
> But without it, we wouldn't know that cigarettes are bad...
This is demonstrably false.
"In 1938 a study by a John Hopkins University scientist suggested a strongly negative correlation between smoking and lifespan."
"In 1953 scientists at the Sloan-Kettering Institute in New York City demonstrated that cigarette tar painted on the skin of mice caused fatal cancers."
The Sloan-Kettering Institute is by and large funded by the Rockefeller family.
> "or that heart disease is correlated with red meat consumption."
The original research supporting this is, in fact, from a government institute. However, the study has been criticized using an improperly validated food frequency questionnaire, which has been shown to have low accuracy. A later Harvard study found evidence that it's processed meat that causes heart disease, not red meat.
> The US Gov't spends billions into research that doesn't lead to tangible products or services.
I'm constantly amazed at how many products came out of the space race. Enriched baby food, scratch resistant glasses, advances in water purification, even more aerodynamic golf balls! It's truly marvelous.
 John Hopkins is a private university, but they receive a not insignificant amount of funding from the government in the form of tax breaks, grants, etc. I think it's fair to say that this study, however, originated in the private sector.
I understand your counterpoints. And I'd like to thank you for taking the time to research and cite all of this -- I truly had no idea of the private money behind some of this research.
However, after further consideration I don't think the tobacco-cancer example was a particularly good one for me to bring up. It was highly controversial in the epi/stats community for many years, mainly because RA Fischer (the father of applied statistics) never believed in the validity of the tests. While I'm sure we could each pick studies that backed the public/private side of things, the truth is that there just wasn't a consensus (about cigarettes) until Congress started investigating. So it's probably not the best topic for me to have brought up.
Judging from this downvoted comment -- this discussion is overtaken by libertarian crowd (which I'm part of).
Still it's not a good idea to down-vote comments that you do not agree with. Down-voting is intended for boring/offensive comments which you do not want to see in further discussions.
Downvoting is a legitimate way to disagree when you don't have time or anything useful to say. It's not true that it was intended only for the cases you describe. This is one of those debates (like the decline of HN relative to Reddit) that will never go away despite the fact that it is settled.
That said, I think it's pretty foolish to downvote Anechoic's argument, which is cogent and grounded in historical fact. I don't see how anyone can argue against the role of the public sector in creating major technological infrastructure on a bloody internet forum.
my problem with it is not so much that google is paying fewer taxes, but that this complex tax structure encourages "innovation" in tax avoidance rather than innovation in things that actually create value.
How much money goes into building and checking the legality of those tax avoidance schemes? a lot, I bet. I'm fairly certain, for example, that my company would not be able to afford something like that.
A simpler tax law not only makes things more fair (maybe it's just sour grapes, but I don't think it's fair that there is one tax rate for corps like mine, who have one part-time accountant, and another, much lower tax rate for giant corporations that can afford massive teams of tax lawyers.) but it makes the economy more efficient. The goal of closing those loopholes should be to make it in Google's best interest to spend their effort on, say, improving search rather than avoiding taxes.
It's a curious thought, but I actually think I'd prefer to be a subject of Google than Her Majesty's Government. Larry, Sergei, if you're reading - please make a bid for UK PLC. It's weighed down with debts and the current management are a shower of shite, but the headquarters are pretty swanky and I hear there are some great engineers on the payroll in Cambridge.
That is a very common idea among right-wing Americans -- they'd rather have companies take care of us than the government. The government is wasteful and full of beaurocrats. Let Walmart, P&G, and Monstanto clothe, wash and feed rather than the beaurocrats in Washington.
I guess the idea is that many educated and informed consumers will pick among the best companies and competition will drive the costs down.
That is a very common idea among right-wing Americans -- they'd rather have companies take care of us than the government.
No, right-wing Americans want to take care of themselves. They would just rather freely pay for certain services (health care, for instance) from competing private firms than be provided it by the government.
Framing the question as "who will clothe and feed and wash us" is implicitly a leftist framing. Taken literally, it rises to absurdity--physically, most people clothe and feed and wash themselves, and even more generally, it's hard to name a successful country where the government provides most people with clothing, food, or soap (though I'll grant the running water).
How so? Most don't own the means to produce all those things.
Most people buy those goods and choose between a range of available products. The fundamental flaw with that (at least as far as I see) is what happens if the products are unsafe. Imagine that FDA wasn't there (or its European equivalent) and companies could sell you anything whatsoever as food. How often have you gone shopping with a pestiside testing kid, a bacterial testing kit and a geiger counter? How do you know that all 15 type of shampoo you can buy don't all have mercury in them?
Basically both extremes don't work. A completely planned economy will not work but I have not seen a liberatrian utopia either so far.
The one advantage of the government is that at least in theory you can cast a vote to effect some change. You could not do that if you are run by Google.
Maybe I don't like Gmail and Gmail is the only mail in town, I can't force Google to change it. But can at least attempt to call my congressman if I don't like a particular upcoming bill.
>Imagine that FDA wasn't there (or its European equivalent) and companies could sell you anything whatsoever as food. How often have you gone shopping with a pestiside testing kid, a bacterial testing kit and a geiger counter? How do you know that all 15 type of shampoo you can buy don't all have mercury in them?
Why does it have to be a government agency that's doing the testing? What's to stop a private company with a trusted brand from doing the testing and giving its stamp of approval? Their motivation to keep bad products from slipping through is very strong because their brand is their worth.
It is useful to note that it was the meat packers who lobbied the government for the creation of what became the FDA because they knew that the public would require some testing and the FDA would do it for little money. A private brand would of course have to charge more.
>Maybe I don't like Gmail and Gmail is the only mail in town, I can't force Google to change it. But can at least attempt to call my congressman if I don't like a particular upcoming bill.
If you don't like GMail, you can write your own email service. If enough people don't like it, odds are someone will have already written a competing service. Google cannot stop you from doing that. A government, however, can.
I guess the only problem with a private company instead of a governmental regulatory agency ensuring product safety is that the risk will mostly be born by the poor. Anyone unable to purchase a product tested by a private company with a good seal will be protected by nothing and nobody (not that they're always protected now).
Of course, I think there's a middle ground. Too much government regulation is terrible for everyone, but too little disparately impacts those of little means.
That's not really an issue. Businesses in the EU are mostly taxed at their base, so it's up to them which country they choose. The problem is the use of the Netherlands to funnel the cash, which means the tax revenue is escaping the EU.
Effectively, they have set up shop in an EU country, they are enjoying the benefits like infrastructure, state educated population, health care, and are allegedly paying practically nothing for it.
Whoops! Well spotted. Somebody committed a political faux pas there. All these wet rainy island nations in the North Atlantic tend to blur together obviously...
It is interesting for me as an Irish person to see this brought up as our government (a sorry lot) are under huge pressure to keep jobs and money in the country. Putting this under the spotlight is the last thing they need. Our economy is in a pretty poor state.
It's neither good nor evil. Google's board and executives are legally obligated to maximize shareholder value. Shareholders can sue otherwise. If governments want more tax, they should close loopholes and Google will comply with the law.
This is a counter to the commonly espoused internet-forum notion that there's some law corporations would be breaking if they don't engage in the most sociopathic behavior possible in order to "maximize shareholder value". There is in fact no such law. Bringing up Dodge vs. Ford is relevant, because that is indeed where the concept of "maximizing shareholder value" was brought up, and it's the only case ever cited.
The notion that shareholders can bring about a suit in the United States because Google is not dodging enough taxes enough is absurd.
A corporation has no LEGAL fiduciary duty to "maximize shareholder value," that is just a business "best practice."
There are actual corporate laws regarding shares and shareholders and corporate boards and whatnot, but they are mostly about trying to keep the game clean and not defrauding people, not "maximizing shareholder value."
"Dodge is often misread or mistaught as setting a legal rule of shareholder wealth maximization. This was not and is not the law. Shareholder wealth maximization is a standard of conduct for officers and directors, not a legal mandate. "
It's actually a very interesting case, because the DODGE in Dodge vs. Ford is actually the guys behind the Dodge motors brand. They were using their investment in Ford motors to make money in order to start their own competing car company.
The broader question is whether that fiduciary duty is best served by maximizing short-term profits or long-term reliability (including abstractions such as goodwill and a stable regulatory environment).
Well, it's up to England's citizens to change the efficiency of England's government. Google is doing great things. By but dodging its taxes, it is forcing ordinary citizens to pay more. Or make do with less.
It doesn't matter whether it would do better with the money. I think I could do better with my tax money than the US government. But then, that's not my choice to make. My job is to work to make sure that the US government does better with my tax money. Not to deny the government the money. If I don't pay, someone else will have to. And that's not okay.
It's like saying I need your sandwich more than you do. I'm hungrier, I could make better use of it, therefor I should get your sandwich. Even if I could legally take your sandwich. It's still not okay. It's your sandwich! If I take it, you go hungry.
> By but dodging its taxes, it is forcing ordinary citizens to pay more. Or make do with less.
See, I'd disagree with you and say the opposite. I think England taking money from Google would mean less infrastructure and research out there in the world, meaning common citizens would be forced to pay more for services instead of Google's free services, or make do with less.
> I think I could do better with my tax money than the US government. But then, that's not my choice to make.
I believe it should be. Really, I mean that, I think taxes on productive labor are evil. Really, actually, unmitigated evil. I'm not against taxes, I'd actually be in favor for high property taxes divided split between federal, state, and local, which would encourage economy of space, reduce waste, and discourage real estate speculation while encouraging development. High taxes are okay. But taxing earned income, no way. Demanding a percent of honest labor to me seems no different than claiming ownership over a percent of a man. I think it's tyranny, and that in the future people will look horrified at income taxes the way we look at feudalism, serfdom, slavery, and other forced claims over a man's labor. But I understand I'm currently in the minority on that point of view.
> What if my income is $250 million? It still evil for the government to claim a percentage of that to provide services?
To make $250 million honestly, you'd have to produce value far in excess of $250 million. And yes, taxing people for producing value with their own labor is wrong to me. This is not an argument that all taxation is bad. You need taxes to run society. But taxing earned income seems wrong to me - the government doesn't own you, nor does it own your labor. I believe that. It's your life, you own it, and you own the product of your hands and mind. You should pay for the property you use, which effectively means you're paying for wherever you receive services. Wealthier people tend to use more property, meaning they pay more naturally. This seems sensible to me. Claiming ownership over a man's labor does not seem sensible to me.
The government provides services which are pretty fundamental to Google's success including enforcement of Google's various property rights (including IP) and providing a stable environment in which to do business. Surely the value of that service is broadly proportional to Google's income and well in excess of 2.4%
You sit at home and come up with a great new piece of software that’s worth 250 million and sell it IBM. Why should you pay more taxes than the bum sitting at home next door? After all you did not use land or resources protected by your countries military and police forces. You did not use public infrastructure (roads, bridges, dams) or government backed institutions (banks, phone lines), or even workers or customers educated by the public school system.
Ask yourself why would IBM pay for such a thing? Well they have customers that use land and an educated workforce. And what about your bank? How do they keep from being robbed? Heck, what’s to stop your bank or IBM from simply shooting you vs. letting you keep the money?
Face it, without a government service there is no way to generate extract and keep 250 million in value. Because even Drug Lords depend on governments banning their drugs.
PS: If you disagree you can always leave and renounce citizenship.
Edit: You completed edited your comment since I replied... the new version is a lot more reasonable. Here's what I originally wrote, which doesn't 100% apply any more:
Did you actually read my comment? I think you're reacting to something I didn't say - taxes are fine, and you'd wind up paying for services you use in property taxes.
Land, resources, military, police, roads, bridges, dams, banks (really shouldn't be government provided as that causes all sorts of problems like we've recently seen, but that's a side discussion), schools - those are all local-based services. You'd pay for where you were using them, when you were using them.
> PS: If you disagree you can always leave and renounce citizenship.
Totally unnecessary and counterproductive to a decent reasonable discussion.
Yea, sorry I messed up the comment in editing and had the "After all you" stuff twice.
Anyway, I wonder what your thoughts are on the central idea. Mainly our ability to generate value is directly related to the value the government provides us. The ability to walk the streets unmolested is hard to quantify but the economic value is directly related to our income. Also, murder investigations are independent of the amount of land we own. And things like food safety and public vaccinations are cheap and valuable so bundling all of that stuff up and simply taxing income seems more reasonable than trying to have individual taxes on every transaction with the government.
As to leaving I think that's an important option. It's what separates slaves of the state from people that can accept the deal or move on. A young talented American can has many options for relocation to another area, the fact that so few do suggests our system has many benefits even if they are not all obvious.
Banks are not government provided. They are private. And all the time saying that is Government fault when the market turn to shit, it means that it is not science just something you want to be true, no matter what.
First off, I don't care who you are or what you do. No single individual creates that much value. A CEO makes big decisions, sure. But he receives advice from countless people on those decisions, and countless more people make those decisions a reality. Companies create value through the actions of hundreds if not thousands of people. The decisions of its well paid leaders are more valuable than the actions of the average worker on the factory floor, but not that much more valuable.
No CEO could possibly make decisions more important, more weighty or more valuable than the leaders of nations. And the leaders of nations make an order of magnitude less than the average big company CEO.
So no, I wouldn't produce value far in excess of $250 million. I would be getting paid way too much.
Second how long did you take advantage of government services before you became a productive citizen? What did you get from it?
Let's assume England. Just off the top of my head - for the first 14-21 years of your life you got: health care, a primary and secondary education, protection of the military, a higher education, use of the roads, clean water, clean air, sewage, trash removal and the BBC.
How much do you think you owe the government for 14 years of the use of those services? How much interest do you think you're paying on that debt? How about for the continuing use of those services?
Income tax is not the government claiming ownership over a man's labor, it is simply the minimum payment on a debt and the fee for continuing use of services.
> First off, I don't care who you are or what you do. No single individual creates that much value. A CEO makes big decisions, sure.
Do you know any CEOs in the mold you're describing? I know... one. He was VP running one division of a company that was flagging, actually the whole company was flagging. He systematically promoted, trained, recruited, and refocused his division, until it became 80% of the company's revenues, and 2/5ths of the rest of the company was closed off. He massively grew the company. He took over for a very smart guy who, for whatever reason, was slowly running the company into the ground. The company literally wouldn't exist without him, and not many others have that skillset. He doesn't make $250 mil, but he's worth everything he makes. The company wouldn't exist without him.
> But he receives advice from countless people on those decisions,
Who get paid for that role.
> and countless more people make those decisions a reality.
Who also get paid for that role.
> Companies create value through the actions of hundreds if not thousands of people.
...who also get paid for that role.
> The decisions of its well paid leaders are more valuable than the actions of the average worker on the factory floor, but not that much more valuable.
Executives don't get paid a massive amount out of their boss's benevolence... they get paid because it's a brutally hard, rare skillset that not many people can do. A good executive absolutely can be the difference between making billions of dollars or the company failing and going out of business.
> So no, I wouldn't produce value far in excess of $250 million. I would be getting paid way too much.
You're either underestimating how hard being a good executive is or underestimating how much value a good executive can create. How much would it be worth to Yahoo to have had better leadership? How much has Steve Jobs brought in value to Apple? How much would Yahoo be willing to pay Jobs to take over? Would he be worth it?
> Second how long did you take advantage of government services before you became a productive citizen? ... How much interest do you think you're paying on that debt?
In every other sphere, you can't sign contracts to be indebted to someone before you're mature enough to commit to them. Because the government provided a service to a 5 year old doesn't mean the government can assert any ownership over the child later. Think about if Nike gave you shoes, clothes, and food when you were younger, and then said you owed something later. It's ridiculous. People can't sign their life away before they know what they're signing.
> Income tax is not the government claiming ownership over a man's labor, it is simply the minimum payment on a debt and the fee for continuing use of services.
I agree that you should pay for the services you use. But the government isn't charging for services, they're saying that when you do productive labor, then you owe them money. Big difference. I disagree with that. The debt notion is crazy to me, you can't go in debt as a minor for something you didn't agree to it. It used to be that if someone provided services to you as a child, you'd become indebted or enslaved to them, but thankfully we got rid of that. The fact that you can't sign contracts until you're old enough to understand them is pretty clearly established in Western thought, and a good thing.
Look, I'm not against taxes. Services must be paid for, agreed. Just not out of your labor. You should never incur a tax for doing productive, honest work with your hands or mind. It's immoral to claim a share of a man's labor by force. By all means, charge for services. But you own your life and your labor.
Edit: Gotta head out, the cafe I'm at is closing (11 at night here). If you're actually interested in discussion, feel free to email me - this has been good fleshing out my thoughts more clearly on paper, and I've enjoyed the discussion. Email's in my profile.
Heh, posting the executives make too much money in a business oriented forum is bound to be unpopular. shrug
Look at the people actually taking salaries that high. They're the financial industry executives who just ran their companies into the ground and had to be bailed out. Look at the people actually creating tons of value. The people who are heros to most of the people on HN. Steve Jobs has a salary of $1. So do Larry Page and Sergey Brin.
Good executives do not think so highly of themselves that they pay themselves that much more than their employees. Granted, the people in question can afford to do this because they are wealthy in stock and dividends.
Incentive deductions are very different from loopholes. Loopholes are bugs in the law. Sometimes put their intentionally by people who don't agree with the spirit of the law, sometimes there accidentally. But either way, they go against the spirit of law and are the equivalent of a software bug.
Incentives were put there intentionally and using them is following the spirit of the law.
A loophole by definition is a problem with a law that allows people to break the spirit of the law while not breaking the letter of it.
Writing laws is like programming. There are bugs. But its even harder than programming because fixing the bugs isn't as simple as finding the spot in the code and releasing a patch. It means bringing the laws back up for discussion and debating with 100+ other people about the best way to fix the bug. And not all those people actually have fixing the bug in mind. So it isn't as simple as the government enacting laws to close the loopholes.
By taking advantage of the loopholes like this Google is acting like black hat hackers who take advantage of the bugs. They are taking advantage of the bug in the government's code that allows them to use the government's services with out paying for them.
In the analogy it's not the government who's sandwich Google is taking -- its the average citizen. The government is just a proxy organization representing the citizens in a much more direct way than a company represents its stock holders.
> It's like saying I need your sandwich more than you do. I'm hungrier, I could make better use of it, therefore I should get your sandwich. Even if I could legally take your sandwich. It's still not okay. It's your sandwich! If I take it, you go hungry.
Really, the same reasoning could be applied to the government with regards to taxation.
Obviously we should always look at large companies with skepticism, but Google is clearly building a long-term brand and trying to generate goodwill by investing in massive R&D efforts. This is rare among large companies. Most seem focused on the quarterly report. If they were IBM or Oracle, who undoubtedly have similar practices, perhaps I might feel a little more betrayed. I still believe Google, for the most part, is not evil.
Thankfully though, we are a nation of laws. As much as I despise the practices of some businesses, I am perfectly happy that it's not any one person's single opinion that keeps these companies in business.
Company taxes are, in most parts of the world, levied on company profits, not company revenues. So if Google paid higher taxes, company expenditure would be the same, but dividends and / or share price would be lower. So the only point that still stands is 'giving liquidity to founders'; I'm sure the founders already have enough capital to bootstrap practically any innovative tech business they want.
Ethics aside, Google shouldn't seek to deprive nations of tax revenue because they benefit in no small part from that money. They hire employees educated with government money, buy research projects funded with government money, build data centers that depend upon public infrastructure, etc.
Frankly, without government money, Google would not exist.
By gaming the tax systems, they're not only flipping the bird to the ladder they stood upon to create Google, but they're strangling the future pipeline for the very government products they depend upon.
And people only call Google out for crap like this because they insist on running around claiming they "Do No Evil". They set the bar higher for themselves. If they didn't want it there, they should shut up about it already.
Most of their tax money would not be spent on the specific items you describe. For every $100 google spends in taxes, roughly $16 will be spent on education (mostly education for underachievers who would never work at google), $4.90 will be spent on transportation infrastructure, $0.30 will be spent on basic research and $0.1 will be spent on communications infrastructure.
On the other hand, for every $100 google pays in taxes, $23.2 will be given to unproductive old people and $14.8 will be given to unproductive non-old people.
It's a fallacy to focus solely on the desirable components of government spending. The lions share of taxes are simply transfers from productive people to unproductive people. If Google wants to avoid this, I see nothing wrong with that.
What you say is true and I think you both make good points.
When someone above asked "Why would Google want to pay a higher tax rate?" I thought, they would if it was in their best interest- I think we all agree on this.
Now here is the crazy part of my post- A company like Google which could conceivably bring in billions of dollars by changing its tax setup, should have some bargaining power. I don't think anything like this exists anywhere, but wouldn't it be cool if Google could get lawmakers to state that x% of Google's tax dollars will set up schools that focused on teaching 'gifted' children technology? And y% pays for technology infrastructure? Wouldn't that be fukken sweet? It would give Google an incentive to keep money in the USA, give back to what gave birth to it, reduce its burden of finding and educating new hires, reduce it's burden of setting up infrastructure, and benefit society across the board without having to wait for a some Google Billionaire to have a ethical epiphany in his old age and attempt philanthropy.
> "It's a fallacy to focus solely on the desirable components of government spending."
Without going into what proportion of spending might directly benefit Google, I do agree with you. Return on tax revenue is nowhere close to 1:1 nor is it being spent optimally.
But Google does not decide how that money is allotted. They can't say "I'm only paying 25% because I only approve of 25% of expenditures." When they limit their exposure to 25% of what it might be (paying 4% instead of 20%) they're still cutting the desirable spending to 25% of its budget.
So they're still strangling those things they benefit from.
And if the giants generations before Google had done the same, one wonders whether the component technologies and projects and research that Google built from would have been part of the lucky 25% of spending that survived inevitable cuts?
Your original post implied google is being a freeloader: "...they benefit in no small part from that money. [...] Frankly, without government money, Google would not exist."
I'm just pointing out that if google limits their exposure to 25% of what it might be, they are still paying for all the services they use and far more. They pay not be paying for all the services you want them to pay for, but that isn't the same thing.
I'm also pointing out that it's not quite honest to list only the useful government services, when they are dwarfed by wealth transfers. That's a tactic worthy of congress, similar to naming a law "To amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to members of the uniformed services, volunteer firefighters, and Peace Corps volunteers, and for other purposes" (where "other purposes" == bank bailouts).
+1. This is similar to the major reason I despise the band U2 (besides their awful music): they bitch and moan about helping poor children in Africa. They even recently complained that the British gov't doesn't send enough money to impoverished countries. But they have a major tax haven set up that deprives the gov't of tax revenue.
You just need to be consistent. Google has gotten a lot of benefits out of their "Do No Evil" motto; in my mind, they are held to a higher standard than GE or IBM.
That would be hypocritical if they were trying to get people to be less selfish and to give more to the government. It's certainly not hypocritical if they're giving a significant portion of that would-be-taxed money to charities.
Not exactly. Artists (musical, visual, literary) in Ireland aren't taxed on the proceeds of their sales, largely because Ireland benefits substantially in tourism and other revenue from exporting its culture.
> Ethics aside, Google shouldn't seek to deprive nations of tax revenue because they benefit in no small part from that money.
I think the issue that people are disagreeing on here is who would make the better use of money: Google or a government? If Google paid $1 million more in taxes, would that be a net benefit or detriment to society? Google can do good things with that money, and so can a government. But which one can give higher marginal utility?
I can't speak for others, but my alarm wasn't with Google. Instead it was with a tax system that allows these kinds of loopholes. When people talk of expiring the Bush tax cuts for those making over $250k, my jaded response is that it will probably only affect those that are well to do but not really rich. I think the really rich can afford tax lawyers that let them avoid substantial taxes via other loopholes.
You're talking as if the US should receive the revenues for this foreign sourced income (notice this is out side of the USA income, not internal US income). As if google is only mountain view, CA. And as if these corporations don't contribute hugely to their headquarter country in employing tens of thousands of people who pay generously harvested income, payroll, property and other taxes and spend the majority of their money in the local economy not to mention made thousands of new local millionaires who develop their home economies even further.
I see what you mean, but when I wrote the first sentence I was actually thinking of the the Drudge headline from yesterday that the UK planned to cut 500,000 jobs from the government payroll. Even though the Bush tax cut issue is US specific, it was meant as a general diatribe against the inequity of any tax system that favors the well-heeled who can afford tax expertise to skirt taxes. I'm not going to lie - it's personal. I worked for a company that was acquired by (Bermuda based) Tyco International, and the aftermath wasn't pretty. Ever since I've harbored a steep grudge against companies who use international tax havens.
Right on grellas. Every other company does this and there is a corporate tax industry around these loop holes.
Apple operates Braeburn Capital http://en.wikipedia.org/wiki/Braeburn_Capital
Microsoft is known for borrowing its own money from foreign countries to avoid repatriating tax. Because borrowing is cheaper than paying repatriation tax.
Broadcom is known for using R&D tax credits(for spending money in US for R&D) and Singapore and other lower tax states when it comes to selling goods and realizing income.
Even Oil/financial companies are known to set up shops in overseas just to avoid paying higher taxes.
When someone's career is to find ways to reduce taxes, companies will find whatever way to achieve it.
The characterization of "evil" is too strong. The focus should not be on Google, but on the world's corporate tax system because it doesn't accomplish what it was set out to do. In terms of the level of fairness and for the purposes of generating domestic revenue, it is broken. A specific tax revenue distribution was intended, and that is why the particular tax levels were set, but instead the levels change dramatically for the most sophisticated participants.
Maybe the answer is to make these tax management/arbitrage services more accessible to everyone and every business to allow the democratic/political/capital system put pressure on the issue. I imagine the overhead is great, but there should be a way consolidate or ease it, I am sure some innovative minds out there will find a way.
It's not just Google who is evil. They're just getting called out on it, because they've pledged not to be evil. It's rather expected of other corporations because we expect them to operate with out morals in search of maximum profit.
But any corporation that takes advantages of tax loop holes, legal or not, is doing evil. By doing that they are taking money out of the pockets of every day citizens in every country who's taxes they avoid paying. Because those citizens have to either make up the difference, or cut vital services such as education, infrastructure, health care and the social safety net. And those citizens can very ill afford to make up the difference.
There are exposes like this done once every few years decrying how low the real tax rate is for some large corporation or other or group there in. Really Google ought not have been singled out by this round. All corporations that do this are being evil. But Google's promised not to be evil -- and for the most part has upheld that -- so they are being targeted.
Really, the most moral course of action here would be to pay the taxes and lobby for the closing of the loopholes. And if they feel the tax rate is too high -- the lowering of the tax rate.
You could argue that the moral thing to do is maximise profit for shareholders (this is what they are legally required to do anyway). By deliberating paying more taxes than they need to shareholders will be penalised (smaller dividends etc).
That's true. Google would be cheating its shareholders by not returning the most value through legal means. Of course, in Google's case, they probably could choose to pay more tax and get away with it, but why would they?
Returning the maximum profit for shareholders is moral only for the very narrowly focused or the short sighted. Am I being moral if I return maximum profit for my shareholders by working my workers to death? Or by polluting the land so that it cannot be used after I am done with it? How about by returning value to them with one hand (the value of their shares, dividends) and removing it with the other (the increases in individual taxes required to make up for the shortfall I created by not paying)?
The answer in HN's context should be obvious: It is 'evil' because these techniques have nothing to do with making a superior product, and it is 'evil' because it puts newcomers to a market into an inferior position: they don't have the resources to use the same techniques.
I guess when you as a company claim the high ground ("do no evil")
The slogan wasn't "do no evil", which is impossible, but "don't be evil," which is much closer to being within reach; and its intended audience was Google employees, not people outside the company. Google probably should have aggressively refused to comment on rumors that this slogan was widespread, rather than publicly confirming it.
A cynic might argue that the constant press attacks on Google resulting from this slogan are from people who have resigned themselves to being evil and are angry that someone else has the courage to attempt otherwise.
> Maybe it is the lawyer in me, but why wouldn't any international business do whatever it could legally do to minimize its taxes?
It all comes down to ruining competition which is crucial for capitalism to improve the quality and decrease the cost of services for society. Do many startups have the money to hire a bunch of lawyers to find out the latest tax loophole and the money to setup multiple shell corporations?
tech guys have server naming schemes, lawyers have offshore tax-minimization entity naming schemes.
(personally if I ever got that big, I would name them all after characters from The Wire - just so I could say thing like 'lets shift all that to prop joe corp'. Hearing it all told back to you in court would be even more amusing.)
I agree. But practically, a government must have a way to mollify powerful interest groups or you end up with revolution and chaos. I think American democracy does a fantastic job of producing a stable and fair environment. But I'm not convinced it does the best possible job. As you say, it leads to complex system of laws that are not fair.
As a westerner newly living in Asia, I can see Singapore delivers good, efficient government and they respond to citizens complaints like a good company responds to its clients. Taxes are low, simple, and are done on a post card. I think thats the advantage of not being a democracy.
However, its not clear to me how they manage their powerful interest groups. I suppose brute force plays a role. But honestly, I doubt there is any more brute force used in Singapore than in the US. And I would trust Singapore to be more fair and even handed.
My guess is that China models itself after Singapore. I think thats where China is trying go. If they can get there -- and its not clear to me that they can -- in my opinion, it will be a more successful form of government than the democracies of the West. But they have a long way to. Singapore is a small island in a unique political and economic situation and I think that makes a huge difference.
>If the laws are ultimately chosen by the companies and the wealthiest...
At least with respect to the US, politicians are still needed to pass bills into law. The solution to your concern falls out of the simple realization that politicians can only sell the powers they have been delegated by the people. Grant them the power to make and break whole industries, and don't be shocked when those potentially affected come calling.
Maybe it is the lawyer in me, but why wouldn't any
international business do whatever it could legally do to
minimize its taxes?
It's the lawyer in you and he's misleading you. It's not a question of doing what they can do. The economist in you should conclude that it is a question of doing what they must do in order to remain competitive. You can't choose to 'do no evil', when all your competitors are doing evil. That road leads only to bankruptcy, as they can undercut your prices, because they pay much lower taxes.
This is one of the examples explaining why capitalism is fundamentally incapable of providing any moral guidelines. It doesn't care about what is right, only about what turns a profit.
OK, so what does all this have to do with Google? Well the problem is that such companies are welcomed when they set up overseas, and great expectations accompany them. And in the short term, there seems to be a distinct increase in prosperity - but people tend to extrapolate the growth trend endlessly into the future, and spend the money almost as fast as they make it. When the inevitable inflation ensues, they tend to feel they got a bad deal and go protectionist or sometimes enact draconian new tax policies. Oh, and the Irish government is also in bad odor with other European countries, who have felt for a while that the country took advantage of its small size to get away with significantly undercutting its neighbors on corporate taxes during the good times, leaving a correspondingly deep fiscal hole now.
Back in California, people look at the overseas investment made by the multinational and conclude that if the expansion actually cost the firm a lot less than imagined, then the favorable domestic tax treatment of the overseas operations (an indirect export subsidy, in effect) essentially amounted to the US taxpayer bankrolling their overseas expansion without any of the benefits coming back to the US Treasury later. But isn't that good for overall US competitiveness? Maybe, but who was Google (or Yahoo, or...) competing with internationally when it set up shop in Europe - Baidu? I can't even name a UK or Euro search competitor of any significance off the top of my head.
So it's not obvious what US taxpayers gained by letting Google out of paying US taxes on Euro/Eastern Hemisphere operations. Sure, Google expanded its operations and brand, and indirectly the economic reach of the USA, but as they were also getting a sweet legal/taxation regime at the other end - much lower than the headline 12.5% corporate tax rate in Ireland - then it seems as if the vast bulk of the benefits went to Google. OK, they have to pay tax somewhere, but Bermuda, like most tax havens, is such a small country that even a tiny slice in 'fees' is a huge feast. Again, like most tax havens, Bermuda's actual contribution to the global economy is almost nil; about the only argument you can make in their favor is that they contribute to increased liquidity.
There's a worthy philosophical debate here about the ultimate economic value of exporting low tax rates. But in the short term, the pragmatic result is that governments of more developed countries feel scammed, because they obeyed the popular wish of investing in things like infrastructure and education in hope of a long-term payoff, and now that they find themselves distinctly short of cash it's hard to explain why the payoff has failed to materialize (or why they didn't manage it very well, when it did). Of course, there's a little bit of hypocrisy going on here - well, actually a lot. Governments are often getting sweetheart deals on the back end; this arguably represents a transfer of wealth from the US to the populations of other countries, even if only in terms of lost wages for jobs that are not location-specific.
As neither the US nor the Irish or Dutch treasuries saw a great direct benefit, routing all the money through Bermuda has the political (not legal) appearance of a money-laundering operation. Particularly in Ireland, where people paying 20-40% in personal income taxes and almost 20% in VAT (sales taxes) are wondering what is the point of having one of the world's lowest rates of corporate tax (12.5%) if the government doesn't even collect most of it from large foreign firms. This is exactly the sort of thing that tends to give people the idea that it might be better to just have their treasury own shares in the company instead, a strategy employed with varying degrees of success in places like Venezuela and France.
I want to make it clear that I personally don't subscribe to the idea of state-owned industry or the idea that you can tax your way to economic success. There are reasons Europe doesn't produce the kind of industrial giants the US does, and why the European software industry is much less competitive than that in the US - they're not all to do with heavy-handed industrial/tax policy or regulation, mind, but those things do play a big part.
But when there is a good deal on offer (such as Ireland's low corporate tax rates, much cited in the US during recent years), the short-term tax savings of trying to further minimize tax liability have to be weighed against the long-term skepticism that manifests at the bottom of a business/economic cycle. Google is a smart company and may decide it has an interest in writing a $500m check or so to the Irish government now, rather than risk being frozen out of the European market in the future by penal regulation or hit with fines from the EU's muscular competition commission. Possibly the US government too, rather than being subjected to excruciating Congressional hearings. At the very least, they are probably going to have to give up using the 'double Irish' method of moving their money around. Bermuda will have to sit through some chilly diplomatic meetings and make some concessions about the transparency of its financial reporting or the accounting standards it uses, as have other tax havens of yore such as Jersey, Monaco and so on.
To sum up, I agree with George that from a legal (and short-term economic) point of view, running profits through Dublin and then putting them through some quirky Dutch-Bermudan slimming diet before running them back through Dublin is an entirely rational course of action. And it may well be a superior moral course of action, if you consider that Google contributes significantly towards the common good by making a wide variety of high-quality services available to the public for nothing - services on which large chunks of the US economy have come to depend, and I include myself in that. I honestly can't think of another company that makes such a generous value proposition, and don't find the price of personally-targeted advertising very onerous.
But from a political point of view, the practice is unsustainable and deeply unwise. Entrepreneurs and fiscal/transactional engineers are a small minority of the population. Some chunk of the population leans left and thinks corporations should be taxed much, much more severely, because the infrastructural foundation of their business model was heavily subsidized by the public. Another chunk leans right and while not being in favor of taxes much, sees no reason why the US taxpayer should be indirectly subsidizing people in other countries like Bermuda or Ireland. Then you have centrist voters who may not understand or care much about the details but are worried about US jobs going abroad, a rising deficit, and can grasp the basic idea that Google is using a legal fiction to reduce tax liability. Go there's a good chance that Google is going to find itself being the national punching bag for the next week or three.
why wouldn't any international business do whatever it could legally do to minimize its taxes?
The argument for not doing so (or at least, not going to such lengths to minimize the tax burden) is political rather than legal. I don't think it's 'evil,' incidentally, so please take the following as descriptive rather than proscriptive!
What happens when a company expands overseas? Well, it's a coup for the receiving country. There's a ribbon-cutting ceremony, speeches are made about the number of jobs it will create, people feel good about the past taxes they paid that went towards educating the workforce, and and there's a general expectation that the country will pick up 'a bit of the action' in three ways: by collecting some taxes from a successful business (pure rent-seeking, but after all that's part of why investing in education and infrastructure seemed like a good idea to begin with); by attracting other businesses in the same sector and getting a 'hub effect,' which will build up a secondary market serving these firms' ancillary needs (eg payroll, new real estate etc.); and a long-term benefit as employees of the Big Foreign Corporation develop world-class skills and later some of them start companies of their own or guide university researchers etc., making the country's economy more competitive and modern.
What happens is a little different. Usually the incoming firm has negotiated a favorable tax regime with the local government, and the long-term benefits of the secondary market and skill development are estimated to be greater than the foregone tax revenue. When I grew up (in Ireland) the usual approach was for the government to give a 10 year tax holiday in return for building a factory and training the employees, on the theory that the business would be OK with paying tax at the normal rate after a decade. But quite a few companies just shut down their factories when the 10 years ran out, because paying taxes was more expensive than setting up anew in some other developing economy and shipping the product. Of course, then the secondary market that had grown up servicing the industrial and consumer demand for local services would collapse.
So gradually there was a shift towards less rent-seeking (by allowing this sort of accounting manipulation) in return for the hope of increased long-term stability in secondary markets and skill growth. Unfortunately IMO, what has happened with a lot of tech and financial companies that moved to Ireland in particular is that that little technology transfer takes place. For example, Microsoft used to be a fairly big employer in both the UK and Ireland (not sure about now), but the bulk of the work was technical support and localization, rather than software engineering. Similarly most of the financial business in Dublin was backoffice processing because it was cheaper to do it there than in London or Paris (plus it gave UK companies an easy in to the European market). Jobs like that are less sticky if the tax regime changes, and while they probably do make the country's economy more competitive the gains are smaller and over a longer term than people anticipate - hence the endless supply of stories about some new location attracting a few tech companies and declaring itself to be 'Silicon _______.'
The secondary markets which provide ancillary services to the firm and its local employees thus do best out of such an arrangement, and a lenient tax regime keeps them going for longer - in practice, as long as wage differentials are sustainable for the parent company, and there isn't an equally capable workforce available to do the task for substantially less. Service jobs (at the foreign firm) are somewhat sticky because you can't move your call center from Dublin to Shanghai - but you might be able to find that in Bangalore. Meanwhile, if enough foreign firms set up shop in a country and a thriving secondary market grows up to service their ancillaries - plant, payroll and infrastructure for the firm itself, housing and consumer services for the happy employees. Of course, this tends to overheat the local economy: if you think the US property boom was out of control, you should have seen the Irish one. The price/earnings ratio for housing in Dublin shot up to 100:1.
Predictably, the party stopped right around the time when the cost of living had inflated wages high enough to make Ireland a less attractive destination for multinationals. Irish people were feeling so prosperous and skilled at making money that nobody wanted to do boring things like farm work or child care, and so the country saw an influx of Polish farmhands and nannies who everyone agreed made great workers. Several multinational firms came to the same conclusion; Dell used to have a manufacturing plant near my hometown in Ireland which was the largest local employer, but decided to close it and open a new one in Poland instead, resulting in the loss of ~2000 jobs. Of course the former employees still have their skills, but assembling PCs on an assembly line turns out not to be all that special, and my understanding is that Dell had a policy of not recruiting for management from the local workforce, or even hiring skilled people who were likely to apply for internally-advertised management positions rather than stay on the assembly line.
(Please bear in mind that I'm drastically oversimplifying here, so as not to make this comment even longer.)
In Ireland, these kinds of tax breaks are one of the foundations of our economy. They aren't viewed as a way to give a hand out to the big companies, but as a way to create jobs. This article mentions that 2,000 people are employed in Google Dublin. Given Microsoft, Amazon, Intel, IBM and Sun also operate, there's easily 10,000+ people employed thanks to our low tax rate. There are only 1,000,000 people employed in Ireland (small country), so the loss of these 10,000+ jobs (~1%+ of all employees) would be massive.
Ireland has very little industry, very little traditional ways to grow the economy. We all know if it wasn't for the tax breaks these companies wouldn't be here, and that there'd be loads of people out of work.
I hope you guys can find other means/ways to create jobs. I live in Vancouver where hi-tech companies receive generous amount of SR&ED (Science Research and Education) grant. Let's just say that it was a good thing for short-term but not-so for long-term.
In BC, if you are a hi-tech company, you are eligible to receive SR&ED (given by the government, but you need to fill some paperworks).
In the short-term, it's great because it gives your company some money to survive. In the long-term, when your actual balance sheet is red but because of SR&ED it becomes green, most companies are lying to themselves.
There are many companies in BC that rely on SR&ED and as a result, they're not dead nor living. They can't pay top money for top talent. Their product/software take the hit. There are many CEOs that only want to ship the product ASAP or else they're going down ASAP as well.
And that's the reason Ireland has something like 1000% external debt to GDP  - politicians and local businessmen alike got so drunk with their success of luring in corps that they assumed it will continue forever.
The reality is however, that taxes will have to be raised and the corporations will leave for yet another island paradise, and that will result in social catastrophe either way.
I originally thought you were implying that low tax rates to lure in business was the cause of debt:
rmc: "In Ireland, these kinds of tax breaks are one of the foundations of our economy."
You: "And that's the reason Ireland has something like 1000% external debt to GDP"
I pointed out that a property bubble was the primary cause, and that low tax rates are unrelated to this. Lets put aside your original argument, and focus on the new one. You assert "more multinationals->higher debt for local business and government". Could you explain this step?
As for why Ireland was hurt more than others, their bubble was bigger:
Let me just add that it would be very simplistic to attribute "current problems" just to the property bubble, or high debts to just low tax rate for multinationals. So to make it clear, that's not how I think.
There was a large bank bailout, due to how much the banks had invested in property. A large percentage of government income (around 25%) came from 'Stamp Duty', the tax you must pay when you buy a house. When the property market collapsed, the government was getting less money that it was used to.
i.e. the collapse of the property market increased government spending/debt and decreased government income.
Irish banks didn't "invest" in property as such, they just lent spectacular amounts of money to both mortgage applicants and property developers. The result was a huge property bubble. Anglo Irish Bank is the most notorious of all the banks, because it financed property developers particularly and got itself into a huge mess and has to be bailed out by the government, or the country's economy will collapse (according to the government.)
Anglo had an arrogant and corrupt board also, which didn't help. (Incidentally, their former CEO, David Drumm, is hiding out in Massachusetts, and has filed for bankruptcy there, due to the far harsher bankruptcy laws in Ireland compared to Massachusetts.)
Irish banks could raise money in Europe (German money for example) and lend it at a higher rate here in Ireland. Because Ireland has such a tiny economy relative to mainland Europe, they could raise, and lend on huge amounts of money relative to the size of the Irish economy. At the peak of the bubble, something like one-in-seven people were employed by the construction industry, either directly or indirectly, which gives you an idea of how important it was to the economy. Now the government is talking nonsense about building a 'knowledge economy' - which makes me shudder as they will try to turn former bricklayers into C++ programmers or something equally daft. The property bubble was Ireland's first taste of real wealth in our recent history and we pretty much blew it on big houses and Range Rovers, like a newly-minted lottery millionaire.
Ireland's current financial problems are probably due to the property bubble. However there's been massive unemployment (it's tripled in 3 years to 14%), do you really think the government are going to force all these high tech jobs out of the country now?
Leave aside the moral outrage and any sentence that has "should" in it. You're not being rigorous in your analysis.
Next, think of the tax code as a giant bucket of Lego pieces. Google - and many other multinationals (including very small startup tech companies of the type that spring from the loins of YC) - simply assemble the Lego pieces as they choose.
Looked at as a strictly engineering exercise? No big deal. Hire better engineers (people like me) and get better results (cooler tax-Lego structures).
OK, put on your moral outrage hats again. We are finished with the tax engineering. Let's move on to the social engineering. Because that is what we are talking about when we say "X _should_ pay more to support government functions.". Except for a few people we will have general consensus that a government is good and services need to be paid for. It's just a giant "Not out of my wallet!" game now. Sometimes logic, sometimes "Think of the children," sometimes whatever argument you can muster. All of these devices are used to deflect the tax collector's attention to someone else's wallet.
That is how I look at this topic. And from this perspective I derive two conclusions:
- if you don't like the way multinationals create their Lego structures, change what is in the bucket of Lego pieces. That is the job of Congress, not Google.
- if you plan to change the laws, expect the argument to devolve quickly to uninformed "think of the children" arguments because politics is purely that. No A/B testing is done. Statistical analysis is bent to prove a point, not looked at dispassionately to optimize decisions.
Two last points.
- Every dollar Google makes will eventually go out to employees, vendors, and the government. (At the moment they don't pay a dividend, so the shareholders do not get anything directly). A corporation is not some giant Jabba the Hutt that grows bigger to infinity. It is ultimately just a money collector and distributor.
- the particular game they are playing in fact acts as a net revenue transfer mechanism from the US Treasury to the Irish government. I will have to find the article that describes this so clearly. I'm on my phone right now in downtown LA about to give a speech in a few minutes. I'll be back. (Heh. What a disappointment he turned out to be for California).
Because Google have a public image of behaving ethically. Everyone expects banks and evil multinationals to do this kind of thing.
Is it ethical to avoid paying tax as an individual? Many would say no. But when a company does it, they lay their blame on the shareholders and the market. So the more outrage about this subject, the better. Our governments can either raise taxes or lower taxes. But they shouldn't let individuals and business get away with pretending to pay taxes when they're not.
Is it ethical to avoid paying tax as an individual? Many would say no.
Do you mean avoid (by legal means) or evade (by illegal means)? Any government that uses tax incentives to affect citizens' behavior is saying it's ok to avoid taxes. If they promise your taxes will be lower if you do x rather than y, they're counting on your desire to avoid taxes to motivate you to do x.
Including -- very relevantly for many people here -- huge incentives given to creating wealth via capital gains relative to creating wealth via salaried employment. I mean, memo from Congress to you: if you either a) make a business then sell it or b) invest in a retirement account, we will literally let you keep a few million more of your own money than we would have otherwise.
I mean avoid: employing sophisticated financial and legal engineering to reduce your rate of tax by an order of magnitude.
We all try to avoid paying too much tax, but that's not tax avoidance. Sending your profits to the Bahamas via Holland and Ireland is tax avoidance. I'd be happy to tell everybody and anybody about how I legally reduce my tax bill. Google's PR people would probably rather keep their methods on the down-low, out of the public eye, in spite of their utter legality. So why is that?
You probably mean "tax haven", which is a rhetorical slight-of-hand to suggest that jurisdictions competing for attention via tax rates are somehow enticing people to sin. Competing via tax rates is just another way of enticing people to behave differently. Some people are under the impression that this happens only internationally. This is incorrect.
One of the healthiest features of the American experiment is a federal system where you have a broad spectrum of options in terms of tax rates versus social services. People (and companies) can, and do, pick legal regimes which optimize for the outcomes they find important. You may have heard people sort of like living in California, especially if they work for political subdivisions of it: that comes at a price -- you'll pay a gobsmacking amount of money in taxes relative to a similarly situated individual in Texas. (I managed to pay California several hundred dollars in taxes last year and I don't even live there. Yay, hotel tax.)
Competition among governments internationally is also healthy, for much the same reason. The market in tax and legal protection encourages governments to not just expropriate all the surplus from their wealth-creating constituents.
My point was that when a company uses a foreign tax regime (which is what google does, btw) it completely escapes any incentives created by it's own government that are related to tax avoidance. Apparently the parent of my previous comment (pg) doesn't think that US government's purpose is to give incentives to US companies to move to Bermuda. Btw, I never implied that moving to tax havens is some kind of a sin.
Hey, nobody's saying that businesses that don't operate in America and consume American gov't services should pay taxes. Airbus probably doesn't pay much in American taxes, and I'm not upset about it.
But if a corporation has a significant presence here and is consuming an american-educated work force, american highway spending, american police spending, american state dept actions to ensure supply of various things (the oil industry would grind to a halt without the cloak and dagger stuff)..
then they pull an accounting hack and we're supposed to believe 98% of their operation is in the Cayman Islands? We're getting ripped off. You don't like taxes, I get it. How do you like the idea that you're paying higher taxes (or taking on more gov't debt) because other people are bilking the system?
yes 'tax haven' is a slur invented by the high-tax rich countries to belittle their competing nations who have lower tax rates to attract individuals and corporations.
you never hear Singapore, Dubai or Hong Kong being called 'tax havens' (they are), the word is usually associated with 'Dutch Antillies, Bermuda, Jersey, Guernsey' (ie. evil nations who are taking our money)
Well, corporations are by their nature sociopathic entities that seek to maximize profit regardless of anything else. That's fine, and I don't think anyone can blame them for taking advantage of loopholes.
The question is, why do the loopholes still exist? Why aren't more people angry about them?
EDIT: Downmodded? Seriously, guys, noncontroversial statement. Go talk to an economist. Or a lawyer. Corporations are legally obligated to be sociopathic and maximize profit above all else. It's a feature, not a bug, invisible hand and all that.
> Is it ethical to avoid paying tax as an individual? Many would say no.
"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands" — Judge Learned Hand
It is not evil to minimize your tax liability within the rules. If Google were spending millions lobbying to decrease their tax liability, then that might be evil. Minimizing your tax liability is perfectly reasonable. Not doing so would be doing a disservice to shareholders, and is arguable more evil.
Is it ethical to avoid paying tax as an individual? Many would say no.
They might say that, but their actions -- buying from duty-free stores, contributing to tax-deferred retirement accounts, filing jointly with a spouse, and claiming every possible deduction -- suggest quite the opposite.
There's a world of difference between illegal tax evasion and legal tax avoidance, and all indications point to what Google is doing as being tax avoidance. How many individuals went to the IRS and said "here's how I'm planning on reducing my income taxes; can you see any problem with this"?
I got that implication from your response to cperciva, who was saying, in effect, that Google was acting neither unethically nor illegally.
Pointing out the "unfairness" of their reported tax rate does not directly refute cperciva's comment, but it seemed to stand in opposition to it nonetheless. I inferred that you think Google is at fault, here.
>Because Google have a public image of behaving ethically. Everyone expects banks and evil multinationals to do this kind of thing.
I hate that crap. It's possibly the worst thing about our media.
Mountain-top removal by coal mining company devastates 100 SQ mile ecosystem in West Virginia? Doesn't even make the paper.
Al Gore's electricity bill is high? PAGE ONE BABY. Al Gore's electricity bill is approximately 1 / 100,000,000 or so of the problem. But it makes us feel good to give do-gooders their comeuppance. Serves them right, for trying to improve things and making us feel bad that we don't do more ourselves.
"Al Gore's electricity bill is high? PAGE ONE BABY. Al Gore's electricity bill is approximately 1 / 100,000,000 or so of the problem. But it makes us feel good to give do-gooders their comeuppance. Serves them right, for trying to improve things and making us feel bad that we don't do more ourselves."
Al Gore has rallied to get the government to start forcing corporations to use carbon credits and buy them from companies that he is invested in. It's not that he is a "do-gooder", it's that he is an unethical hypocrite. These kinds of people need to be pointed out.
When the corporate tax rate is low, people have a large incentive to create corporations to shelter their income. This already happens now quite a bit given corporate deductions and the low tax rates on dividends, but if you got rid of corporate taxes altogether, you'd just increase the amount of money that stayed within those little corporations, thus decreasing the total overall tax revenue.
If the money stays in the company forever, why should they be taxed? Imagine a company that makes billions but never distributes income in any form, a 90% shareholder could starve to death.
Income should be taxed only when distributed, it's like it doesn't exist if it's not.
Because countless global companies don't claim to be "not evil".
Anyone Google hires in the UK (up 'til now anyway) has been educated at the expense of the taxpayer, for example. If someone breaks into their offce, the police will show up to investigate. Why shouldn't they pay their fair share?
Yes, and those taxpayer educated employees go on to pay income tax...rather than drawing welfare (or whatever you call it in the UK). In general the better the education, the higher the pay and the greater the income tax revenue from those employed individuals.
Google is in the UK at all because we are a stable, developed economy with a well-educated workforce, good infrastructure and high consumer spending. It could pay no tax at all if it relocated all its operations to Somalia where there is no government. But it stays, why? Because it is in its advantage to do so. To take but not give, that counts as a parasite in my book.
Fortunately we have a government now that ain't gonna stand for no jibba jabba.
So? Then the UK needs to close the loopholes that allow Google to operate this way.
Google is not obligated in any way shape or form to pay more for taxes if there are rules and regulations that state they can operate their business in a certain way that allows them to not be taxed for that amount of money.
As a socialist I don't agree with that (I am from Europe), and I wish they did pay more taxes as it would certainly help the various governments there provide social services, at the same time I can definitely see that Google who is accountable to its shareholders and has to make as much money as possible is going to use the loopholes to keep as much money and not have it taxed.
Since someone needs to call bullshit on this discussion, I would like to point out that GS's 2008 income was roughly 94% lower than its 2007 income. In 2007 its tax liability was roughly 35% of pretax income. Good tax accountants can lower your liability, but there is no magic "get out of taxes" card besides losing money.
I'm not going to spend more time looking through the 2008 quarterlies, but I would guess they lost money in some of those quarters, creating a tax benefit. If you find that shocking, well I can also give you amazing advice to lower your tax rate to 0% but you may not enjoy it.
In 2009, Goldman's pretax earnings returned to its historical range and the company again paid ~30% income taxes. These financials are all public, you can look at them on the internet.
I do expect a Public Corporation to minimize their tax liability. I would have not been surprised if they minimized their effective tax from 35% to 25%, or even 15%. But going from 35% to 1% is rather surprising. I guess their Corporate Tax team got some real nice bonus for 2008.
This is a commonly accepted best practice in corporate accounting. In 2006 the IRS approved Google's transfer pricing arrangements. Also, it's so common that there is a name for it - "The Double Irish". Bloomberg recently had an article on the same topic:
"The setup lowers Google's overseas tax bill, but it also affects U.S. tax revenues as the government struggles to close a projected $1.4 trillion budget gap."
It's a ridiculous notion that any single corporation's tax contribution will put even the slightest dent in the budget deficit. Government spending is like gas in a vacuum, it will expand to fill whatever space you give it.
But the US can actually reduce the gap by cutting down on wasteful spending (see Iraq and Afghanistan adventures). This should be a priority but alas our politicians love to spend and that applies to both sides.
I was going to leave a comment about corporate citizens not doing their fair share in America, but that got me thinking: should corporations pay tax? I'm not asking this rhetorically to make a point. Really, should they?
I would imagine that whatever profits are passed along to shareholders are taxed as capital gains. So, while it is a great headline to say Google pays 2.4% corporate tax, might it also be fair to say "Google shareholders pay 2.4% additional tax on top of the regular tax they pay on their income from capital ownership."?
Now, I'm not at all aware of how capital gains taxes and wage-style income taxes compare, and my inner liberal slant / desire for social justice inclines me to believe that those with the means should pay MORE than their "fair" share.
But I can't help but think that, at least at a theoretical level, there is someone, somewhere, who makes their living investing in corporations - lubricating the gears of capital society - but isn't phenomenally wealthy, and actually pays a total higher % of their "income" than a wage slave making a comparable amount of money. VCs? Angels? Wouldn't we as a society want to reward this behavior?
I can just as easily see the other side; maybe in theory this is right, but the reality is that capital gains are the domain of the ultra-wealthy, and corporations are frequently used as tax havens, pushing money around from holding company to holding company. If the corporation buys something and the owner uses it, that's an effective way to minimize your total "income" without losing the benefits of your wealthy lifestyle.
I would love to hear thoughts on this, particularly from anyone more familiar with tax law.
Yeah, I'm not familiar enough with tax law to know the details of tax laws. I'm sure they're terribly written. Especially in the United States. We need desperate tax reform. Really it ought to be the first place we look for solving the deficit: closing loop holes and raising taxes. But if those two words are put in the same paragraph as each other -- "raise" and "taxes" -- there's mass panic.
Ireland usually gets a bad rep from this but companies like Intel, Google and MS are the biggest employers in the country. If they were there for purely tax reasons you'd expect them to be shell companies, rather than having multiple fabs in the case of Intel or a few thousand employees in the case of Google.
Startup idea: Company that cheaply sets up individuals/small companies to evade taxes in the same way big corporations do. You pay a subscription fee or something and they fill out the returns and set up a PO Box in Bermuda or whatever.
Seriously! Reading the article made me think, "wow, trying to piece together where companies go and who owns what sounds like fun!" (No, I'm not a lawyer.) Certainly sounds like an optimization problem where a computer could do an especially good job (assuming that you can represent everything efficiently).
There are tons of companies who sell shelf companies online. ie. $800 and we ship you a corp registration, a bank account, an office address etc.
For small companies with a single office etc., that is all that an offshore tax structure is.
The point is that when you structure these things, you don't want anybody to notice and you want to be a small target. Being a client of a startup whose intended purpose is to minimize your tax bill is the opposite of remaining unnoticed.
I was going to ask: how can startups (and in particular YC companies) apply similar strategies once they start making revenue? And how can they scale out? What would be really interesting is to see the evolution of the corporate/tax structure of Google as the company grew.
I had a distinct Randroid phase where I thought it was almost a moral obligation to avoid taxation. Now things are fuzzier for me.
I make a truly decent wage. Not an earth-shattering one but a wage that beat the hell out of anything my mom made while I was growing up. I am a very fortunate man.
Heinlein wrote a thing about freedom:
"In terms of morals there is no such thing as a ‘state.’ Just men. Individuals. Each responsible for his own acts. I am free, no matter what rules surround me. If I find them tolerable, I tolerate them; if I find them too obnoxious, I break them. I am free, because I know that I alone am morally responsible for everything that I do."
In my case, I find taxation to be tolerable. It finances things like education for people with fewer advantages than I have right now. Ideally, a much bigger proportion of my taxes would go there. It also finances stupid things, like the TSA and DHS, and that's unfortunate. It financed military adventure in Iraq, which I find repugnant.
But I want to live in a society where you're not screwed based on the number you draw in the ovarian lottery. Where you can be taught useful skills to make the most of the opportunities you find. Where you don't have to pay for this privilege – until later, when you pay taxes. I'm not aware of any scalable solution to this that doesn't involve taxation of my earnings.
So I tolerate the imperfect because it's what I've got. Until there's a better way to ensure that the next generation isn't screwed by bad luck, I can't avoid that taxes are how I can do my part for the moment.
Meanwhile, Google is free to break or bend the rules, too. If they share my values on this subject, I'd hope they'd do their part in some other way. But that's up to them.
Why don't you spend some of your own money directly on the causes that you like? About 1/3 of American taxes go to the military, and another 1/3 goes to non-means tested social support programs (not necessarily benefiting the poor). The amount going to better education opportunities for poor people is absolutely negligible, especially since the sitting government is hostile to school choice.
What this should signal, is that the US should lower its corporate tax rate. Even just making it competitive with other developed nations would probably generate more revenue for the government. And though it would still be higher than the effective rate many companies pay with all these transfer schemes, it would make the hassle less worthwhile.
However, what it will actually cause lawmakers to do is increase regulations to make income transfers like this illegal, and leave the corporate tax rate as is.
Including others for comparison from Wikipedia (http://en.wikipedia.org/wiki/Corporate_tax), interesting to note that Vancouver, Canada, small business is taxed 13.5%, and to no surprise, there are many startups in Vancouver:
Examples of corporate tax rates for a few English-speaking countries include:
Australia: 30%, however some specialized entities are taxed at lower rates.
Canada: Federal 11% or 18% plus provincial 1% to 16%. Note: the rates are additive.
Hong Kong: 16.5%
Ireland: 12.5% on trading (business) income, and 25% on nontrading income.
New Zealand: 30%
Singapore: 17% from 2010, however a partial exemption scheme may apply to new companies.
United Kingdom: 21% to 28% for 2008–2010.
United States: Federal 15% to 35%. States: 0% to 10%, deductible in computing Federal taxable income. Some cities: up to 9%, deductible in computing Federal taxable income. The Federal Alternative Minimum Tax of 20% is imposed on regular taxable income with adjustments.
For Australia, you have to take franked dividends into account.
When profits flow onto shareholders, the shareholders receive tax credits for tax that the company has paid on its profits. The result is often that, by the time corporate profits end up in the shareholder's pocket, there is 0% effective corporate tax over and above personal income tax paid on the dividend.
EDIT: That's for profits. Companies still have to deal with state payroll tax, collection of sales taxes, etc.
We hear corporate leaders (Gates, Brin, et al) lecture on social responsibility, yet they undercut the very structure of society by skirting tax laws.
How will we build universities, roads, public infrastructure without tax revenue?
Now the hacker in me says, knowing how corporations behave, how do we fix this? Do we have tax laws that encourage corps to pass along more earnings to share holders? Implement 0% corporate tax rate and then capture tax revenue out of individual capital gains and taxes on dividends?
It's one thing to rage about this, it's another to come up with a solution.
I would trust google to spend its money more efficiently than any government. People tend to talk about government as the only socially responsible charity in town and the money not forcibly taken is somehow wasted in some black hole.
Am I one of the few who doesn't see a problem with this? If our tax structure is so f'd up that it allows for this, we need to change it. In the meantime, why wouldn't Google minimize its tax liability?
If you're an entrepreneur and are against this, I hope you voluntarily don't take the tax breaks afforded to you, or else you're a hypocrite. Lunch with business partners? Better not write that off. Your internet or cell-phone? Don't write that off either. Part of your apartment where you code for 5 hours a day? Don't write that off either.
You're missing the point of the analogy. If the legal status of the two alternatives is in question, fine...
"Sure, I cheated on you with your sister, but at least I didn't cheat on you with your mum!"
Google is dodging taxes by shuffling their profits around the world. Everyone knows the numbers are a legal fiction, and while legal, there are valid questions about how ethical a practice it is. That they pay other taxes is by no means a defense.
"Don't be evil" and "Don't break laws" are very different things. If Google's motto was just "don't break laws", they wouldn't be inviting quite so much criticism for legal-but-dubiously-ethical stuff like this.
Are we missing something here, maybe? Google, as a legal entity, is really nothing more than a piece of paper in someone's filing cabinet. As a corporation, it is just a legal vehicle for shuffling around money and managing liability and ownership.
On the other hand, the people who work for Google are ... people. And I'm sure the great majority of them pay plenty of taxes (income, payroll, etc.) in whatever jurisdictions they live in.
One of the primary functions of Google-the-entity, is to get that money to the people. In doing so, Google-the-entity pays very little tax, but the people pay lots. So the money is taxed, government programs are supported, and all is well.
To put it a different way, Google's tax strategy can be considered as a way to minimize the effect of governments taxing their people twice.
If Google thinks that they can more efficiently contribute to the public good by using the savings to provide services directly than by paying taxes, they have a moral obligation to minimize the taxes.
> The government has made halting steps to change the rules that let multinationals shift income overseas. In 2009 the Treasury Dept. proposed levying taxes on certain payments between U.S. companies' foreign subsidiaries, potentially including Google's transfers from Ireland to Bermuda. The idea was dropped after Congress and Treasury officials were lobbied by companies including General Electric (GE), Hewlett-Packard (HPQ), and Starbucks (SBUX), according to federal disclosures compiled by the nonprofit Center for Responsive Politics.
The issue is that the US (like many countries) has the best tax code money can buy. The US has the additional problem of dual sovereignty such that the states are competing with themselves to offer tax breaks to lure in companies and thus jobs.
Companies are like water: they seek the lowest level. They're not immoral, they're amoral.
A hideously complicated tax code is going to have holes in it so simplify, simplify, simplify.
The first thing that popped into my head after reading this was "That is straight up gangsta" . Honestly I don't fault them for doing the most allowable under the law. Hat-tip to google's army of accountants and CFOs for figuring out these massively profitable loopholes.
"Apple (AAPL), Oracle (ORCL), Microsoft (MSFT), and IBM (IBM)"
Those companies all sell hardware. Apple can't say 'lets book those Palo Alto store sales in Bermuda'. Ads served are a total volatile good (their value is the time they spend rendered on a screen infront of a user). Google has a huge advantage because of this (and it also makes the ad trade ideal for money laundering).
To relate this to startups :
If you are a startup and you are accepting foreign money and you are bringing it straight into the US and paying tax on it, then you are doing it wrong. A merchant account in Bermuda is easy to setup and is completely legal. If you are not doing all you can to minimize your tax obligation then you are not doing your job properly.
I would hope most entrepreneurs don't have the attitude of "it's not fair." Maybe it isn't fair. But as we all know life isn't fair. Meta-discussion aside, any entrepreneur worth his salt won't be thinking like this.
Irving H. Plotkin, a senior managing director at PricewaterhouseCoopers' national tax practice in Boston, says that "a company's obligation to its shareholders is to try to minimize its taxes and all costs, but to do so legally."
This is a pet peeve of mine: company directors are not obligated to minimize costs or maximize profits.
I see this story delivering a full dose of irony that will be lost on so many people. Google is a company that chose to affiliate with progressive causes and personalities almost from the start. And one of the central tenants of progressivism is business and the wealthy should pay their fair share of taxes (meaning a proportionally higher share). But this state of affairs can never really be reached. (Please give me a pass on this assertion, the argument is long. Doesn't this story provide an iota of supporting evidence?) Ultimately people pay taxes, and there are many more poor and middle class than rich.
As always, Google did an excellent job making money left and right. You gotta give them credit for that.
On the other hand, they are a bit "disingenuous" (Jobs' favorite word to describe Google) about their mantra, as ultimately this profit is made at the expense of American citizens (lower tax revenue). Why does it matter? Well it matters because they (tangibly and intangibly) benefited greatly then and now from the "Do No Evil" mantra, and they should accept that it comes at the price of people holding them to a higher standard. It is "Do No Evil", not "Do Less Evil" or "Do No Evil When Convenient".
Google is smart and they are not alone in running their businesses like this. Pros and Cons -- sure the gov't misses out on some revenue but also many of those savings are reinvested into hiring and generating jobs and even more profits, which in the end, can still generate revenue for uncle sam.
Unless you made a shitload of money I highly doubt your effective rate was 40%. The rate on the last x% of your money might have been taxed at 40% but most places have a progressive tax structure. Deductions should lower the effective rate further.
Yeah, my combined marginal federal and state rates are like 33%, my effective rate after mortgage interest and charitable deductions was like 8-9%. I'm going to try to be more like Google though.... ;)
As the article points out they have an obligation to maximise profits. If there was a way to cut your tax rate from 20%+ to less than 5% and they didn't use it, it would be a breach of their duties.
It's amusing to see how effective industry lobbyists have been in shutting down any reform that would close these loopholes. Lets talk about slashing entitlements but completely stonewall any attempts to get corporations paying more tax...
I've got an obligation to maximize profits too: an obligation to support my family. But I don't have the resources Google does to set up complex income shifting tax avoidance schemes, and for that I'm heavily penalized by paying a much larger share of my income in taxes than a company like Google does.
If these big companies want to have the rights and privileges that citizens do (treated as legal entities, freedom of speech through political contributions, etc) then they should have to play by the same rules and with the same encumbrances.
I really don't understand why we allow these things. Letter vs. Intention of law should matter, right? I don't think a lot of the tax code and business rules were written with the idea that a company would actually span continents or maybe not even have a physical presence.
Companies are about money. Countries are about people. Taxes build services that are used by people. "Web Services" doesn't count too much as a service. I would live without google search no matter what people say. But what about hospital, street, public transportation, cheap houses for poor people, and on and on and on...our society is based on taxes. The reason why people have to pay taxes is to build a better society. Look at what is happening in Britain with Cameron: no money to fix the deficit. Poor people take it all over their a@@#@.
And, to put that simple, we are not talking about a couple of thousands dollar a software engineer is not paying: we are talking about millions (billions?). Greed is bad, is fucking bad. And all this talking about disruptive innovation is usually a bunch of stupid Internet Services to play with. I think the hacking community is overestimating its value.
No cancer cure. No cheap energy. No cleaner air. Just some web app, iPhone app, something app.
Google taxes would fix a lot of problems, just letting millionaires a bit more poor. I can live with that, why you can't?
Am I the only one who believes that taxes are evil? I can't wait until I can afford lawyers to help me get out of paying taxes. If if I break even I'd rather see my money going to a professional than a government,.
Lots of business practices are considered legal but sleazy, and above-board companies won't engage in the them even if they increase profits - from high pressure sales tactics to child labor where it's legal. Why is it that companies like Google and Microsoft are given a pass on using their many-million dollar legal budgets to push the US tax burden onto the rest of us?
Everyone else would find every available loophole they could given the chance. People just get mad because they are not the ones benefiting. It's human psyche to keep other people down if you're not going up.