You would think, with the big deal Obama is making about how we need to do everything we can to encourage more start ups, he would offer some kind of 2 year tax free grace period. I understand that we need to tax to some extant, but how much more likely do you think start ups would be to succeed if we didn't have to worry about taxes eating away our already limited money during the first most crucial steps?
Personally, I think that when you are small and not very profitable, lowering the complexity of taxes would help you more than lowering the tax rate. Most taxes are on profit (or on income) and nearly all of them are graduated. Before you are making much money, you don't have to pay out much in taxes.
However, tax complexity makes planning much more difficult. I've gotta include a tax person in my decision making process. Now, once you are big, this is no big deal, but as a smaller entity? this is kindof a big deal. And it's another huge risk factor. If I screw up and end up in massive debit to one of my vendors or a bank or something, worst case I can declare bankruptcy. If I screw up my taxes? There is no such escape route available. I know more than one person who will spend most of their career in debit to the IRS because they thought they could do their own small business taxes, and screwed it up.
So yeah. for startups? I think complexity of taxes, ultimately, is a bigger deal than the tax rate. This reverses, I think, as the company becomes more profitable. Lower tax rates are going to make profitable businesses more profitable, so lower tax rates would increase the upside for any startup. But I think that reducing the complexity of the tax code would help those who are still teetering on the edge of profitability more than reducing the tax rate.
This. The US has one of the highest on-paper corporate tax rates while having one of the lowest effective corporate tax rates that most companies actually pay.
This is basically a regressive taxation system for business since small businesses don't do things like offshore accounts and tax havens, so they get stuck with the bill. Meanwhile we're incenting big business to spend more time on that BS than on producing good product. Unfortunately, nobody will be able to reform this because any amount of moving things around between line items will be branded as RAISING TAXES!!1one2, even if it's revenue neutral (just omit the balancing cuts and it's still OBAMA RAISING TAXES).
It is hard to get around the 35% US corporate tax rate. In my time as an investment banker, the only way I saw that companies could easily lower their taxes is by losing money (losing money one year gives you a carry-forward loss that you can use to get out of taxes the next, hardly free money). As far as I am aware, this kind of tax credit is common in the developed world and the US corporate taxes remain the highest. The impression that you get at reddit/ The Huffington Post/ Hollywood that you can open up a foreign bank account and bam no taxes is largely false. All the companies that I sold, capitalized, or researched paid taxes at close to the nominal rate of 35% (my specialty was firms $100 million to $1 billion in market cap).
What are your credentials? Perhaps you are a corporate tax accountant and you know better than I do.
I almost certainly know less about corporate taxes than you do.
But how do you explain the gap between stated and effective tax rate? Maybe I'm oversimplifying by blaming the Cayman Islands but obviously big corporations are doing something to pay significantly lower taxes than the advertised rate.
Usually companies with a low effective tax rate have lost money in recent years. This is especially true over the last 3 years (I believe 3 years is the limit on a carry-forward loss credit, and 2008-2011 has been bad for business). The net effect is that US companies pay 35% taxes on their 3-year trailing average income rather than income in a given year.
Occasionally you will hear another breathless claim on places like reddit/The Huffington Post/The Daily Kos that some large percent of corporations pay no corporate taxes at all. They are usually counting the large number of small businesses organized as S-corps and LLCs which pay pass-through personal income taxes rather than corporate taxes, and counting all the C-corps that lost money and therefore paid no corporate taxes for the year. On its face it is a true statement that most corporations pay no taxes, but it is a very misleading statement.
In my experience, it is very difficult for the shareholders of a C-corp in the United States to derive benefit from the entity's business activities without the benefits being taxed at the corporate level.
Puts the effective corporate tax rate a cool 10-15 points under the statutory one, depending on sector, and has some graphs illustrating that our statutory rate is one of the highest while our effective rate is one of the lowest.
So it's not just the dirty hippies saying this.
The dirty hippies tend to get angry about stuff like the fact that Exxon apparently pays little to no corporate taxes (citation needed), and whatever else they have going on they certainly haven't posted a loss recently.
"The dirty hippies tend to get angry about stuff like the fact that Exxon apparently pays little to no corporate taxes (citation needed), and whatever else they have going on they certainly haven't posted a loss recently."
Exxon Mobile paid $21 billion in corporate taxes on operating income of $53 billion in the fiscal year ended December 31, 2010 for an effective corporate tax rate of 40%. Do leftists not know where to look this stuff up? They are allowed to take finance and accounting classes, no?
If the dirty hippies had read the paper, they'd see that machinery depreciation is a huge part of that difference between the effective and statutory rates.
The really clever hippies would notice that different industries have different machinery needs.
The especially brilliant ones would understand that the value of an oil lease goes down as the amount of extractable oil goes down, such as happens when said oil is extracted. They'd see that said decrease is just like the expenses of other industries.
"Google’s practices are very similar to those at countless other global companies operating across a wide range of industries," said Jane Penner, a spokeswoman for the Mountain View, California-based company.
woof... upon closer reading, the headline was misleading. the 2.4% rate is for overseas earnings. "Google’s overall effective tax rate [was] 22.2 percent last year".
it's not hard, however, to find evidence confirming the upstream point that large companies frequently pay a fraction of the 35% rate
Note that Google doesn't pay US taxes on profits that it makes overseas and doesn't bring into the US.
Me - I'd like Google to bring that money into the US but can understand why it isn't willing to pay taxes to do so. Many other countries tax repatriated profits differently, so their companies are more willing to bring said profits back to the mothership.
Well, can we at least agree that the tax code is all kinds of crazy and needs to be reformed, regardless of total revenue take? I thought that was noncontroversial.
Your completely right, the complexity is a much larger threat than the actual amount paid out. Ideally, and this would help immensely, a grace period would include no taxes of any kind paid out for a set amount of time, and no tax complexities to deal with in the set time. We report our numbers on a special tax form and that's it. No tax consultants needed. This would ensure that a larger number of start ups make it to a point where they are large enough to A) hire more people and B)deal with tax complexities without them being a drain on a company's chance of success. If this was possible I would bet that the chances of start ups surviving passed infancy would rise dramatically.
Tax rates do matter. The US has the highest corporate tax rate in the world and you hit the top bracket with ~$2 million in profit (as I remember). That's a large company, but not a huge one.
I'm not saying they don't; Especially on the upside, tax rates matter a lot, and the potential upside effects how much investment a startup gets, at all stages.
I'm just saying, when you are still trying to scramble up to profitability, complex tax laws are a big deal. Certainly under $10K/year profit (and probably for a while further) you are going to be spending more on tax related accounting and planning than you will pay in taxes. You can't just ignore it because you aren't making any money.
It's not just paying the accountant at the end of the year; Especially in lower-margin businesses, how something is taxed can make the difference between profit and loss. You've got to run all your ideas by the tax expert. This is expensive, as both I and the tax expert have deep domain specific experience that needs to be at least partially shared to figure out if a particular idea can work or not.
Yeah, once you've got two million in profit a year, the cost of that tax person is probably a good bit less than what you are paying in taxes, and I imagine you care a lot more about the rate. I'm talking about those of us who are still in the red or only a little in the black.
