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G7: Rich nations back deal to tax multinationals (bbc.co.uk)
1047 points by ddek 15 days ago | hide | past | favorite | 895 comments



The first proposal of having a minimum corporate tax rate probably doesn't mean a lot because you to then start policing what subsidies governments give to effectively discount below 15%.

The more interesting part is what I hope is the start of serious efforts to tackle profit-shifting, which is a name invented for "transfer pricing" because that is technically illegal. But it's the same thing.

A good starting point is that if you book x% of your revenue in country A then country A should get to tax x% of your profit.

Here's another part of this they should adopt: borrowing money should count as repatriating profits. In the era of zero interest rates debt is used to effectively defer taxes forever. There's no legitimate reason to allow entities to borrow money at near-zero interest rates instead of repatriating retained earnings.


Transfer pricing is an accounting practice that is required by regulations to be computed/stated in many circumstances. Transfer pricing is not on its own an illegal practice as suggested above.


In the UK if an individual gets paid with a loan, then have to repay it within a tax year or otherwise pay tax on it as if it was regular income (disguised remuneration). This has actually been applied retrospectively and drove many people to bankruptcy.

Why this cannot be applied to transfers between companies if they are related?


I’m not sure what you mean. Transfer pricing does happen within a tax year.

A gizmo is 95% assembled in Country A with 50% tax rate. Company wants to sell that 95% gizmo for 10% of the actual price to their subsidiary in Country B with a 5% tax rate. Finish the product there then book 90% of the revenue in the low tax country.

That’s transfer pricing. There are account regulations that define how that price is set. That said it’s hard with IP and other assets with less tangible value.


While it's true that corporate influence over governments may result in subsidies to effectively give a discount - it is less likely than you describe, because the taxation is international.

To illustrate why that is, think about a state like Ireland. So far, Ireland has gotten corporations to be HQ'ed there, or pay taxes there, because the tax rate is only 12.5%. The detriment for Ireland has been minimal, if any, from that corporate presence. It _could_ have gotten more but that's just theoretical.

If this goes into effect, then a corporation will no longer benefit as much from being Ireland-based: It will pay 12.5% corporate income tax annually, but will pay extra in other countries it's active in. Who's going to subsidize the extra 2.5%? Ireland? Technically possible, but it's unlikely for Irish politicians to subsidize the taxes a private corporation pays _elsewhere_. Showering a corporation with money to that extent requires corruption on a whole new level.


It's not like MNCs in Ireland actually pay any tax anyway (various loopholes and agreements provided by the Irish government). To quote from [1] "the revelations shone a fresh spotlight on Irish tax policy that “has been designed precisely to facilitate this kind of avoidance”."

[1] https://www.theguardian.com/world/2021/jun/03/microsoft-iris...


That’s not true at all. Your example is a special situation.

https://www.irishtimes.com/business/economy/top-10-companies...

The top 10 corporate tax payers, including Pfizer, Apple and Intel made up 50% of all corporate tax revenue in Ireland, $6B.

Ireland has 4M people, that means the top 10 companies contribute $1500 for every man woman and child in Ireland. That’s a hell of a deal for the country.


> That’s a hell of a deal for the country.

More of a Faustian deal...


Oh, well, that's worse than I thought, but I think it basically bolsters my argument: A subsidy for them could not even be checked off against their tax contributions to the state's economy.


>> The G7 group of advanced economies has reached a "historic" deal to make multinational companies pay more tax

No, it hasn't. Some finance ministers met and talked:

"Finance ministers meeting in London agreed to battle tax avoidance by making companies pay more in the countries where they do business. They also agreed in principle to a global minimum corporate tax rate of 15% to avoid countries undercutting each other."

I have no idea how it works in other countries, but in the US, finance ministers don't have the power to agree to treaties. Treaties in the US require a super-majority (two thirds) vote in the Senate. Unless Mitch McConnell has signed off on this, the G7 group of advanced economies did not reach a deal on anything. I don't even see the word "Senate" in the entire article.

US Treasury Secretary Janet Yellen can tell reporters whatever she wants. Without buy-in from Republicans in the Senate, finance ministers agreeing "in principle" amounts to finance ministers agreeing that if they had ham, they could make ham and eggs, if they had eggs.


You're referring to the process of finalizing a treaty. That would be conceptually similar to "executing" an agreement between parties—the most important step that makes it legally binding!

But "reaching a deal" and "executing the agreement" are often different steps. When we have discussions with a client, and we negotiate on the terms we can reach an agreement on the negotiation before we actually execute the contract.

After reaching satisfactory terms in the agreement, I need to run the agreement by my business partner and ensure he approves. Sometimes the person who actually signs the contract may be a different party that I've never met or talked with during any part of our discussions.

All of which is to say the language here seems appropriate. The G7 has reached a deal—that doesn't mean the deal is now effective or legally binding. Deals that have been reached can still fall through. But the G7 has reached a deal. What they haven't done is yet made it legally binding through a formal treaty process.


Your analogy is flawed because you seem to be assuming that the people with execution authority are the ones who reached an agreement in principle. You’d expect them to succeed in papering it up.

That’s not the case here. The agreement in principle was reached by someone who has no power to do anything with regards to corporate taxes. Congress sets U.S. tax law and agrees to treaties. To do that, you need 60% or 66% of the Senate. It’s like the CFOs reaching an “agreement in principle” to something that requires Board approval—and a big chunk of the Board is hostile to management.


There are actually many steps. In this case:

1. The finance ministers reach an agreement. This is what has happened.

2. A treaty is written and signed, normally by the head of state, but sometimes by the head of government (for the US in both cases the President). At this point the treaty in not yet legally binding, although according to international law the signatory country has an obligation "to refrain, in good faith, from acts that would defeat the object and the purpose of the treaty."[1]

3. The parliament (for the US the Senate) ratifies the treaty, making it binding.

4. The parliament (House and Senate in the US) creates the necessary national legislation to implement the provisions of the treaty.

5. The government creates the secondary legislation for the application of the national legislation created at 4.

Usually after 2. the other steps follow more or less smoothly, but there are some high profile cases where the ratification never happened (e.g. the Kyoto protocol).

[0] https://treaties.un.org/pages/overview.aspx?path=overview/gl...


> 3. The parliament (for the US the Senate) ratifies the treaty, making it binding.

Under international law, ratification happens when a state’s international representatives (head of state, ministers, ambassadors) formally lodge instruments of ratification with the depositary. (See Article 2(1)(b), Vienna Convention on the Law of Treaties.) When the US Senate "ratifies" a treaty, that is not ratification under international law, that is a domestic legislative procedure which confusingly happens to have the same name.

Under international law, legislatures are not involved in ratification, only the state's international representatives are (which almost universally belong to its executive). Domestic law may require those representatives to consult or seek approval from the legislature, but international law mostly (but not entirely) doesn't care about those requirements.


I would quibble that the name collision of the US Senate's "ratification" power is intentional and not confusing. When the Senate votes to "ratify" a treaty, it is authorizing the US government to perform the international act of ratification.

i.e. US domestic law governs the procedures by which the state can perform the internationally-recognized act of treaty ratification.


To be strict about it, the Senate never votes to ratify a treaty. It votes to give its "advice and consent to the ratification". The actual ratification is done by the Executive not by the Senate. But the Senate's advice and consent is popularly called "ratification" even though it isn't.

And the Senate's consent is not required to ratify a treaty. Ultimately the Executive decides whether to classify something as a "treaty" or an "international agreement". By classifying a treaty as an "international agreement", the Executive is allowed to ratify it without the Senate's consent. Such a ratification without the Senate's consent counts as "ratification" under international law but not under US domestic law. And that's why it is confusing, the meaning of the term "ratification" under US domestic law is a subset of its meaning under international law.


The Senate's consent is required to ratify certain treaties.

It all depends on what the treaty's terms require the government to do. If the terms can be fulfilled by executive power, the executive can sign and ratify on its own (executive agreement). If the terms need the force of congressional legislation to implement, it can be ratified on a regular legislative vote of both houses of congress (executive-legislative agreement).

The ones that require a Senate supermajority are the ones that "legislate" in areas outside of Congress's normal jurisdiction. e.g. the US Congress probably can't pass a law prohibiting states from using the death penalty, but with a 2/3 Senate vote it could sign a treaty banning it.

(Another advantage of going "up" a level is that repealing or withdrawing from a treaty is more difficult the higher you go, generally requiring a similar authority to withdraw as was used to ratify.)


> The ones that require a Senate supermajority are the ones that "legislate" in areas outside of Congress's normal jurisdiction. e.g. the US Congress probably can't pass a law prohibiting states from using the death penalty, but with a 2/3 Senate vote it could sign a treaty banning it.

It isn't clear that is actually true. Yes, the 1920 case of Missouri v. Holland appears to say that treaties ratified by the Senate can bind the states in ways that Acts of Congress cannot, but a number of legal scholars think there is a decent chance that SCOTUS would overturn that precedent if the issue came before it – see for example https://doi.org/10.2307%2F1123464

Suppose that, somehow, Democrats manage to gain control of both the Presidency and a two-thirds majority in the Senate. They then use that majority to ratify the Second Optional Protocol to the International Covenant on Civil and Political Rights, and then argue that the ratification outlawed the death penalty nationwide. A retentionist state goes to SCOTUS to challenge the treaty. If we assume the current conservative SCOTUS, I think a majority would likely overturn Missouri v. Holland and rule that the treaty is unenforceable as beyond the federal government's power. However, I doubt they'd rule that the legislative act of the Senate giving advice and consent, or the executive act of depositing instruments of ratification, was unconstitutional, merely that the treaty was not legally enforceable against the states. It is worth noting such a decision would not invalidate the ratification of the protocol under international law, and the US would still have an international legal obligation to obey it (unless and until they denounced it), even though the federal government would be legally powerless (under US constitutional law) to fulfil that obligation. (See also Medellin v. Texas.)

> The Senate's consent is required to ratify certain treaties.

In legal systems which adopt the dualist approach to international law, the international act of submitting the instruments of ratification of a treaty, and the domestic legislative acts necessary to enforce it, are two different things. Although the second act normally precedes the first, there is no requirement for such an ordering under international law. And I think it is very likely that SCOTUS would consider the executive act of submitting the instruments of ratification for a treaty to be beyond its power to judicially review; SCOTUS will confine its role to deciding what the legal consequences of that act are under domestic law. It may in some cases rule the executive act legally ineffective in creating domestic legal obligations, but in doing so it is not passing judgement on the constitutionality of the executive act itself. Suppose some President decided to ratify a treaty first, and hope to get legislation implementing it through Congress second. A risky move, in that if the legislation cannot be passed, the US could be left with international legal obligations which are impossible under domestic law to fulfil. But I don't see any evidence such a risky act would be either unconstitutional under domestic law or invalid under international law.

> (Another advantage of going "up" a level is that repealing or withdrawing from a treaty is more difficult the higher you go, generally requiring a similar authority to withdraw as was used to ratify.)

The President has unilateral discretion to withdraw from any treaty, irrespective of whether it is a treaty to which the Senate gave advice and consent, a congressional-executive agreement, or a sole executive agreement. So which type is used makes no difference to the President's power to withdraw. That was the effective holding of SCOTUS in the 1979 case of Goldwater v. Carter.

Now, the President does not have unilateral discretion to repeal a congressional-executive agreement insofar as it forms part of domestic US law, and the same may be true of a treaty to which the Senate gives advice and consent. But the President's inability to repeal the domestic legal effects of the treaty doesn't make any difference to the international legal effects of withdrawal – once the withdrawal is completed, it is no longer binding on the US under international law, even if some of its provisions continue to be binding under domestic US law.


International law is very much a gentlemen's agreement, though. It's not like domestic law. Domestic law always wins.


I don't agree that domestic law always wins. It all depends on the situation.

If a country's domestic law violates international law, the extent to which that country gets away with it depends a lot on how powerful that country is. Great powers have much more ability to violate international law with impunity than small countries do.

And in this particular case, it is not that US law and international law are actually in conflict. It is just they assign different meanings to the same words. Even the US government generally accepts the internationally standard meanings in international fora.


Nations are sovereign they can do what they want. Short of going to war its hard to force a country todo something it does not want too. Although if you pull out of agreement don't expect the other country to continue following it.

Also there are other countries not part of this talk nothings stops a company from setting up there and doing the same tax games. So i dont see how this idea does anything


> Nations are sovereign they can do what they want. Short of going to war its hard to force a country todo something it does not want too

In today's world economic pressure is a much bigger factor than war. If you upset enough countries, they can all start imposing trade and financial sanctions on you, which then ruins your economy. International law is a useful (even though of course not always perfect) guide in answering the question "is doing X going to upset a large number of countries?"

> Also there are other countries not part of this talk nothings stops a company from setting up there and doing the same tax games.

Most of these companies are actually headquartered in major economies – US, the EU, etc. What they've been doing is exploiting complex loophole interactions between the tax laws of those major economies and the tax laws of small countries with favourable tax regimes. If the major economies close those loopholes, they can stop most of this. The small countries only get away with it because the major economy tax law loopholes let them. Most of the time, companies don't want to move their actual headquarters to these small countries due to the negative consequences


The major economies are also large sources of these loopholes.


Until 2020, Russian constitution had a provision that international treaties have a priority vs domestic law.


Which is how it should work in principle. Why would parties to an agreement care about each other's internal matters?

Without such a provision you open up to scenarios where a parliament sabotages international treaties by making laws that are in conflict with them.

That's worse than actual official termination of the agreement because the threshold is much lower.


In international law, this is known as monism vs dualism.

Monism says that international law and domestic law form a single cohesive whole. International law automatically applies domestically, and domestic law which contradicts international law is automatically invalid.

Dualism says that international law and domestic law are two independent systems. International law only applies domestically if domestic legislation is passed or amended to make it applicable. Domestic law and international law can contradict each other, and in cases of contradiction the domestic courts will follow the domestic law and ignore international law.

Some legal systems have adopted monism and others dualism. And yet others, like the US, are actually a hybrid – US law is mostly dualist but with a few monist elements.


Yes, I gave a quick overview of the main steps, with minor inaccuracies to keep it simple.

Ratification itself is not required unless the treaty itself requires it. Countries do form agreements with “signed” but not “ratified” treaties. Sometimes even “exchanges of notes” can be binding.


> At this point the treaty in not yet legally binding, although according to international law the signatory country has an obligation "to refrain, in good faith, from acts that would defeat the object and the purpose of the treaty."

International "law" is always entertaining like this: Who enforces this "obligation"?


> The agreement in principle was reached by someone who has no power to do anything with regards to corporate taxes

I think you are considerably understating the power of the G7 finance ministers including the US Secretary of the Treasury. Sure, they can't ratify a treaty without the cooperation of congress. They're still extraordinarily powerful individuals and have loads of direct authority to shape tax policy.


They can certainly shape implementation details not defined by laws, but they can’t create laws or change existing ones.


My analogy is really just a reference to what "reached a deal" colloquially means.

"reached a deal" doesn't mean the deal absolutely 100% will be implemented. It means, the referenced parties have reached an agreement to something.

In this case, the leaders of the G7 countries have reached an agreement among themselves to have a minimum corporate tax rate. Note that the United States has no obligation according to this deal—only Joe Biden has agreed the deal. And Joe Biden has no legal obligation under the deal, he merely has a reputational one.

Since the agreed minimum corporate tax rate is 15%, and the United States corporate tax rate is 21% there's literally nothing Joe Biden needs to do in order to meet the terms of the deal he made with the other G7 leaders.

If they want to turn this into an international treaty, absolutely, GOP Senate votes will be needed (though, given that the treaty would create a floor that's 6 percentage points below our current tax rate, I would imagine those would be attainable votes—if the GOP created a global floor that was lower than our tax rate, they could use it to argue for lowering our corporate tax rate).


Tyler Cowan seems unimpressed:

https://marginalrevolution.com/marginalrevolution/2021/06/th...

More smoke and mirrors perhaps?


It should be more of an alternative minimum tax. The corp ends up paying 0% due to tax write-offs the AMT kicks in and charges 5% or something.


> You're referring to the process of finalizing a treaty. That would be conceptually similar to "executing" an agreement between parties

It's not even that. Most international agreements are executed without a treaty.


> It's not even that. Most international agreements are executed without a treaty.

Only in the US (and possibly a handful of other countries which copy the US approach). Under international law, all legally-binding international agreements are treaties. What the US calls "international agreements" are treaties from the non-US point of view.


Interesting. I would think a treaty requires all parties to it to think it's a treaty. Any idea where I can read a bit more about the fundamentals?

But regardless, not every agreement is ...

> legally-binding

That term has a different, and as I understand, more nebulous meaning under international law?


> I would think a treaty requires all parties to it to think it's a treaty.

Well, even the US agrees that "international agreements" are "treaties" in the international law sense, despite not being "treaties" in the US domestic law sense.

> Any idea where I can read a bit more about the fundamentals

A lot of what I know about this topic I learned from reading the Third Restatement of the Foreign Relations Law of the United States – https://www.ali.org/publications/show/foreign-relations-law-...

Unfortunately it isn't easy to get your hands on. You can buy a hardcopy for US$173 plus shipping. Or you can do what I did, and read it for free in a university library. (It is also included in Westlaw subscriptions, but unless you already have access to one, buying the hardcopy would probably be cheaper.)

The international law on this topic is mostly contained in the Vienna Convention of the Law of Treaties of 1969 – https://legal.un.org/ilc/texts/instruments/english/conventio...

> That term has a different, and as I understand, more nebulous meaning under international law?

The most common way to make an international agreement not legally binding is to put a clause in there explicitly stating that it isn't legally binding. When the agreement explicitly states it isn't legally binding, then it clearcut isn't.

If an agreement is in the usual written form of a finalised formal agreement, it is generally going to be assumed to be legally binding unless it explicitly states it isn't.

Generally speaking, to be binding under international law, the parties have to have "international legal personality". That basically means the parties must be the national governments of sovereign states, or international organizations established by treaty. An agreement involving private corporations, private individuals, subnational governments, non-governmental organisations, etc, generally isn't going to be legally binding under international law, even if it also includes national governments among its parties. Occasionally, dependent territories are granted power by the national government to sign legally binding international treaties on certain topics (such as Hong Kong and Macau), but that is an exception to the general rule.

There are grey areas which lawyers and scholars will debate, but it rarely turns into a live issue in practice.


Much appreciated. I may try to read the Vienna Convention, at least.

Out of curiosity, what makes you so interested? I'm interested, but I'm usually alone in that.


I used to want to be a lawyer. I even applied to law school once but didn't get in. Probably if I kept on trying I would have gotten in eventually but just decided to stick with software engineering instead.


>> After reaching satisfactory terms in the agreement, I need to run the agreement by my business partner and ensure he approves

Do you think Mitch McConnell sees US Treasury Secretary Janet Yellen as his business partner? Or vice versa? That's your perception?

>> The G7 has reached a deal—that doesn't mean the deal is now effective or legally binding

So if I'm negotiating with you and you tell me we have a deal, I should consider that to be something that may or may not happen, may or may not be effective, and may or may not be legally binding?

Which car company do you work for?


Assume we’re going back and forth in negotiations. After a few back and forth a, with small changes each time, I send you over some language and you say: “That’ll work, I’ll draw up a contract and send it over to you”.

At that point, I would tell people internally to my company that we have a deal with that client.

But we don’t count on that revenue arriving, until we have a signed contract in place. Anything can happen between the negotiation and the contract being signed. The client could come back to us and say “there’s been a sudden change in priorities on our end, and we’re cancelling the project”. Or they might come back with any other change that they want “when I sent this to my VP, he said the top line number wouldn’t work, and we need to move it again, I’m so sorry!”

Yes, we don’t consider anything to be legally binding until the contract is signed. We “had a deal”, but deals can fall through.

If you deal in any contract worth more than a few hundred dollars, I really recommend you take the same attitude: everything is provisional until the final agreement is written down and signed.

> Which car company do you work for?

Was that necessary? Really? You can make your point without attempting to attack people.


"everything is provisional until the final agreement is written down and signed"

Here's what I read:

"The G7 group of advanced economies has reached a historic deal to make multinational companies pay more tax"

Is that true?


> > "The G7 group of advanced economies has reached a historic deal to make multinational companies pay more tax"

> Is that true?

Yep! Because a "deal" can be something that is provisional. "Reached a deal" to me doesn't in any way mean that the deal has been executed, finalized and is legally binding. It means the first step of negotiations has been completed and all parties are agreeing to the terms of the deal.

Look, we're just arguing about the semantics of how final "reached a deal" is. I think it's not very final (especially when discussing large multiparty negotiations like the ones described here). You seem to think it refers to an absolutely final step. That's fine! English is messy and we can disagree about what specific phrases mean. I'll just caution you that most of the world will use the phrase "reached a deal" to refer to negotiations that are preliminarily complete, but the terms not having been formally adopted or legally finalized.

For example the "Brexit deal" was "reached" on December 24, 2020 (https://www.cnn.com/2020/12/24/europe/brexit-deal-uk-eu-gbr-...).

The deal wasn't approved by the British parliament until December 30, 2020 (https://news.yahoo.com/uk-parliament-approves-historic-brexi...).

That deal went into effect on January 1, 2021.

However it wasn't "finalized" until it was also ratified by the EU parliament on April 28, 2021 (https://www.france24.com/en/europe/20210428-european-parliam...), nearly 5 months after it had gone into effect!


If I say we had a deal and you say well we did last Tuesday but not now, I know not to make deals with you ever again.


That's totally fair! I don't disagree that people who reach a deal shouldn't change the deal after that point (though the UK government seems to think it's fine).

But, suppose the following events happen:

- we reach a deal on some cool project

- reporters announce that we have a deal on the cool project

- I decide to back out of our agreement and not go forward with the cool project

- reporters announce that I backed out of our agreement

- You condemn me for my treachery, and tell everyone that I'm a backstabbing two-faced used-car dealer

- reporters announce that you have condemned me

The reporters aren't wrong at any step in this! We did have a deal, and it's correct to report on it and correct to say we had a deal. Even if the deal ultimately fell through to my used-car treachery.

I'm not saying people shouldn't hold to the deals that they make (though you seem to think that's my argument, so I must've made my point poorly somewhere along the way). 100% of my point is "reached a deal" doesn't mean it's final, and it's OK and even correct to say that a group of people have reached a deal—even if you don't think that deal is feasible.

Another example: Let's say that I form a deal with 10 investors that I will guarantee them a risk-free 50% annual return on their investment. You would be absolutely correct to say that I was probably lying! You would be correct to say it's clear that malfeasance exists! But you would be wrong to say that we didn't reach that deal. We did reach that deal, even if you think there is a 0% chance that the deal will actually be accomplished in the real world.


Couldn’t you first ask to finalize it in writing?


>> So if I'm negotiating with you and you tell me we have a deal, I should consider that to be something that may or may not happen, may or may not be effective, and may or may not be legally binding?

I hope you don't touch contracts in your job. Until a contract is signed nothing is official.


OK. Until a contract is signed, something is not a "historic" deal, is that right?


There's all sorts of outcomes here. While you may be right that the US will not sign on to the deal it might still have to deal with some consequences. E.g. while Yellen may not have the ability influence US tax laws there are also foreign tax laws that are part of this over which McConnell has no control. Let's say the rest of the G7/G20/OECD changes the way they tax global companies, if the US doesn't ratify their side there's still plenty of real world consequences. I think Yellen's agreement does count as in this is the US's (sort of foreign policy?) position, i.e. the rest of the world can proceed to make changes based on that agreement even though Yellen does not have the authority to commit to changing US tax laws.


>> I think Yellen's agreement does count as in this is the US's (sort of foreign policy?)

No it doesn't work like that.

To get anything done, you need Republican votes. I have no idea, I haven't checked this afternoon, how many Republican votes do you have for a minimum corporate tax?

That's what I want to know, I'm guessing it is zero, but let me know what the number is.


I'm not sure why Canada imposing a tax on Google's revenue in Canada requires US Republican votes? Or what the Republicans would do about it? So seems like we can get a lot of things done without those votes. Most of these companies are US based and they are effectively dodging taxes in other countries, it's not the US tax laws that impact those for the most part.


There's a term, G7, what are the 7?


This isn't set in stone, and indeed was G8 a few years ago.


Indeed. Luckily, “the world” ≠ ”the US”.


> To get anything done, you need Republican votes.

This seems to be the kind of financial thing that fits right into reconciliation, which means you don't need Republican votes.


Isn't ratifying a treaty something completely different?


If they want to make this a formal treaty, yes.

But it could be an informal agreement between the leaders of these countries, that they will all pass such laws. In that case, passing a law that changes the corporate tax rate would fit into a reconciliation package with no issues.

Though, if it’s an informal agreement then no such law even needs to be passed, since our corporate tax rate is above the agreed minimum.


Offhand, does someone know which countries that belong to the G7 and made this "historic agreement" have higher tax rates than that agreed upon?

Edit In an alternate universe I wish the title was"G7 agrees to carbon tax" that would certainly level the playing field...I mean surely intrinsically FANG's are highly carbon intensive if you took into account the pollution they help generate through added energy usage (delivery trucks every day, lots of packaging, server farms etc) and the highly paid jobs which fuel inflation, consumption and speculation...(p.s. please don't feel ruffled)


> Isn't ratifying a treaty something completely different?

Sure, but there is a distinction between treaties in international law and those under the Constitution; by far the most common way for treaties in the international law sense to be adopted in tbe US in the last several decades is as Congressional-executive agreements, which are, procedurally, either normal legislation submitted after an executive-negotiated agreement or an executive-negotiated agreement under authority granted by normal legislation.


Reconciliation requires no Republican votes.

https://www.brookings.edu/blog/up-front/2021/02/05/what-is-r...


You think the Constitutional right of Congress "To lay and collect Taxes, Duties, Imposts and Excises" can be wiped out with reconciliation?


To be clear, Constitutionally the United States Senate only needs a majority to pass a law that changes the Taxes collected from corporations.

The Senate Filibuster which requires a 60-vote majority is not a Constitutional provision, and you wouldn't strictly need a Treaty for this agreement, if all the countries simply adopted the same tax provisions.

So, if the Democrats had the vote for it, they could pass this law with 0 Republican votes. In fact, since raising taxes is a budgetary measure, they could absolutely pass the corporate tax increase on reconciliation and do it with 0 Republican votes and without touching the filibuster. So, it seems quite plausible to me that this will happen.


Reconciliation is a process within Congress by which the Senate does not impose its not-Constitutionally-required supermajority requirement to certain budget-impacting measures.

So, no, its use doesn’t bypass Constitutional powers (not rights, which are not attributes of government bodies) of Congress, it is a means by which Congress has chosen to exercise them.


You are not going to ratify a treaty with the required 2/3 votes in the Senate via reconciliation.


You don't need to ratify a treaty through reconciliation. There's no need for this to be done with a formal treaty. It could simply be each of the nations passing laws that do the same thing.

If the Senate passes a law that changes the corporate tax rate to a certain amount, that is a budgetary measure that could absolutely be passed with reconciliation.

Yes, this law wouldn't be a treaty, but it could have a similar effect.


> If the Senate passes a law that changes the corporate tax rate to a certain amount, that is a budgetary measure that could absolutely be passed with reconciliation.

If it was revenue-neutral, sure. That is unlikely to be the case with changes to corporate tax rates. And even then, you are going to have a hard time getting even 50 votes.


> If it was revenue-neutral, sure.

No, revenue-neutrality doesn't weigh in favor of being eligible for reconciliation; a measure must principally address either spending, revenue, or the debt limit to be eligible for that process.


That’s an incorrect description of the budget reconciliation process.

One of the budget reconciliation categories is explicitly for revenue, which means being revenue-neutral would make it harder to pass under reconciliation.

Being an aspect that explicitly impacts revenue makes it much easier to pass under the revenue reconciliation process. In fact, adjusting those rates would be a pretty straight-down-the-middle use of reconciliation.

https://en.m.wikipedia.org/wiki/Reconciliation_(United_State...


> You are not going to ratify a treaty with the required 2/3 votes in the Senate via reconciliation

Which is among the reasons this won’t technically be a treaty in US law (even if it is in international law), but a Congressional-executive agreement [0].

[0] https://legal-dictionary.thefreedictionary.com/Congressional...


Though if it is sold as a missile against big tech...


The US corporate tax rate is 21%, above the 15% minimum that was proposed. Furthermore, it was the Trump administration who introduced GILTI and BEAT, both measures aimed at taxing foreign profits in low wage and low tax countries. Now, of course, republicans are probably loathe to give the White House any "wins", so that might throw a spanner in the works, but republicans don't have any love for tax havens.


An agreement can be reached without a treaty. But that's not even super relevant here.

The US doesn't need to change any laws to meet this agreement. We already tax our corporations more than 15%. What the US wants is for other countries to tax that much, to discourage our own multinationals from booking revenue outside the US to avoid US tax. The EU wants companies to book revenue where they make it, which they can do all on their own. They don't need the US for that.

And what makes you think the GOP wouldn't support this? It would give them cover to lower the tax rate to 15% from 21% to "be in line with the rest of the G7". Also, if our multinationals can't avoid tax anymore, there is a good chance they would just book their revenue here in the US, leading to more revenue for the US and less for Europe.


The agreement changes the way a company revenue is recognized and allocated between jurisdictions. I suspect it may require to change the tax treaties between those countries. It's not just changing the corporate tax rate.


From what I can tell with what's out there on there internet, the main change is allowing local jurisdictions to tax a company on the money they make in that country, even if they have no presence there.

So again, it would just increase revenue for the US, and I see no reason they wouldn't agree to it.

At the end of the day, I don't think the US had to compromise here. I think it's universally better for the US government, just not US based companies, but it gives the GOP enough air cover to agree to it anyway.

It mostly benefits the European countries that are missing their tax revenue.


It will also massively increase the complexity of doing taxes for smaller businesses. It wouldn't surprise me if it lead to even more websites going "sorry, we value customers from your country, but we cannot serve this content to you".

Imagine running a small business and somebody from Algeria wishes to purchase your software. Is the $5 you make worth having to file Algerian taxes?

I mention this, because this is something that happened with YouTube this month. Content creators have to give their tax info to YouTube because the US is now charging taxes from creators outside the US on money they made on US customers.

Edit: as was pointed out - there's a minimum $10 million threshold. That makes it far more reasonable.


Part of the agreement is that you have to have $10M in profit in that country before the rules apply.

So that would never happen. You’d have to make a ton of money there before you have to file taxes. And it’ll be worth it by then.


Ah, I missed that part. You're right in that case! I'm just so used to the EU coming up with new rules without reasonable exemptions that I assumed the same here.

It's my mistake!


> you have to have $10M in profit

Sorry, I missed where this was mentioned in the article. Can you supply a link to the reference if it is not in the article?

I did see the following quote:

> The rules on making multinationals pay taxes where they operate - known as "pillar one" of the agreement - would apply to global companies with at least a 10% profit margin.

which is not equivalent to your comment.


"Every journey of a 1000 miles begins with 1 step"

Maybe we should laude and celebrate that at least loads of effort was put into getting all the G7 finance ministers in one place and actually have a discussion + agree to a next step?

Feels unnecessary negative and very arm chair criticism to just hand wave the whole endeavour and say "oh nothing was done and all they did was talk".

I sometimes think people in the last decade are to quick to find faults for every little thing that falls short of a 100% effort (and even that gets criticism) without even considering that they are not the men-in-the-arena [1] doing the hard work.

----

[1] Whenever I think of criticizing something/someone, I always consider Theodore Roosevelt comment on this sort of behaviour where he once said:

"It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat."


You saying all politicians, even the aweful ones, should get participation awards, while us plebs should just know our place and shut up?


> Feels unnecessary negative and very arm chair criticism to just hand wave the whole endeavour and say "oh nothing was done and all they did was talk"

They don't have the authority to negotiate the agreements that were described in the headlines as already being made.

That's called bullshit. Doesn't matter which side politically you are on, it's bullshit. Why is the BBC printing bullshit?

They don't have that authority, the BBC is lying to you, why are they doing that?


No, as has been pointed out to you - multiple times - reaching a deal is not equivalent to a contract.

The fact that your experience tells you that "deal equals contract" is strange.

In my experience I have had plenty of "deals" not materialise for one reason or another.

To extrapolate that the BBC is printing bullshit is basically to say that if you have not experienced something, then it is worthless.

The BBC is not lying. You are being shrill for no good reason and are relying on and extrapolating from your limited experience of deals.


No, as has been pointed out to you - multiple times - reaching a deal is not equivalent to a deal being legal.

> The BBC is not lying

No, just the status quo BBC propaganda. Let's review some quotes.

> the arrival of the Biden administration in the US, created a moment of opportunity.

> A minimum corporation tax rate of 15% is rather low

> European finance ministers succeeded in including the phrase "at least 15%", which offers a path to get that number higher.

> Tech firms say they welcomed the move.

> A process has begun, a precedent has been set. It may or may not end up being transformative, but this moment is historic.

This last quote is the BBC admitting to painting this as if it was a contract being signed.

Let's continue.

> more tax revenue would be raised from large multinationals and would help pay for public services.

Only public services? Not military? Salaries? Government contracts? etc., etc.? Well, this IS historic!

> Ms Yellen said there was an understanding that national digital services taxes such as those levied by the UK and EU countries would be scrapped and replaced by the new agreement. Such taxes are regarded by the US as unfairly targeting American technology giants.

So, the tech giants get a new tax standard that benefits them over the existing standard?? Funny, this really does go along with the previous quote:

> Tech firms say they welcomed the move.

And here is another interesting quote to focus on:

> Paolo Gentiloni, the EU commissioner for the economy, described Saturday's agreement as a "big step... towards an unprecedented global agreement on tax reform"

It sets a precedence that nothing about what is being done could even be remotely criticized except for it possibly not being enough.

It's laughable. How anyone does not see this as North Korean Kim Dynasty style propaganda is beyond redemption and likely has a double digit IQ.

Then the article ends with three quotes from Amazon, FB, and Google.

Gee, I wonder who sponsored this article (and possibly helped coordinate this meeting).

It couldn't be techopolies trying to cozy up with existing government officials in the hopes of securing an agreement that is mutually beneficial for everyone.

But, paying more money is never beneficial for a company. So, game-theoretically, and thus purely mathematically-speaking: what benefit could these tech companies be receiving from this new arrangement?

Hmm ... surely, in our modern crony capitalist system, it wouldn't be anything corrupt in nature?


Classic HN, two downvotes and no one is capable of providing a counter-argument. The unintelligent flourish far too easily here. They should have more demanded of them. There are no clear incentives to not just throw a punch and run away like a coward on this site.

I was under the impression that "agreed upon" for international diplomacy was regularly used before ratification by any national government or parliament, because that is usually the required first step. It might still fail later on before becoming law.

I think it is the same for national things as well, e.g., two government parties in a coalition "agreeing" to make a law, even though it was an out-of-parliament discussion and has not been voted on in parliament and might never make it that far.


> Treaties in the US require a super-majority (two thirds) vote in the Senate.

That's misleading, because what are called “treaties” in international law include more than what are called “treaties” in US domestic law, but also “Congressional-executive agreements” and some (but, IIRC, not all) “sole executive agreements.”

Virtually all “treaties” in the international sense that have come into force in US law in recent decades have been Congressional-executive agreements.


Except it doesn't require the status of a treaty for the United States. Since the current corporate tax rate in the US is above the 15% agreed upon, it doesn't really matter if the senate signs on the deal or not. And the senate has little reason, even as republican-majority, not to when it's mostly a deal restricting small countries for offering tax rate too low.


Not every international agreement is a treaty. You're right, though; this is merely an agreement in principle and has no force whatsoever. That doesn't mean it won't lead to actual legal changes, but this article is misleading.


> this is merely an agreement in principle and has no force whatsoever

You mean that it's unenforceable in a court, but that doesn't mean at all that it lacks force:

Court enforcement isn't the the only force. If your boss, client, spouse, etc. pressures you to do something, it can't be enforced in a court, but it can have great force. We all are subject to great social pressure in our behavior, conduct, life choices, etc. - we all generally speak the same language, dress the same, follow the same life and career paths, avoid socially unacceptable things (even those that are unfairly discriminated against), etc. HN mods have great influence here, even though they have no means of court enforcement (in any practical sense).

International relations in particular has no law, in the sense of a court that can make enforceable decisions. In a sovereign legal sense, it's anarchy. There is no international sovereign government (the UN is a conference of sovereign governments). But obviously a great deal is done which has real force. It's actually very interesting to see the creative ways in which 'international law' (again, not the same as a sovereign government's law) is crafted, given that very significant constraint, in order to give it force and effectiveness. Note that the G7 is exceptionally influential despite having no legal power - why do you think these very powerful, busy people are spending their time there?

The President controls the Executive Branch of the U.S. government. Their decisions have great legal force. Politically, those decisions mostly carry forward to future presidents.


The executive is allowed to make executive agreements without consent of congress.


In the US, executive orders cannot change tax law, since the "power of the purse" is constitutionally reserved for congress.

If you're thinking of the Iran nuclear deal, that's head-of-state stuff where the president is considered to have more powers (though of course it still was never a treaty, so could be/was scrapped easily by the next administration).


They can make all the agreements they want, but it's not a legal treaty until 2/3 of the Senate agrees, and even then, this stuff requires that laws be passed -- many laws affecting jurisdiction, accounting standards, and the tax laws themselves. None of this can be done with an executive agreement.


> They can make all the agreements they want, but it's not a legal treaty until 2/3 of the Senate agrees

That's not true under international law. The confusing thing here is that "treaty" means different things under international law and US law.

Under international law, any legally binding agreement between two countries is a treaty.

Under US law, there are three types of agreements between the US and foreign states (or international organizations): treaties, congressional-executive agreements, and sole executive agreements. The first are approved by two-thirds vote in the Senate, the second by an ordinary Act of Congress, the third by the President acting alone (without Congressional involvement.) But all these three are considered equally to be treaties under international law. The distinction between the three is purely a US domestic law distinction. Article 46 of the Vienna Convention on the Law of Treaties says that domestic law does not determine the validity of treaties under international law unless the violation is manifest, which means that for most purposes the rest of the world can just ignore this US-internal distinction.

The authority to ratify treaties, in the international law sense of "ratify" and "treaties", solely belongs to the President (and the Secretary of State, and ambassadors, acting on the President's behalf). When the US constitution speaks of "ratifying" a treaty by the Senate, that is not ratification under international law. That's actually a domestic US legislative procedure which confusingly happens to have the same name.

> many laws affecting jurisdiction, accounting standards, and the tax laws themselves. None of this can be done with an executive agreement.

In practice this will likely be done by an ordinary Act of Congress (a "congressional-executive agreement") which only requires an ordinary (not two-thirds) vote in the Senate.

However, one needs to understand that ratifying a treaty under international law, and passing domestic legislation to implement it, are independent things. Under international law, the President or Secretary of State can legally submit the instrument of ratification for the treaty even if Congress hasn't passed any implementing legislation. International law doesn't care about implementation legislation, that's a domestic law concern. Now in practice the President or Secretary of State wouldn't do that, because that is not the traditional practice of the US. But other countries in the world do sometimes ratify treaties before the implementing legislation is passed. That generally happens in systems – whether Westminster democracies or non-democracies – in which the executive can be confident they'll get the implementing legislation passed.


And those executive agreements have no binding legal force, and can be broken by the next executive (or even the same executive who made them) on a whim. See, for example, the Iran deal and the Paris climate deal.


I agree with your main point but I wouldn't say executive orders lack binding legal force. They derive binding legal force from congress or the constitution first telling the executive branch "you go figure out the details here."

Foreign policy.

The SEC.

Heck, the emancipation proclamation was an executive order. Everyone knew Lincoln and his contemporaries wanted to abolish slavery, but Lincoln was absurdly careful at the time to frame the proclamation as a wartime measure aimed at crippling the south's economy. He went out of his way to appeal to existing commander-in-chief powers in order to make it lawful.


Yes it has. Several other comments have pointed out 'reaching a deal' vs. 'it has been enacted everywhere'; I'll just add that it's not at all novel language, e.g. Brexit saw the UK & EU reaching deals before (or without ever) enacting them.


> in the US, finance ministers don't have the power to agree to treaties

The U.S. Secretary of the Treasury speaks for the President; it's a fundamental dynamic of organizations. Otherwise, effectively Yellen wouldn't be Treasury Secretary - Yellen would be powerless and meaningless - and would resign or be fired. Only Trump seemed to ignore this and undermine the people under him. Also, I expect that the Treasury Secretary has great legal authority to make binding decisions for the U.S. government; remember that the American people decided the cabinet members would be separately confirmed by Congress (i.e., the Senate), per the Constitution.

Similarly, if the CFO of Apple makes an agreement, the counter-party assumes they speak for CEO Tim Cook. Otherwise, why talk to this person?

> Treaties in the US require a super-majority (two thirds) vote in the Senate.

Most international agreements are not treaties. The people of the U.S. delegate the power to conduct foreign affairs almost exclusively to the President, again in the Constitution. Only certain actions, such as treaties, require Congressional approval.


Here's what it says in the Constitution:

"The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises"

Crystal clear.


There is far more to U.S. government than the Constitution, which is only a framework. There are an enormous body of law, court precedents, institutional customs, federalized government, and of course public opinion.

Among that body of law are existing tax rates, which are currently over 15% for corporations. Under the Constitution, the President must agree to changes in tax rates unless their veto is overridden.

You're right that Congress theoretically could violate the agreement, but in practice, it's almost irrelevant. They could theoretically pass a bill tomorrow that eliminates every tax and every law in the U.S.


No.

The United States Constitution is not "only a framework".


Could you provide something to backup your statement?

As further examples of my point, beyond the laws, legal precedents, customs, and institutions mentioned above: None of the executive branch departments (State, Justice, Defense, Treasury, etc.) are mentioned in the Constitution. No federal court besides the Supreme Court is mentioned. Even specific laws are only loosely defined; for freedom of speech, no provision is made for slander, fraud, harassment, government secrets, etc.; for the right to bear arms, nothing defines what 'arms' are (and I don't suggest we try to define them here). The filibuster and other Congressional rules are not defined. Etc.


Exactly Zero of anything you have just said negates the point that was made.

Let's reiterate:

> Here's what it says in the Constitution:

> "The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises"

> Crystal clear.

Anything that is not explicitly defined in the Constitution is certainly left up to the interpretation and decisions (within their constitutional authorizations) of the three branches of government.

However, anything that is explicit in the constitution cannot be overturned without a constitutional amendment.

Hopefully that clears things up for you.


> Exactly Zero

Based on experience in Internet forums, I believe we either need to be in a 'curious state' or the conversation isn't worthwhile - in fact, it's a negative - and I think when someone says 'Exactly Zero' of my comment has value, they aren't curious.

dang describes a 'curious state' very well:

https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que...


You're good with getting rid of the filibuster then?


The Queen of England has the power to declare war, but we shouldn't expect her to use it unilaterally.


> They also agreed in principle to a global minimum corporate tax rate of 15% to avoid countries undercutting each other.

Why? If a country can be more efficient, why must they be penalized by being required to raise taxes? This is the equivalent of a price floor. Why should a country be required to have higher taxes to appease those that make different policy decisions? It should be up to the government (voters) what tax rates work for their country. Why wouldn’t a tax rate ceiling be proposed instead? Why should Ireland raise taxes just because France wants to run huge healthcare deficits or offer extremely generous train worker pensions? Seems like decisions on tax rates should be left to the country. If a country wants a 50% tax rate, that’s their business. If they are economically harmed by someone else having a 10% rate, then the problem isn’t that someone else has a lower cost but that they have too high a cost.

As far as the 2/3 rule for US treaties, that’s a good thing. That ensures that treaties are good for the entire country rather than just a simple majority. I don’t want 51% being able to ignore 49%. If Republicans were in power and proposed a maximum tax rate treaty, those complaining about the 2/3 rule would be singing a different tune. The Constitution was designed specifically to ensure that a narrow majority isn’t able to run roughshod over everyone else. Gridlock is a feature, not a bug. And that feature benefits everyone at different times.


Ireland is part of the EU, so how it taxes corporations is something it has to negotiate with the rest of the EU. That is its problem, not something the G7 care about. Ireland has attracted investment and revenue by undercutting other nations, while providing access to the EU. Not surprisingly, the rest of the EU is not happy about that.

No one is denying nations the right to set their own tax rates for corporations. What has happened here is that a number of nations have come together, negotiated, and agreed that they will each set their lowest rate at 15%.

The reason for that is deliberately to stop countries undercutting each other. They have all agreed that undercutting each other has lead to consequences that have affected them all equally in a "race to the bottom" and of corporate tax avoidance.

> If they are economically harmed by someone else having a 10% rate...

The G7 nations have agreed that they don't want to be economically harmed. Their agreement is to pass laws in each of their environments to stop that. They've also agreed that each of them can tax the profits made locally to them. They agreed to limit that to a maximum of 20% of the corporate's global profits.

As for the 2/3rds rule for US treaties, that's because the Senate, representing the States (not the people), is given a "check" over the President unilaterally making treaties, as far as the United States is concerned, because treaties made in this way are considered equal in power to the Constitution. Each treaty is effectively an amendment to the US Constitution.

So it's not about 51 vs 49%, it's about 2/3rds of the US states, as represented in the Senate, agreeing with a treaty.


Evidently you know little or nothing about the EU. Taxation by member states of the EU is a sovereign national competence and the Irish have both a veto over change and a likely requirement to hold a national referendum over any change.

If you do some research you'll find that there is zero evidence of any EU countries shifting profits to Ireland. Almost all of the profit shifting which Ireland is blamed for facilitating is undertaken by a handful of US MNCs enriching their shareholders at the expense of US taxpayers via mechanisms enabled first and foremost by the US govt

https://economic-incentives.blogspot.com/2018/06/who-shifts-...

I recommend spending some time reading https://irisheconomy.ie


Yeah, it is merely a high level blueprint for the actual treaty. There should be lots of details to be hashed out coming months (or years).


The US corporate tax rate is already 21%. Agreeing to "at least 15%" should not be a tough sell.


They print the money, though! They can force businesses to denominate in dollars, inflate the dollar to construct a 15% tax, and make up the difference for individuals through transfer payments and UBI.

I’m making a rhetorical point here, but this isn’t as far fetched as it might sound at first. When you look at the numbers coming out of the fed, it’s pretty clear who is calling the shots and it’s not the Congress.


I do wonder if we wouldn't be better off eliminating corporation tax entirely.

The revenue of a corporation can, roughly, be:

1. Spent on goods or services from another company (including freelancers, contractors, etc.)

2. Spent on rent

3. Spent on capital purchases

4. Spent on wages

5. Spent on debt repayment or other forms of financing

6. Paid out in dividends

7. Spent on share buybacks

8. Invested in something else

Items 1-5 are all good things that we want companies to do, and corporation tax is normally applied after this spending is accounted for. Items 6 and 7 ought to be taxed, and frequently are (dividends and buybacks create income for individuals who will pay tax on that income). Item 8 is a bit vaguer, but probably shouldn't be taxed in most cases (if we're worried about companies parking cash in very low-risk assets, then super-low yields are effectively a tax on that anyway).

All that the corporation tax adds to this picture is the creation of work in tax avoidance services, and an unjust inequality between those firms that can afford those services and are structured to take advantage of the rules, and those that can not and are not.

It's not obvious to me that corporation tax /can/ be fixed, and so it may be better simply to scrap it and replace it with something more difficult to dodge.

EDIT: formatting


If you’re going down this route, many will argue that all forms of income tax are equally “wrong”.

Henry George - a 19th century political economist - proposed exactly this, and suggested the only thing that should be taxed should be land: impossible to hide from a tax inspector, potentially a waste to the public commons if useful land that could be exploited isn’t and you can even protect land you wish to keep pristine more easily (tax it very, very highly).

His ideas are now considered eccentric, but I do wonder if the World would be a great deal simpler if globally we moved to a Henry George system and stopped trying to tax sales, income and everything else going we do.


> Henry George - a 19th century political economist - proposed exactly this, and suggested the only thing that should be taxed should be land

That may have made sense in the 19th century when agriculture dominated the economy, but it’s irrelevant today.

At scale it becomes a tax on how space-inefficient your business is. Bad news for farmers, great news for the business running a 1000-person operation out of a skyscraper. You could of course start trying to change taxation rates based on various factors to compensate, but those factors reduce to proxies for revenue, which puts us back to square one.

19th venture taxation theories don’t translate to modern multinational trade with digital commerce.


Land taxes are based on the value of the land, not the size of the land. The property tax system already performs land value assessments.

Land taxes are highly progressive.

Note that land taxes are only assessed on the value of the land, not the value of any buildings on the land. This incentivizes land owners to put the land to its highest and best use.


> Note that land taxes are only assessed on the value of the land, not the value of any buildings on the land. This incentivizes land owners to put the land to its highest and best use.

Doesn't it incentivize them to put land to the use that generates the most revenue? I don't see how that is necessarily the "best" use.

There will almost always be a way that a yard or garden could make more revenue, for example, such as by letting a bunch of advertisers put up billboards on it or letting someone use it for storage.

Is it really best to make it so that only the wealthy can afford to use land in a way that they enjoy rather than as an asset to be exploited for maximal revenue?


Do you think that's a problem with existing property taxes?

The main difference between property and land tax is that with a land tax, the structure isn't taxed. So you can build up "for free" wrt taxes, which encourages more density on the most valuable land.

E.g. land in the middle of downtown San Francisco that's currently rented out as a flat parking lot, could instead be built up into multi level parking or housing instead. Whereas the current tax structure would punish such developments by increasing the tax (which is why it's still a flat parking lot).


San Francisco is an interesting case cause they used to have a land tax and economists argued that's what cause San Fran to be quickly rebuilt after it was burned to the ground in 1906. Land owners were still taxed the same, even though their building was gone. They'd have to either sell or rebuild.

Contrast that with New Orleans after Hurricane Katrina. Property owners had their buildings destroyed, so taxes went to zero (taxes based on the property value, not the land value). This incentivized property owners to wait and see if their neighbors would rebuild rather than take immediate action.


> San Francisco is an interesting case cause they used to have a land tax

Property taxes on land aren't unique to San Francisco. It's basically standard practice in most cities to have one tax for property and one tax for improvements.

> Contrast that with New Orleans after Hurricane Katrina. Property owners had their buildings destroyed, so taxes went to zero (taxes based on the property value, not the land value)

New Orleans has separate property taxes on land and structures, so property taxes did not go to $0 after Katrina.

Overall property tax rates went up because income from taxes on structures went down, but unimproved lots still get a tax bill.


Are there any places outside of PA that do this in modern times?


That's works only if you're an investor. You're going to rebuild your home immediately, finance optimizations be damned.


But that's not what happened. People didn't rebuild their homes, they left and never came back.


As a consequence of the tax, or because of the risk of rebuilding in a flood zone?


Most serious study on this suggests it would have the opposite effect: make it harder for the wealthy to horde land in the form of low density residences in prime locations where townhomes and apartments would be a much better economic outcome enabling many more people to live affordably in close proximity to their jobs.


I don't buy that. If there's one party benefitting from such tax, it's big players who can afford tighter margins. It's a play that mostly favours monopolists, who can also afford to have "serious studies" made.


> Land taxes are highly progressive.

Maybe in the 19th century, where this idea originated. Economics of business have changed too significantly to use it as a one size fits all taxation scheme.

It may have made sense when revenue was somewhat proportional to the amount of land a business occupied, but that no longer holds true in the age of skyscrapers and digital revenue generation.

An internet company in a 10-story building would love this scheme, though, because they could generate billions in revenue but be taxed at the same rate as a local neighborhood of people who owned their homes for a few decades.

Land-only taxes may have been an interesting idea in the 19th century, but they aren’t relevant to a modern economy.


>>An internet company in a 10-story building would love this scheme, though, because they could generate billions in revenue but be taxed at the same rate as a local neighborhood of people who owned their homes for a few decades.

That's irrelevant, because the ultimate owners of the corporation - the shareholders - will always be in demand of land. Real estate explains most of the growth in wealth inequality in the US over the last 60 years:

https://medium.com/the-ferenstein-wire/a-26-year-old-mit-gra...


yes but the majority of wealthy people would be satisfied with few million of real estate for personal use. RE investing would drastically change if incentives change


Fair point. I'd be satisfied nonetheless, because the land-ownership component of real estate investment is rent-seeking, that gains the holder value without generating value for society at large. If investment was redirected from land buying to purchasing other types of assets, it would lead to the production of more value in the economy, as unlike land, most asset classes involve man-made resources in which rising demand leads to rising production.

For example, if fewer wealthy individuals bought sprawling estates, and more bought high-rise apartments, we'd see more production of the latter, which would increase housing concentrations in high-productivity urban areas, and in doing so, apply downward pressure on rental rates in areas which offer the most economic opportunities.


The presence of skyscrapers indicates a strong economic region, which makes the value of the underlying land orders of magnitude more valuable - the taxes would increase under LVT. Not sure if enough to account for the discrepancy in productivity, however.


> Land-only taxes may have been an interesting idea in the 19th century, but they aren’t relevant to a modern economy.

This is basically saying real estate isn't relevant to a modern economy for tax policy. Broadly true in 19th century United Kingdom in the midst of the Industrial Revolution [1]. Disputed by many millionaires today in the US [2]. Another way to track the relative weighting of land in wealthy portfolios is by aggregate measures.

The wealth of the US 1% grew 2.22X from 2005-2020 [3]. During the same period, the value of land held by the US 1% grew from $3,176,274 million to $4,607,729 million, 1.45X [4]. Not a proportional tracking of wealth increase, but I wouldn't call it "not relevant"; this is hardly rounding error territory where I would dismiss it for tax policy purposes. The sample period is also during an ahistorical secular trend when held across decades when securities were and are quite strong compared to real estate assets, so I don't know what a broader and more granular analysis would reveal, but my cursory glance across a one-generation span would make me hesitate to strongly take the "aren't relevant to a modern economy" position with our current set of policies.

The global urban real estate market so severely punishing younger generations for so long with such high prices relative to income and income precarity indicates some severe secular rent-seeking / gatekeeping taking place at an ahistorically wide scale, scope and duration. I have no dog in that hunt; I was purely lucky by timing to not live in that cohort, but I share their hostility to the status quo. If you favor the "modern economy making real estate not relevant" position, then tax, monetary, finance, social and industrial policies like LVT (though LVT is not without its challenges [5] [6]) that disincentivize such rent-seeking and favor a more efficient allocation of limited capital away from real estate towards such modern industries would be welcome, to the point that aggregate measures show little to no correlation between wealth concentration and real estate instead of our current situation.

I'm personally in favor of more metropolitan transit authorities consciously and deliberately using public transportation corridors as part and parcel of an explicit industrial policy that drives down residential costs over time. Residential development is planned more along Singaporean public housing lines with a goal of ever-decreasing DTI ratios (possible with more modern construction techniques like Lstiburek'ean Perfect Walls and Passive Net Zero in structures that last centuries, and co-operative financial organizational structures), than open market operations in the US. This doesn't have to come at the expense of open market operations; they're free to syndicate their own transit networks and monetize those networks. I'm advocating the free market advocates in US real estate becoming even stronger in the global market by practicing true free markets instead of relying upon the crutches of publicly-funded infrastructure to break the capital ground in front of them.

[1] https://www.hbs.edu/ris/Publication%20Files/Land_e202c898-eb...

[2] https://www.cnbc.com/2019/10/01/real-estate-is-still-the-bes...

[3] https://www.federalreserve.gov/releases/z1/dataviz/dfa/distr...

[4] https://fred.stlouisfed.org/series/WFRBLT01002

[5] https://www.lincolninst.edu/publications/articles/land-value...

[6] https://www.lincolninst.edu/sites/default/files/pubfiles/ass...


How much land does Google use vs the most successful farmer in a given county?

What’s the value of the land that Google uses?


Urban office land is easily more expensive.

I say the land value tax (LVT) is best grouped with Pigouvian taxes; as PP says, normal property tax relatively incentivizes holding undeveloped land, which is like charging a higher carbon tax if your car has a better MPG.

One one hand, we can also do a VAT in developed countries --- perhaps more feasible than in the 19th century and making more sense if we are no longer rapidly developing and reliant on private investment to foster those changes --- on the other hand in big closed economies we can also just print money quite safely, so Henry George is quite right to focus Pigouvian taxes when "taxation for the revenue" is far less important than curbing bad material outcomes.

(I only suggest VAT with a UBI to make it no longer regressive.)


The value of the land that Google uses is tremendous because the Google offices are located on it!


But an LVT isn’t a tax on the infrastructure it is a tax on the value of the underlying land.


It's the proximity to Google's economic activity that makes the land valuable. A plot of land right next to the Googleplex that has nothing on it is immensely more valuable than an equally sized plot of land in the middle of the Nevada desert.


Sure this is true, but this also one of things Georgism seeks fix (land speculation.) A georgist LVT appraises land based on the intrinsic value of the resources it contains and not what is build on it. In fact it seeks to fix “land hoarding” to incentivize productive land. Under a proper LVT it would be really expensive for e.g. one person to own 100 acres of land they aren’t utilizing to it’s true economic potential.


Google owns more than $50B of real estate...


It’s bad news for farmers that are farming in the middle of a city, yes. But farms in rural areas will hardly get taxed at all, because the land couldn’t be used for much else, so has very little intrinsic value.

Land value taxes adjust based on how desirable a plot is: basically, you get to keep any value you generate above and beyond the value the society surrounding the land gave it. If you leave a plot of land empty in downtown, you’re preventing someone else from using that plot productively, and adding a net negative cost to the surrounding properties. So you should be taxed accordingly.


I’m wondering how this is supposed to interact with zoning? There is a lot of agriculturally-zoned land in California that would turn into housing developments pretty quick if it weren’t illegal. It’s typically in a nice-looking area near some water or a park, not in the middle of a city.

If you keep the zoning then maybe the land isn’t worth that much, but if property taxes were based on the “true” land value then it would mean farmers sell out faster to create sprawl.


Agricultural-zoned land would be cheaper.

I would rip up urban zoning with an LVT to ensure density, but keep the agricultural zoning because we can't eat skyscrapers.


There is no actual tradeoff between availability of food and availability of skyscrapers. Even if we actively tried, we couldn’t run out of agricultural land in the US by building on it.


The only reasonable way to account for zoning would be to require the zoning board to actually buy the property and pay the associated taxes. Then they can lease out their own property with whatever restrictions they want. Without the benefit of subsidies or eminent domain, naturally—if they want to expand their reach they'll need to raise that money through the revenues from leases (less income tax and other overhead), with restrictive zoning rules limiting their revenues.

>Bad news for farmers, great news for the business running a 1000-person operation out of a skyscraper.

Not especially. The skyscraper land is probably 10000x more valuable per square foot so the tax will be 100x higher.

If you assume every square foot is taxed the same then you've kind of missed the point of a land value tax.

It won't fix the inherent problems with intellectual property though.


Tax intellectual property too then.

This would also help push back against ridiculous patents and eternal copyright.


This would prevent me, an individual inventor of (I'll claim) non-ridiculous inventions, from monetizing my efforts. The monetary barriers to patent protection and enforcement are already significant to me. I can't be the only one in this circumstance.

Eternal copyright, however - yes, sucks.


Taxation of your intellectual property rights would cause you to seek out the best use of those rights.

If you have a good idea and patent it, then taxation of that patent right would force you to license it or lose your monopoly protection granted by the government.

If you have a good expression of an idea and copyright it, then taxation of that copyright would force you to license it or lose your monopoly protection granted by the government.

Either way, you are still granted the IPRs, on a "pay for it" basis that captures some of that value back.


The deadweight loss of taxation is much lower for a land tax than an income tax. The deadweight loss is the economic resources allocated to complying with the tax. The armies of tax lawyers would be able to perform other economically productive activities if they weren't pouring over the tax code.

Pigovian taxation is even better. Taxing gas is a great example. Gas consumers emit carbon which has a cost for society. We should make them pay for this negative externality via a gas tax, so their consumption is economically optimal. This is how to prevent the Tragedy of the Commons.

I'd argue that some taxes are objectively better than others and not all equally wrong.


As an Australian who moved to Sweden, I was amazed at how efficient the Swedish income tax process was. The government already knew everything they needed to calculate your return, and gave it pre-filled. There were not endless exemptions. Nobody at my work used an accountant, most approved their tax with a few clicks and were done. So much more efficient than in Australia!


In the UK if you're in full time employment and only have one job, then there's literally nothing to do. Not even clicking somewhere to approve your tax return - your employer does it all for you. I know people who are literally unaware when the tax year ends because they never in their entire adult lives had to do anything with the tax return - it's just completely irrelevant to a normal working person. And on the ocassion that you have to fill one out for whatever reason, most of it is already prefiled from the information HMRC holds about you already.


It's even better - they work out if you paid too much automaticallly and send you a check in the mail. Had 3 checks over the past decade or so from having time off between jobs but paying full rate for the remaining time. Nothing quite so satisfying as a £1000 check from HM Revenue and Customs!


Finland has next step. They have my account number in records so every year they move what they owe me automatically to my account.


Would I be correct in suspecting that you don't get interest on overpaying, but get charged serious fees for having to pay too much on tax day?


No. HMRC pay interest on money they hold that belongs to you. You pay interest if you fail to pay on time.

They may additionally fine you though.


You should be furious that you gave them a free loan.


This only works until you make ~100k GBP or have "complicated" income (e.g. shares instead of cash), which people in our industry hit very easily.


I'd argue about the "very easily" point for IT workers in the UK, as 100k+ salaries are very rare, and if you get shares instead of cash it's still taxed as income and doesn't trigger a self assessment. Only if you hold onto them and only if you make more than the capital gains threshold, you have to fill out a self assessment.

But in either case - sure, but the system means absolutely no worries about your tax return for 90% of British employees.


Normally shares are not taxed as income in the UK dependent on how they are structured -dividends are though.

To follow on it is easy to hit the limit on dividend allowance if you have shares outside of your ISA


I've received shares several times from the company where I work in the UK and every single time they have been taxed as income. If you are just given shares straight up then yes, they are subject to income tax on their worth at the time of acquisition.


They didn't bother to set up an HMRC approved scheme?

Where these US companies? employee share holders in the USA really get screwed


I'm not sure what you mean? At the point of acquisition if you are given shares worth say £10k, it's the same as being given £10k cash, or £10k gift of some sort - you pay income tax based on the value of what you were given. It's different if you were given options - then the difference between your purchase price and sale price is taxed as capital gains with separate rules.

And no, it's a British company .


Insane then, why did they not set up a proper scheme https://www.gov.uk/tax-employee-share-schemes.

Bit of a red flag that the company is so badly run.


Because while I work for a British company the shares are awarded by our French HQ, so unfortunately none of those share planes are available in this case. The company employs 50k+ people globally and only HQ awards shares.

Also I'm not sure how much tax this would actually save - you can only get £3600 worth of shares tax free per year on the employee incentive plan(which seems closest to what I'm getting, flat number of shares after 4 years). That's a very....low amount.


The American tax system is similarly frustrating. I’m a senior engineer and I have a hard time navigating tax forms even with the help of Intuit, and it frustrates me that I have to pay Intuit (or someone else) to help me do taxes which are complicated in large part because Intuit et al lobby for complex tax codes and against the sort of Swedish model you describe.

Worse, when I moved to Chicago the state of Illinois wouldn’t even accept my taxes electronically because their form required one of a handful of authentication methods—the only one of which that ought to have worked for me was to use my Illinois driver’s license number—a 12 digit sequence; however, their form only permitted 8 digits. It was a significant hassle just to get them to take my money.

I’ve also had difficulties figuring out how much to withhold. In the US they give us a form that calculates “allotments” (or something—I forget the term) but it’s unclear whether more of those correspond to more or less withholdings and in any case the form computed incorrectly for me for several years (I’m sure it was user error somehow and senior engineers are just not reliably smart enough to figure it out, even with the help of HR) and I would end up owing thousands in taxes as well as a separate penalty for not withholding enough.

It’s maddening that our government makes it so difficult for earnest people to pay their taxes.


It's because they're trying to give people breaks on what they owe. The more money you make (and the more ways in which you make it), the more exemptions and breaks you tend to be eligible for, so the more complicated your taxes tend to be. A realistic simplified tax code would probably mean you, as a senior engineer, would pay much more in taxes, which would be fine with me! A properly-funded government can be a great boon to society. But you might not feel the same way, so be careful what you wish for.


Governments that can print money don’t need taxes to be funded, they can just print money. Taxation is more useful for redistribution, incentivizing behavior, and controlling the money supply/inflation - not funding the government.


> I’m a senior engineer and I have a hard time navigating tax forms even with the help of Intuit, and it frustrates me that I have to pay Intuit (or someone else) to help me do taxes which are complicated in large part because Intuit et al lobby for complex tax codes and against the sort of Swedish model you describe.

I don't think Intuit has anything to do with why the tax code is complex. Their lobbying is for making filling out the forms complicated, such as by stopping the IRS from pre-filling forms with the information they already have.

The tax code complexity almost all stems from people not wanting to pay tax. That complicated the code in two ways. First, it means that we get exceptions and special cases written into the code either because people that want to pay less tax convince Congress to make a special case for them or Congress takes advantage of the desire to pay less tax to provide exceptions to motivate people to change behavior.

Second, it means that if there is any ambiguity or wiggle room in interpreting something, someone will exploit that to pay less tax than Congress intended them to pay. The tax code gets patches to fix that, usually resulting in an increase in complexity.

A great example of the later was that a long time ago a big company was going to give shareholders a dividend. This would be taxes as ordinary income to the shareholders.

Someone came up with an idea to turn that into capital gains instead. Rather than give a divident, the company first did a stock split, say 100 for 99. So each 99 shares each stockholder held became 100 shares. This is not a taxable event.

Then the company did a stock buyback, 1 out of every 100 shares. That decreased each stockholders holding by 1%, so every 100 shares a stockholder held became 99, and the stockholder got some cash. That is a taxable event, but it is capital gains.

Net result: every stockholder ended up with the exact same percentage of the company that they started with, with some cash from the company, and got to pay the lower capital gains tax on that cash instead of the higher income tax.

The tax code was patched to fix that. Buybacks became ordinary income. But it didn't end there. Consider a family owned business owned by four members of the same family. One of them is moving away and will not be participating in the business. The company wants to buy him out. It was generally agreed that this was not a buyback to dodge taxes--it is a legitimate buyback and should get capital gains treatment.

And so the patch to fix the buyback tax dodge needs an exception to try to recognize "legitimate" buybacks. It ends up having a formula that involves looking at the distribution of ownership before and after the buyback and having several criteria for recognizing when the distribution change signifies a legit buyback that should get capital gains treatment.

This was a fairly simple instance, so it only added maybe a few paragraphs to the tax code, plus some more to the regulations.

But that sort of thing is all over the code, sometimes just adding a few sentences, and sometimes pages.


In Romania if you're a regular employee, you don't have anything to do. Flat tax rate, taxes at the source, no exemptions, no deductions.

You don't even file.


However, what are you missing is that there are exemptions available to you.

You could choose to use them (for example, the self education one) and get SEK5000-SEK10000 (~€500-€1000) BUT then you would have to fill out a tax return.

That is just one exemption. Another one relevant for our field is working from home. Similar amount.

In order to claim those, though, you will need to file a tax return. If you do not consider that money to be worth the time, then not filing one is a good choice.

The Australian system - which could definitely be improved by at least pre-filling things - forces you to actively choose to leave the money behind. The default in the UK, Europe and the Nordic countries is that the money is kept by the taxaxtion office.

Defaults are powerful. And they thank you for entrusting them with your extra SEK that you do not want to claim.


I’m pretty sure the system we have here in the US is designed to be complicated to encourage us to rely on tax filing companies. Also, a more complicated system is easier to game. Makes it easier for the rich to take advantage of loopholes.


I think a lot of it is the nudging that the US does with tax incentives. Taxes are often used as a way to economically nudge society toward desired outcomes.

Think tax breaks for solar panels or even just getting insulation added to your home. There are thousands of this type of tax break available to nudge people to move toward the gov's goals.


The deadweight loss is different than the overhead cost. What you're describing is the overhead cost, which indeed is much lower for a land value tax.

The land tax has zero deadweight loss, because what it's taxing is pure economic rent, rather than production of value:

https://en.wikipedia.org/wiki/Land_value_tax

Any tax imposed on anything except scarce natural resources will be penalizing the creation of wealth, and impose deadweight losses.


> Taxing gas is a great example. Gas consumers emit carbon which has a cost for society.

This isn't even why gas is tax heavily in developed economies. First, gas taxes pay for roads. Second, the negative externality that Europe, at least, is trying to reduce is dependency on Middle Eastern oil, since that opens a huge can of worms with respect to world stability. If they really cared about air pollution, they wouldn't have pushed diesel so much.


In many countries gas does not pay for roads, but goes into a general taxation 'bucket'. https://en.m.wikipedia.org/wiki/Fuel_tax


I remember my economics professor arguing that would be the most efficient tax after he explained how all taxes have the side effect of reducing the thing being taxed.

So taxing something bad like CO2, great idea. Taxing something good like income or creating jobs - bad idea.

Land tax would be simple, and very progressive, the tax rate of most young people renting world now be 0. It's more complex than that because the landlord pays the tax and hikes the rent appropriately. It enforces that land is used efficiently, which is so dysfunctional in many large cities.

It's a great idea in my opinion. You'd solve taxation, eliminate personal accountants as a class, and solve the housing crises with one stroke (there is still zoning, but this makes poorly zoned land undesirable to hold because it bleeds money - creating an incentive for the land owners to vote for zoning the land better). But politicians deal with popular ideas, not smart ideas. The odds of any country trying it seem slim.


LVT has been tried in Pennsylvania, actually: https://www.strongtowns.org/journal/2019/3/6/non-glamorous-g...

It's worked well in some cities but been repealed in others because people were upset that mansions weren't taxed enough relative to smaller SFH.


I actually love this idea, although I would just do a wealth tax. Anyone who owns wealth gets taxed a bit. If you only taxed land, then lots of people would just move all their assets into stocks instead of land.


Someone still has to be owning the land though, and paying taxes on it in proportion to its value. In most cases that’s going to be corporations. If I own stock in a corporation that owns land and the tax burden shifts from corporate income taxes to land taxes, on the whole this isn’t much different except for rewarding corporations that make efficient use of land and punishing ones that make inefficient use. Similarly, if I sell my land to a corporation, everyone who collectively owns the corporation is now paying what used to be my land taxes.


Seems like the price of land would drop and the price of stocks would rise such that the yield on improved land (after taxes and mutatis mutandis) would match that of stocks.


> If you’re going down this route, many will argue that all forms of income tax are equally “wrong”.

I frequently come to a conclusion personal income tax should be abolished as it punishes work.

CIT, VAT, capital gains and inheritance taxes should be enough to sustain a budget. These are all unrelated to performed work.


Why is punishing adding value not wrong? Isn't adding value a good thing?


I frequently come to the conclusion that personal grocery bills should be free, as charging for food punishes existing.


Yes that sounds right: everyone should probably be given a ration for a guaranteed allotment food each month. In NYC during the pandemic they opened up free meals for everyone, regardless of income. A society where enough food is provided by default seems like a more humane society to me.


Groceries are exempt from sales tax.


I mean, socialism for basic needs and capitalism for status symbols is a pretty nice system. No problem doling out status symbols for productivity improvements which benefit basic needs production.


I was under the impression that CITs were far, far more distortionary than well structured progressive PITs.


George’s ideas are interesting to ponder now and then. I’d definitely want to be a billionaire in that system, though, you’d pay pennies on your penthouses split with everyone living below you. If only taxes were that easy to figure out.


Middle class families in single family homes are hoarding a scarce and essential resource. Billionaires in high rises aren’t. The idea is to punish bad behavior and reward good behavior, not to cut down the tall poppies.


In urban area's sure, but I don't think it's fair to call it hoarding in suburban or rural areas. There's tons of land in the US, it's just that there are no homes _right_ next to jobs and restaurants and the culture people want to live in.

Now that I'm remote, I plan to move to a rural area and grow some of my own food in a single family home. I don't think that should be considered hoarding.


Where there’s tons of land, it’s not that valuable. LVT would be low. It would only be punitive to people with a lot of land (per person) in those spots that are valuable because of those restaurants, culture, jobs, etc. nearby.


I don't really disagree with the LVT tax idea, I just want people to be clear about hoarding and single family homes. In regards to pushing single family homes out of high value areas, then LVT does make sense.

That said, I'm a crazy pro individualism and no tax no government guy, so I have no real place in this thread. : p


If you move rural you're not hoarding. If your holding a small single family home in the core of a dense city where lots of jobs are, you are hoarding.

That land would probably serve society better if it had more than a single family dwelling on it, you could have 10 families in walking distance of their jobs rather than one, and 9 families commuting via car.


I'm fine with this statement, just wanted clarity. : )


I’m sure many peasant farmers living in feudal lands share the same perspective as you on what resources are scarce.

Well, the hope would be that you would have never become a billionaire in the first place because somewhere along the line that wealth was predicated on holding cheap real estate and collecting rents.

Now, that argument doesn't help with switching too an LVT, but there are other reasons to be optimistic. Taxing Jeff Bezos at any level is worthless in comparison to a) Paying enough UBI that the warehouses would unionize, b) directly expropriating the warehouses into the postal system. (post : IP :: warehouse sku system : content-address based networking).

Basically, trying to account for the power of billionaries and mega corps in monetary terms is a dangerous exercise where they can probably out-loophole you.


I’d also like to point out that for the longest time the Roman and Byzantine states taxed land and not commerce. It is not a new idea. In some ways it is an ancient idea. Land value and use is dependent on the climate and success of farming. It can be volatile, and while land may have an intrinsic value, the earnings to pay the tax can be highly variable (I.e. a drought).

I don’t think this is the best idea to solve tax issues in the modern world


This is more about corporate activities leading to other kind of taxes. E.g. they pay rent, the landlord pays property tax, they pay salaries, employees pay income taxes, dividends are taxed, capital gains on stock price rises are taxed, etc...

The problem with corporate taxation is that...we really want R&D and employment to be tax deductible for them, but a company like Amazon can just plow all their profits into R&D and focus on growth (even without R&D tax credits, they would still take a loss on earnings due to R&D outlays). Of course, all of that R&D money is still mostly taxed (via tech worker income taxes), so its not like the government isn't seeing any of it. Corporate income taxes really come down hard on a successful company that doesn't have any avenue to grow...maybe they should?


>World would be a great deal simpler if globally we moved to a Henry George system

Yes it would, but you see that will not be popular for many obvious reasons ( less jobs for tax collectors/consultants/auditors etc.) A more non-obvious reason is that the ordinary Joe on the street hates the rich so much that he wants the rich being taxed rather than see the simplicity of taxing no one.

>His ideas are now considered eccentric,

He actually seems a level headed guy to me :)

I would go even one step ahead and say that even land should not be taxed except for the cost of keeping land records.


That’s an interesting thought experiment:

What if we got rid of all taxes, and the only thing the govt. could do was print money at some fixed %GDP rate to induce inflation.

Then everyone would try to spend faster than inflation and the velocity of money could be quite fast (to increase GDP and spending, etc.)

Maybe a flywheel-economy?


This is very similar to Modern Monetary Theory, which views taxation as a means to control inflation rather than a source of funds for a sovereign government. Maybe only applies to a country whose currency is the reserve currency of the world tho…


This system sounds like would be gamed just like how property taxes are now: bogus assessments. At least income and sales have a clear, non-subjective value in dollars.


Gaming of tax systems by large capital players is a big challenge. I have wondered whether bogus assessments could be mitigated through some kind of open market price discovery with unlevered, unencumbered cash with full party disclosure.

Make residential, owner-occupied homes and special categories (like public transit-related or infrastructure-related improvements like healthcare/power/water/waste/telecomms/etc. property) exempt. All other property post their assessments at tax jurisdiction's office. Anyone, at any time, can post to that office cash that is 10% more than the assessment upon the property. If the owner does not challenge the cash assessment, they must accept the cash offer within 180 days or are evicted. The catch is, that cash must be absolutely unlevered and unencumbered, the property is carried on everyone's books as a cash asset of the prospective new owner, and the property cannot be pledged as collateral, for the next 21 years (with an upward adjustment for deep-pocketed backers of offers) or until the property is sold, whichever comes first. The offering party must provide full disclosure and auditability of the source of the cash and the "Source Of Truth" controlling interest, no shell games. The legal jurisdiction enforces this transactional structure by refusing all cases entangling the property.

The owner can respond to the price discovery cash offer by paying the tax jurisdiction the "back taxes" implied by the cash offer, back to the last time the property transacted on the open market. No penalty. If the owner can deliver proof that the offering party hid their ties to deeper (ultimate beneficial controlling interest) funding sources, then the entire offer is forfeit to the owner.

This creates an incentive to discover badly out-of-alignment prices, but the intention is to gate out anyone playing financialization games or asymmetrically deep pockets parking cash badly distorting a small player-dominated market's historic valuations.


If "bogus assessments" lead to an incentive to declare a low value for your land, then that will be caught if and when you try to sell it or rent it out for a higher price. So if people just stick with a low valuation to pay less land tax, this will have the effect of greatly decreasing land prices, which are the principal cause of housing unaffordability, which seems like a good thing to me.


If you're going to legally treat corporations the same as actual humans - then tax them the same.

We pay taxes for services we expect from governments, defence, policing, justice, water, sewers etc etc I don;t see why corporations that use all these things shouldn't pay their share


But then it's highly unfair to tax humans on revenue, but corporations on profit.

I think the right answer is VAT + externalities taxes (LVT, Cabon tax, etc.) + UBI, which is both very easy to enforce and perhaps net progressive enough. Re "progressive enough": I don't so much care if BWM owners are screwed over relative to private jet owners on paper, I think reducing work hours and propping up demand at the bottom with UBI will have a trickle-up effect.

There might be room for a wealth tax, but I think it might be less loophole-prone and better theoretically to attack that problem more directly and less monetarily in terms of socializing key natural monopolies, promoting coops, etc. Trying to financialize the big question of "who controls the means of production" I think might be just too difficult.


> But then it's highly unfair to tax humans on revenue, but corporations on profit.

Wow, it's a good thing we don't do that. Good news, the income you spend to further your business is deductible. We include a personal exemption for generic costs, child exemptions, mortgage exemptions, healthcare cost exemptions, retirement savings exemptions, and numerous others.

Additionally, the whole concept behind a progressive income tax is to tax people in a similar way to taxing them on profit. After all, percent of income spent on necessary goods goes down as income goes up.

But I don't think anyone wants a system where this is done by itemized receipts instead of with generalizations.


Huh? How is it not unfair that, for example I can’t deduct rent from my income? A company would be able to do that. What about amortizing the cost of my domicile over 30 years?

The personal exemptions are a sham and do not reflect the reality of high cost of living areas.


> How is it not unfair that, for example I can’t deduct rent from my income?

Tax policy isn't set by moral arguments, it's set by government need for revenue which is then tweaked by political pressure groups.

The reason why you can deduct mortgage interest but not rent has nothing to do with fairness, which is undefined and a massively ambiguous term, but because banks, which are the primary beneficiaries of mortgage subsidies, have a lot more political power in Washington than landlords, who would be the primary beneficiaries of national rent subsidies.


Governments like the US today can borrow money or print it with very few constraints. Taxes are not primarily about raising revenue.

For small, opening (usually developing) economies the matter is different, and they should have more capital controls accordingly.


> Taxes are not primarily about raising revenue

That’s an intriguing comment. Can you explain further?


I suspect the parent is coming at this from the MMT angle: https://en.m.wikipedia.org/wiki/Modern_Monetary_Theory

For states like the USA that print their own currency and enjoy tremendous global demand for their currency, taxes are less about revenue and more about controlling behavior and unemployment outcomes. Some argue that taxes are just a way to force demand for a currency the government has a monopoly on to ensure it always has _some_ value.

(Note: this is a rather polarizing theory and still somewhat young. The US Fed pulled off printing trillions last year and things haven't gone to hell yet do there's something there )


I get a tax rebate for rent. Maybe it depends where you live.

For a house, your net worth hasn't decreased by the cost of the house. A company wouldn't be able to deduct that. They can deduct for assets that depreciate.


A company cannot depreciate land, but they can depreciate the value of the buildings on top of it over a fixed period of time. So in addition to writing off the mortgage as an expense, you can also amortize it since the value of additions (not the land) decreases.


I'm not sure what you mean here. You can't write off a mortgage. You could write off interest, but not the value of the mortgage.

Real estate tends to appreciate in value, especially in cities. The company would have to get unlucky with their real estate to be able to write off a loss. Buildings don't usually depreciate.

They could allow their buildings to fall into a state of disrepair, hoping it would lower their value. But why would they? The can deduct the repairs. It's a legitimate expense.


As a business I can take out a mortgage and give you a rental for the exact same price. The income and “expenses” cancel out, so the profit of your business is zero. Since this rental is an income producing activity the IRS (and other tax bodies) allow you to depreciate (https://www.irs.gov/publications/p946) the value of additions on the land (I.e the building) on a straight line over a 28 year period. The basis of the depreciation is the value of the property, so you divide that over 28 years and can take that away from the income as well. Now I can transfer that cost to you in rent and the profit of my business is still zero. This is a benefit that is generally only available to corporations. Then there is prop 13 which is yet another mess.

I’m not an accountant, but I’ve studied enough of it in University to be dangerous.


It's fair that you don't pay tax when don't make a profit after taking depreciation into account.

Depreciation isn't a cheat code that lets you avoid tax on profit. If you depreciate the building more than its actual market value depreciation, you owe back what you deducted when you sell the building.


Of course, the argument here is that as a natural person I cannot be taxed on a profit basis, nor depreciate the house I live in.


In some countries, true. In the UK about the only things you can deduct are:

1. Pension (up to a maximum amount, and tapered down from 40k to 4k depending on income) 2. Cycle to Work bike 3. Childcare vouchers

There's also some allowance if you're required to purchase things for your job, e.g. a uniform or tools, but vans, cars etc. are out.


Yeah the whole US mortgage interest exemption is a special US thing, not a natural tax exemption available worldwide

Here in NZ there are NO tax exemptions for normal humans (well there is one single one for low income families with small children) - it means that our taxes are incredibly easy to file - if you have one employer you probably don't need to file at all, if you want to it's 2 pages on a web form, if you don't file and the IRD owes you money they'll probably pop it in your bank for you.

Oh, and our high marginal tax rates are ~10% lower than I was paying in California, and that includes free public healthcare


VAT + LVT + misc. pigeovian taxes probably wouldn't be enough to power society as is, let alone fund a UBI. You could maybe replace income tax with a progressive consumption tax or a wealth tax, but you'd need to replace it with something.


Why can't VAT fund a modern government? The GP didn't say anything about the tax rates.

VAT's regressiveness would probably become a real problem in that situation, but that's a different problem.


Yeah not sure what GP is saying. VAT can absolutely suck up a huge amount of money. The UBI makes it far less regressive, basically to the point I no longer care.

(VAT + UBI is great for everyone but those 90th percentile luxury-car-and-McMansion-owning inner ring suburb types that are the Democrat's favorite constituency :/)


Coupling a regressive tax with money transfer creates an inverse "V" shaped effective tax rate that will squeeze some part of the society (probably on the middle class).

If the taxes and transfers are diverse enough, one can reduce that problem by making them compensating each other, but if you make VAT + UBI make the lion share of the government's money flow, it will be a really large problem.


Yes the nadir of the V is the inner-ring BMW suburb class, I so disparaged. And I really meant it when I said I didn't care about them.

It might sound like I'm being a culture warrior chest-thumper about those "liberal elites", but I really do mean something more material / economic here. I think most of that classes struggles (and they do take on huge debts) would not be worsened by taking away their money.

- This is the class most thirstiest about getting their kinds into good schools without being able to donate their way in. But the scarcity of "good jobs" that motivates this credentialism relates to inadequate demand of the masses. Giving them more money won't help the fact that the Keynesian feedback loop has broken down, causing the job scarcity. (And really, consumption not work is the goal, we should fix the feedback loop by working less not consuming more, beyond guaranteeing basic needs.)

- This the class hitching lots of their wealth on real estate, but it's precisely because our cultural obsession with owning single family homes that good land (i.e. that with good access to the other good land where people need to go) is in perpetual short supply. Even if they are the "vacation home" winners of the current ponzie skin, the portion of winners will bleed away in successive generations if housing continues to be a "good investment" --- and thus unattainable to increasingly many people.

- Perhaps this class is less affected by expensive healthcare (other than the richer ones above), but would still benefit from it being cheaper. Not a majority of them is doctors or biotech researchers or whoever else benefits from our shitty healthcare system.

So yes, I think even if they are at the tax advantage nadir, they still are benefitting:

- Richer masses fix their job anxieties

- We should separately fix real estate and transit so they can be at peace in condos not mcmansions

- We should separately fix healthcare to their slight advantage.

Also, I sincerely hope and empowered working classes / lower classes will prevent the richest billionaires from emerging (at least more than transiently), so the 0.1% stuff should be far more of a theoretically problem as we get a "thinner vertical tail" power law.


If you can deduct work-related expenses, income tax is a tax on "profit".


I look forward to the day that we punish corporations by removing their freedom (ability to operate) instead of fining them laughably small percentages of their yearly revenue for serious violations of laws and regulations.

In reality I understand that this would harm the employees and the public to an unacceptable degree so maybe some form of “jail time” whereby all profits go directly to non-executive employees and price discounts would be more effective. Depriving shareholders of dividends may lead investors to “vote with their wallets” and we’d see more of an actual free market instead of what we have today where economy-destroying decisions go effectively unpunished and in some cases are rewarded by bail outs.


Confiscating profits wouldn't work, many companies are reinvesting their profits. Probably the best way would be to just make the fines hurt more, by using a fixed and non-negligible percentage of the monthly/yearly revenue, much like Finland does for traffic fines.


I can’t believe we as a society don’t adopt this idea more. Punishment should be a percentage of taxable income of that year. The impact should equally felt regardless of your current financial status. Extending this to a corporation would simply put them in back foot in a market.. which is indeed the punishment.


In the US, income based fines have questionable constitutional allowability. I fall on the "the seem constitutional" side, but some people apparently think it violates the 8th amendment.


Percentage of revenue seems like the least likely to be gamed metric.


This is also a problem since some businesses have very high nominal revenues and very low margins.


Two companies with $100M in revenue, one with 2% margin and one with 50% margin.

You’d fine then the same amount?


> You’d fine then the same amount?

Progressive fines on people are based on their income, not how much they have left in the bank at the end of the month.


Sure, but expenses don’t vary a much for people versus companies.

You don’t meet many people who make $1M in a year who have unavoidable expenses of $900k.


Even CNN disagrees with your take.

https://edition.cnn.com/factsfirst/politics/factcheck_e58c20...

Fauci was wrong. Simple as that. Better to just own up to it.


> I look forward to the day that we punish corporations by removing their freedom (ability to operate) instead of fining them laughably small percentages of their yearly revenue for serious violations of laws and regulations.

I agree, but like you mentioned, the externalities on innocent parties would be too great. Also a lot of companies do not issue dividends, so focusing on them would do no good in a lot of cases. I think a threefold strategy would need to be implemented:

1. Direct action against executives in the board (e.g. heavy fines amounting to a large fraction of their total compensation and/or jail).

2. Confiscation of dividends for a period of time.

3. Forced issuance of new shares to dilute existing shareholders, with sale proceeds going to the government.

One issue is that shares can be traded, so it's possible for a shareholder to benefit from some bad action, then avoid any punishment by selling the shares before the punishment is implemented. Maybe such people could be shared a per-share fine based on shares held at a particular date?


>Maybe such people could be shared a per-share fine based on shares held at a particular date?

I think it’s nearly impossible to expect most shareholders to understand the business underpinnings to this degree within the existing system. Think of pensioners with mutual funds, do you think most even understand all the businesses in those funds let alone the operations of those businesses?

To me, this is akin at employees being punished as well. Both benefit from the business operations but it’s hard to expect employees to have knowledge and be responsible for the decisions of the C-suite.


> I think it’s nearly impossible to expect most shareholders to understand the business underpinnings to this degree within the existing system. Think of pensioners with mutual funds, do you think most even understand all the businesses in those funds let alone the operations of those businesses?

That's true, but I don't think that matters. Those same shareholders both profit and lose based on all kinds of other factors they don't understand. Adding new ways to lose tied to illegal activity doesn't really fundamentally change anything.

Also, there's something important to note: pensioners with mutual funds have savvy proxies (fund managers) who should very will understand the business underpinnings to this degree, and vote their shares to avoid losses due to these kinds of fines.


>Adding new ways to lose tied to illegal activity doesn't really fundamentally change anything.

I think it does because it creates a adds a dimension to the loss that will disproportionately affect the assessment that of risk. For one, this added dimension has only a downside. Think of an auto insurance company who operates in no-fault States. Their behavior (and by extension, the policies they offer) is changed because the risk they incur is higher despite their customer being a good driver. (The analogy being a “good” company still gets punished in the form of less investment under the proposed rules because the risk to the investor is increased).

Second, while people are well attuned to think about risk, they are very bad at judging it. That’s why the fund managers are not generally capable of out performing the market for extended periods. They are either not as savvy as you assume or work under such constraints that they can’t use it to their advantage. Behavioral psychology/economics shows that people are disproportionately risk-adverse so if you think increased risk without an even higher commensurate increase in reward, they tend to avoid taking on any extra risk.


You are responsible for your property. If you own stock, you own part of a company so you are responsible for its actions. In the case of mutual funds, it's the funds' job to understand the businesses it invests in for you. There could be an exception for non-voting stock though.


Well this is just false. You are not at all responsible for a company’s actions just because you are a shareholder. HN is evidently quite out of its depth with these kinds of threads.


Why not? Don't shares represent ownership of a company? Aren't you responsible for your property?


Just to underscore what was previously stated, I think this philosophy would drastically change the paradigm. I’m guessing it would severely restrict the money flowing into stocks which would have repercussions in other areas like pensions etc. Point being, I don’t think it can just be layered onto the existing system without serious blowback.


As I wrote, there could be an exception for non-voting stock. At least temporarily.

But ultimately, it's supposed to change the paradigm. Because currently the economy is run by paperclip maximizers that no human is held responsible for. Which is not ideal.


Non voting shares are a minority already. Combine that with the fact that literally trillions of dollars would be aligned against such a idea, i fear it unfortunately relegates it to a thought experiment rather than a pragmatic policy proposal.


That applies to literally everything that goes against business interests. It's not an insurmountable hurdle.


The difference here is that you would be uniting all business interests. Normally they are a fractured group with competing interests. It would take a truly revolutionary movement to enact that kind of change. Not impossible, but also not no particularly likely.


> maybe some form of “jail time” whereby all profits go directly to non-executive employees

In theory this would give an incentive to some employees to mess up if they know they won't get caught.


Right, actually impairing a corporation leads to a monopoly and less competition which the state doesn’t want to be directly responsible for

This guides the trend in enforcement actions or lack thereof

There are some books on this


One of my more radical political views is I'm 100% behind a corporate death penalty, as well as direct personal criminal consequences for company principals that engage in fraud or similar.

The sad reality of the world is that once a business is past a threshold of power, it's nearly impossible to hold them accountable. Craven sociopaths know they can do what they do, and worst case, suffer some bad press while they move on to the next thing, banking 100's of millions the whole way.

Make those people truly terrified of the consequences of their actions and politics will be utterly transformed.


Humans are taxed on their income. Corporations are taxed on their profits (they deduct their expenses).

Corporations can be taxed on the money coming in, that would look like a sales tax or VAT. The problem with that tax is it falls on the consumer (since what really matters is which transaction you tax, not which side pays the tax).

But this brings me to a solution to the corporate tax avoidance issue that has already been figured out by economists, but rarely gets discussed.

This is a simplification, but basically corporations have one place money goes in, and two places it goes out, like this:

sales = expenses + profits

If you tax the sales, but deduct the expenses, this leaves the incidence of the tax on the profits. Unlike profits, it's usually much clearer where the sale takes place so it's much harder to avoid than the existing corporate tax. It's called a border adjustment tax. [1]

Where this gets complicated is international trade - how this works is only domestic expenses are deductible. At first glance that seems protectionist, but apparently the currency exchange rates adjust which balances is it out and although it's not obvious it ends up trade-neutral.

It was actually seriously proposed as part of US tax reform in 2017, but some big companies were against it so it got killed.

[1] https://en.wikipedia.org/wiki/Border-adjustment_tax


> Humans are taxed on their income. Corporations are taxed on their profit

Not true. States like WA have general B&O taxes which are a tax on revenue, not profit.

This makes it much harder to operate thin margin businesses like groceries and manufacturing, while favoring high margin businesses like software.


Sure, I believe Ohio has something similar. More significantly I think (in percentage terms), there are already sales taxes and VATs.

But when people are discussing the corporate tax and corporate tax avoidance, usually they're talking about the corporate income tax, which is also what the article is about.


Is this similar to a gross receipts tax?


No, a gross receipts tax is on sales and not profits.

If I understand it correctly (I don't know the details for every state), a gross receipts tax doesn't even adjust for value added (the VA in VAT).

For example say a few companies are involved in producing a good (starting from raw materials) so the supply chain looks like this:

$7 (raw materials) -> $8 (components) - > $9 (finished good wholesale) -> $10 (store price)

With a VAT, the total taxed amount is $10, which is divided up among the companies based on how much value they added (so if they move from $8->$9, they pay tax on $1).

With a gross receipts tax, the total taxed amount is $7+$8+$9+$10=$34. Goods that are produced by many small companies working together will pay a lot more taxes than those produced by huge vertically-integrated ones.

There's some good reasons to use a VAT if you want to tax revenue, and one of them is to avoid problems like this.


With a VAT each layer deducts the tax they pay. The net tax is only on the the value added. The company in the middle pays tax on $7 and collects tax on $8, and forwards the difference.

It's very elegant and fair, but imposes a lot of accounting. Sales tax is easier in that it only collects at the end, but it's actually hard to define "end". (Buy a screw and you pay tax, buy a manufacturer buying the same screw usually does not.)

There are still problems about regressive taxation (are stock profits value add? Services? Plain old labor? What's the difference? Usually poor people end up paying the taxes on everything while rich people buy things that aren't subject to the system). Still, if you want to tax profits on consumables, it's remarkably straightforward.


It does add more accounting, but one advantage of involving the companies in the middle is it makes cheating harder and less lucrative, since a bunch of companies have to coordinate to avoid paying the VAT instead of just one company at the end.

Agree that VAT/sales taxes are regressive and shift more of the tax burden to lower-income people. Although the only US political candidate I can remember recently proposing a VAT was Yang in which case his UBI proposal would probably more than balance out the effects on after-tax income.


VAT plus UBI does save problems for the poor, but it's still regressive. The net effect is to put the main burden on the middle class.


I don't know if Yang's math checks out, but I think his proposal was $1000/mo and a 10% VAT. So the breakeven point would be $120k spending on taxable items/yr for an individual, or $240k spending/yr for a couple, with people below that coming out ahead and above coming out behind.

Where you draw the line for "middle class" is somewhat arbitrary - I think you could be middle class and still earn over $120k, especially in a high cost of living area - but probably most people who consider themselves middle class would fall under that. Especially because people who earn $120k are probably not spending $120k/yr once you factor in retirement contributions, income taxes, etc.

A relatively high-profile economist wrote positively about the UBI idea last year. [1]

Not that you couldn't make it more progressive. I think I've seen proposals for a progressive individual consumption tax, which would look something like a progressive income tax but then removing the limits for IRA contributions. The theory being you would put money you want to save in the non-taxable account, then you would only withdraw what you want to spend in a given year, which could be taxed at a progressive rate.

[1] https://scholar.harvard.edu/files/mankiw/files/how_to_increa...


>Where you draw the line for "middle class" is somewhat arbitrary

It’s a convention so, yes, it’s arbitrary (and people tend to change that definition to fit their points, and of course it’s relative to COL) but the most widely used definition is the middle quintiles. I believe this puts the upper bound around $120k for a household (not individual) in the US.

And you’re right, most people do consider themselves middle class. Some studies show as much as 90% of people think they are middle class which, unless we use a very loose statistical definition, is obviously false. The problem is people subjectively compare their life to their own peer group rather than society as a whole, so they are misled about defining the societal norm.


I only meant to say the majority of the middle class would fall under $120k no matter how you (reasonably) draw it (so with respect to that specific VAT/UBI proposal, most of the middle class would see a gain).

For how higher incomes could end up middle class I wasn't thinking of a different threshold, but ways of defining social class that are more qualitative than quantitative.

For example you could define middle class as people who live a modest lifestyle financed by selling their labor to a company, and upper class as people who can live off wealth. So someone from a wealthy family living off a trust fund and going to an elite graduate school might count as upper class despite being low or middle income, and an engineer making $120k in the bay area might still count as middle class that way.

Defining it like that would probably produce a small upper class relative to the size of the middle class, but in historical societies where social class was a bigger issue what's considered upper class is usually a pretty small percent of the population, so it wouldn't seem too crazy to me to define it like that.


Exactly this. Imagine a company that has makes X dollars and spends X dollars. So the company pays no tax. What that means is that all the other tax payers pay for all the infrastructure.

And that's fine, but if such a company ever needs to call the police and go to court, etc., they then would have to pay all of that out of their pockets (i.e. the work of the police, the lawyers and judges, and so on).


the fact that streets are illuminate at night and pollice patrols them is using services provided by taxpayer's money.

Uber benefits from streets more than the average citizen.

if corporations had to pay per use, they would prefer to build their private infrastructures and police forces, while public infrastructure would lag behind chronically underfunded.


I don't think building "private infrastructure" in the sense of streets on public ground would make any sense or ever be allowed.

The company could just pay for the usage of the road (in some way) and the government makes sure the roads exist. Besides the bureaucratic overhead, I don't see why that couldn't work.


I think you just described corporate taxes.


I'm not entirely sure why you think what corporations -prefer- matters when it comes to a discussion on taxation?


Well they have a right to petition the government in the US at least. Would you say the same about what citizens prefer does not matter in a representative democracy?


Citizens tend to be all over the place when it comes to taxation. Traditional corporations are pure profit seeking entities. What they would -prefer- is to pay no taxes at all, while benefiting from all tax paid services they can. So I'm not really sure, given we're talking hypotheticals here anyway, that designing a system to tax corporations based on what they -prefer- is really going to get us anywhere. The current system, whereby many major corporations pay nothing in taxes, while benefiting from major government subsidies, directly and indirectly, is already pretty close to what they'd -prefer-.


>would -prefer- is to pay no taxes at all, while benefiting from all tax paid services they can.

I think you could probably preface the above with the word “citizens” and it would still be true. But both citizens and corporations have the right to lobby their representatives in their own interest. It’s the politicians job to try and create policy that balances the interests of all their constituents.


I addressed citizens in the very first sentence.

I, personally, would happily pay -more- in taxes, if it meant that, for instance, we stopped all fundraising for elections (and instead candidates had a set amount to spend per race), and also if we provided healthcare to everyone.


Ah, ok I didn’t realize context of “all over the place” meant in terms of reasons for taxation. I do think there is a growing movement in business to have a multi-dimensional focus. B-Corps are one example.

I agree. Just charge everyone a monthly fee for essential gov services. And do I mean essential. If you want extra programs from the gov, you need to pay voluntarily.


But they aren't always treated the same as humans. In some cases they are, but it is not a blanket "corporations are people". In order for me to buy an argument like this, you'd need to dig into the specifics of how the ways in which corporations are treated the same as people justifies the argument. And also consider the ways in which corporations aren't treated the same, why they are treated differently, and how that also impacts the argument.


We don't treat them the same, and we shouldn't treat them the same.

Having a multi layered tax policy is complicated and has proved difficult to enforce. Multinational corporations have shown time after time that they are able to get around the first layer of taxation (corporate tax), so why not just eliminate it and put more of the burden on the second layer (income, capital gains, sales tax, etc).

The general idea is not to raise or lower net taxes, in this particular instance we could keep net taxes the same while allowing for less corporate avoidance and more targeted tax collection.

Companies like Amazon historically have minimized their profit to grow revenue, assets and shareholder value. They barely pay corporate tax while profitable small businesses will pay corporate tax plus the second layer.


1 through 6 already lead to taxes being paid - sales/VAT taxes in most places, individual income taxes, employee social security/retirement contributions and so on.

Share buybacks lead to greater stock value and therefore income when sold for the owners, who in term are taxed as individuals.

You theoretically could have a hold Corp that never paid out anything and instead funded the lifestyle of the owners/employees, but I’m sure there are ways to close that and the current 15% min is a far cry from what most people pay.


> If you're going to legally treat corporations the same as actual humans ...

We don't do that, though, not by a long shot. There are some cases where the rules are the same but many, many cases where they are different. So I don't think that can serve as an argument that they should be taxed the same.


We don't legally treat them the same, though. That's a myth.


Exactly, 15 percent is nothing.


This is brought up again and again. You can make similar arguments for every tax. In fact let's look at income tax. The money people spend on income tax they could spend on.

1. Spent on goods or services

2. Spent on rent

3. Spent on capital purchases

4. Spent on debt repayment or other forms of financing

In fact income tax does not have the last two points that you admit are bad, so maybe we should eliminate income tax and use corporate tax only?

The thing is low corporate taxes create an inequality between labor and capital gains. It's already the case that wealth inequality is quite unrelated to income inequality, the highest wealth individuals often don't register in the high income brackets.


Capital gains taxes (paid by shareholders) are completely separate from corporate income taxes (paid by corporations). You're also forgetting (or ignoring) that the legal incidence of a tax and the economic incidence are completely separate. For example, employers and employees are both legally responsible for paying a portion of payroll taxes, but economically speaking that tends to lead to lower wages, making the employer's portion fall at least partially on the employee.

https://voxeu.org/article/effects-employer-payroll-tax-cuts


I'm a bit confused by your post, it seems you are agreeing with me, but you say you disagree?

I am aware of the difference between capital gains tax and corporate tax (also note that not every country has a capital gains tax). My argument applies to both, i.e. one of the reasons for raising inequality is the inbalance of labour and capital and the low corporate and capital gains taxes definitely contribute.

About the effect of income tax on salar, I'm not quite sure what that has to do with my points. I was not arguing that we should eliminate corporate tax and just let income tax handle it. Unless your argument is we should use income tax instead of corporate tax because it lowers salary?


Yes - corporate income tax should be eliminated entirely - the revenue can be made up in other, less terrible ways. Corporate incomes taxes are a poor way to address inequality because they tend to fall, at least in part, on workers, and not on wealthy people themselves, who largely accrue wealth through investment, not work. If the goal is to reduce inequality then we should simply tax rich people more, not corporations, whose money will eventually be passed to shareholders anyway.


What I generally hear is a wealth inequality frame: raise taxes on the rich so that they won’t accumulate savings so fast. Income inequality is much steeper than consumption inequality, and taxes are proposed at the top end of income, not consumption. So it is already sensitive to this concern, and steering clear of reducing personal spending.

Now it’s true that invested savings become goods and services, capital purchases, etc. for the companies you invest in. But the idea is that government will take over some of that role and invest the taxes collected in more socially beneficial activities, with returns accruing to the public.


Corporate profits are easily reduced to zero by say... Paying fat bonuses to ceos. All high corporate taxes do is encourage companies to dispose of the profits before the end of the tax period.


Those bonuses are then taxed too, which should give you a hint why corporate tax is a bit daft to begin with.

Corporate tax is, by and large, a fiction to placate voters. It could (should?) be replaced with a more flexible system that isn't as susceptible to the usual deduction and profit shifting.


You’re ignoring that the companies can just keep lots of cash without distributing it to individuals in order to avoid taxation under your system. So for example the company can rent houses, cars, and airplanes for every employee to ensure there is not much money left to be taxed as income. On paper they look like corporate expenses but it’s really just a way to distribute money without it being taxable.


> You’re ignoring that the companies can just keep lots of cash without distributing it to individuals

Nobody benefits from a company growing indefinite wealth without distributing it to actual people.

> So for example the company can rent houses, cars, and airplanes for every employee

If they could do this, all companies would do this already to avoid taxes. In reality, this is dealt with by (in the UK) considering those things "benefits in kind" aka equivalent to cash.


> Nobody benefits from a company growing indefinite wealth without distributing it to actual people.

No, many would benefit in very obvious ways, if you just think about it a little bit: if you want to accumulate wealth you prefer to be taxed on what you spend rather than what you earn. That allows you to save more quickly, it allows you to create a dynasty where wealth is passed to your offspring, who in turn would prefer to pay taxes on their consumption rather than their income.

So if a company served as a type of money making engine but didn't distribute anything, you can save by purchasing shares and letting compound interest work to your benefit and then spend some of that in your retirement by selling some of your shares and give the rest to your kids. You would have a lower overall tax burden as you could earn like a king but live just a middle class lifestyle, allowing your kids to live like kings even if they earned just a middle class lifestyle, and with some left over due to the magic of interest.

This is why if your income >> your consumption, you really want only consumption taxes.

There is also the issue of precautionary saving. Most people prefer to have money in the bank to insure themselves against future loss of income, and this type of precautionary savings benefits people even if there is no consumption, just as having insurance provides a benefit even if you never get into an accident. So if you don't need to pay taxes on savings, then you can shield yourself more easily from future income losses and smooth consumption so you always prefer taxes on consumption, which do not make consumption smoothing more difficult, than taxes on income, which do. Think of it in this way -- a tax on insurance makes insurance more costly and thus more difficult. But financial savings are a form of insurance for when you lose your job or face some other financial setback.

So in summary, one can argue that the purpose of money is consumption so "nobody benefits" by acquiring money that they don't spend on consumption. But this is a naive view that ignores the role of risk, time and inter-generational concerns.


Your explanation requires paying out money to real people, so I don't see how it relates to the idea of a company that does not pay out money to real people.

> So in summary, one can argue that the purpose of money is consumption so "nobody benefits" by acquiring money that they don't spend on consumption. But this is a naive view that ignores the role of risk, time and inter-generational concerns.

It's also not what I've said.


> Nobody benefits from a company growing indefinite wealth without distributing it to actual people.

Isn't this exactly what companies like Apple etc. are doing? As it accumulates wealth, the stock price (which is supposed to reflect the value of the company) goes up as well. And thus the shareholders benefit.


I believe actual cash hoards on hand is considered bad business. Apple having cash on hand is seen as okay, at present, because investors trust them to spend it well on expansion. Remember share price doesn’t indicate how well a company is doing today, it indicates how well people believe it will do In the future.

If you have piles of cash and don’t plan on spending it, somehow, on your business then you can’t expect your stock to rise and in fact if you’re so inept that you don’t know how to spend your billions your stock price may actually drop.


You can expect that the market cap will be at least the amount of cash they have, if it’s a profitable company. (This isn’t always the case, but it’s close.)

The more cash they gather, the higher the lower bound of the share price.


Why would the stock price go up for a company that explicitly did not distribute the money ever to real people?

And don't apple pay dividends?


Company A has $X in revenue, $Y in profits, and $0 in cash.

Company B has X revenue, Y in profits, and $1T in cash.

Which of the two would fetch a higher price in an acquisition?


That is completely avoided if the person makes less than 12k/year though. So there is already a loophole, there just hasn’t been enough incentive to use it yet. Although I’d question if that’s why some executives take a $1 salary and the rest in stock. All of their benefits are now tax free*.

yes I realize it’s nuanced and depends on country.


No, the value of benefits in kind count towards the income tax band.


That is absolutely not true in the UK. Again, this would just be what every business would do if that were the case.


> Nobody benefits from a company growing indefinite wealth without distributing it to actual people.

And yet companies actually do this. Perhaps your model of what motivates companies is wrong?


Companies tend to pay wages, dividends or use capital for growth to pay for those.


> Nobody benefits from a company growing indefinite wealth without distributing it to actual people.

Shareholders do. And shareholders own the company.


Shareholders don't benefit unless the company is or is expected to distribute it to actual people.


Perks/fringe benefits for employees are imputed income in virtually every tax system.


That should be taxable in the hands of the employee, obviously. Estonia seems to be doing well with their tax system, and it's pretty much exactly what is described above.


> So for example the company can rent houses, cars, and airplanes for every employee ...

there's already laws in the books today that those are taxable as in-kind compensation


That problem already exists, and I can't see it getting any worse than it already is. And you solve it the same way that you do now: by regulating which expenses are actually deductible. Basically any benefit that primarily benefits an individual is counted as income to that individual.

What goes away is the incentive to locate all of the company's IP in a subsidiary in the Cayman Islands, and then rent it all back to the subsidiary in New York at wildly inflated prices that ensure that all income is technically earned in the Cayman Islands. Because it would no longer matter where the income was earned, it would only matter to whom it is paid out to. Less protection for billionaires who are primarily interested in asset inflation.

I'm pretty sure this would actually increase total taxes collected because it shifts tax burden away from low and easily avoided corporate taxes, and towards individuals that pay higher income tax rates that are much harder to avoid. But even if it doesn't fully compensate, you can easily adjust top bracket rates to fill the gap, without any worry that it will hurt workers like the corporate income tax does.

https://taxfoundation.org/labor-bears-corporate-tax/


Those would be taxable for the employees receiving those perks, giving away shareholders' money to employees to reduce a tax bill is absolutely nonsensical in financial, and if a publicly traded company were to do this for "every employee" (or even just management) there would be an immediate lawsuit.


That would be imputed income passed on to employees.


Here’s a different lens: tax is a mechanism for determining who pays for shared infrastructure and social services.

Any entity that has to pay obviously has other ways they can more productively (as seen from the entity level) deploy the cash.

But ideally we are not optimizing for a single entity or class of entity, we’re trying to optimize at the societal level.

We know that corporations can bear some burden, because we are taxing profits. I couldn’t tell you whether this is an optimal place to tax, but it intuitively feels reasonable - corporations are large non-governmental concentrations of wealth and power. This seems like a valid pool to tap for funding the state, and better than many alternatives (e.g. taxing the poor and powerless).


All taxes are avoided (or illegally evaded) to some degree, and the most taxed (i.e. the wealthiest people and firms) will always have the largest incentive to avoid taxes. To reduce the incentive to avoid taxes, countries often tax capital (or labor) at multiple stages but with lower rates (e.g. a corporate tax, dividend tax, and sales tax). As you point out, the corporate tax is redundant to other forms of taxation, but the redundancy lowers overall taxation rates and hence tax avoidance. So it's a feature not a bug of modern taxation.

Some interesting alternatives to corporate taxation have been proposed[1][2], and I think they merit consideration for their potential to remove disincentives to invest or hire labor. I personally like Michael Pettis's argument that continued economic growth depends on increasing economic demand through redistributing wealth from capital (or more generally the wealthy) to labor [3], so I am skeptical of reforms that stop taxing capital.

[1] https://cdn.americanprogress.org/wp-content/uploads/issues/2... [2] https://taxfoundation.org/value-added-tax-revenue-neutral-al... [3] https://foreignpolicy.com/2020/09/29/capital-flow-united-sta...


> I personally like Michael Pettis's argument that continued economic growth depends on increasing economic demand through redistributing wealth from capital (or more generally the wealthy) to labor [3], so I am skeptical of reforms that stop taxing capital.

This is an important point, and is misunderstood in (US) politics and deabtes, IMHO. Supporting capitalism and taxation aren't mutually exclusive positions. Well thought out taxation is crucial to balance the inherent network effects of large corporations. There's huge network effects, especially in tech [1], that leads to less ability for smaller firms or new players to compete. If anything, I'd wager that appropriate taxation of network effects is crucial to a well functioning capitalist society, especially as so much of success is due to luck and network effects in addition to hard work and talent [2].

Just because you have capital doesn't mean you have capitalism, where most any individual(s) can access capital to bring about new companies and products. The trick is defining empirically and scientifically sound taxation measures rather than giving into simplistic models of Socialism or Reganism.

1: https://medium.com/@nfx/70-of-value-in-tech-is-driven-by-net... 2: https://arxiv.org/abs/1802.07068


1, 2, 3, 5, 8 also apply to normal people so why not get rid of income tax? The point of tax is for the government to gain money to spend on public services and what not, what you’re suggesting keeps money private.


No OP is suggesting that money get to the government via income tax. As opposed to the extra layer of complexity company tax adds.

There isn’t a clear equivalent where if you ditched income tax some other tax would make up for it.


Yes, that's also a very good follow-up idea to the OP's point.


No. We would not be, just as we would not benefit from taxing corporations at 100% either.

There is a sweet spot, where the amount we tax generates more than it costs, this is known as the "fiscal multiplier." Tax breaks are among the worst incentives ever to exist and have the lowest net-return to society. A corporation paying no taxes, is then completely freeloading off of the countries they operate within. Tax breaks are handouts, full-stop. Tax breaks ONLY increase deficits by necessarily decreasing input (tax revenues) without a corresponding decrease in costs or increase in output. It's literally saying "you don't have to pay your share of taxes because you already make so much money." This is the precise reason Republicans run up the deficit. No one realizes tax breaks are a fucking hand out, we have a budget. "Tax breaks" are just the same kind of spending as food stamps, except they provide a negative return where as food stamps provides a positive one with something like a 1.73 multiplier (which is fucking awesome[1]). If we were taxing multinational corporations at a 70% tax rate, sure, then maybe a tax break might actually help stimulate some growth... but we sure as shit ain't even close yet.

The corporate tax rate should be something like 35% in the USA, but if you do the math it's closer to 17.5% on average that's paid (or was when I checked a couple years ago, I can't imagine it has improved). I can promise all of you, that the overwhelming majority of corporations aren't able deploy international tax avoidance strategies (and are paying really close to that 35%). So... then, 'cuz like averages, 'n' shit, that means (did I get a pun?) a handful of extremely large players are likely paying literally nothing in taxes to get the USA's average rate down to 17.5%.

It's pretty easy to go calculate these numbers for yourself, and to look into what things actually cost. I'd recommend anyone and everyone go take a gander at https://www.bea.gov/ and actually go do it.

[1] https://en.wikipedia.org/wiki/Fiscal_multiplier


This a typical economist analysis, and I think it's mostly right. But I don't think those making these decisions think in such terms at all.

People love to tax companies, because they think it's "someone else" paying those taxes.

Maybe there is also some anthropomorphising going on where you think of the company as another person who is much wealthier than you.


> People love to tax companies, because they think it's "someone else" paying those taxes.

I think you can very safely generalize this to "people are always in favor of more benefits for themselves that they don't have to pay for".


In the US at least companies have many rights like they’re people.

https://en.m.wikipedia.org/wiki/Corporate_personhood#Case_la...


To the point that we call the bundle of rights corporations get “corporate personhood”. (https://en.m.wikipedia.org/wiki/Corporate_personhood)

Frankly, if OP doesn’t want me to anthropomorphize corporations for tax purposes, they’ll need to go back in time and stop the courts from anthropomorphizing them for various rights.

If a company gets 1A rights under citizens united, then it can have tax obligations as well.

I’m pretty over this double standard where companies are handed various rights, but not commensurate obligations.


The anthropomorphizing I speculate about goes something like this:

"I work hard and pay my taxes, Ford makes billions and pay much less tax!"

But Ford is an abstract entity that is not a person and doesn't have a better life than you.

All those billions are eventually paid to living humans, who do pay taxes on that income.

This is the economist perspective, but it requires a level of analysis not compatible with rage.


I’m 100% fine with that perspective. However, I think it means taking away other “anthropomorphic” rights from the entity.

If you say: we’ll only collect taxes from the individuals that are paid by Microsoft, instead of taxing Microsoft, that’s fine by me. But, I would then say that Microsoft also doesn’t have free speech rights as a corporation, after all each individual in the corporation has free speech rights.

If we decide that a corporation *is* entitled to some rights granted to people (such as a right to free speech), then the corporation should also be subject to taxation, separately from all the individuals that compromise it.

I’m unwilling to give one without the other. If a company want rights, it should have obligations. If it has obligations, then the company should have rights.


I think everyone can agree that companies should have both rights and obligations.

Linking taxation and free speech, among all possible rights and obligations, does seem completely arbitrary though.


> Linking taxation and free speech, among all possible rights and obligations, does seem completely arbitrary though.

Well, it was completely arbitrary as it's serving as an example. I'm not saying my policy would literally be X Taxes and Citizens United, just using each as an example of the general class of things that I think should be linked.

I've seen corporate personhood used aggressively to argue that corporations should have more rights, but then when we're in a tax policy discussion, suddenly we are squeamish about anthropomorphizing corporations. My argument is that the amount that we anthropomorphize corporations should be equal whether our discussion is about rights (with free speech as one example) or about obligations (with taxation as one such example)


I see that mostly as "code reuse".

Instead of writing separate but very similar laws for personal and corporate property, you say that the law is the same for both cases, aside for a few exceptions.


Salaries come out of pre-tax revenue, any corporation can reduce their tax liability to about zero by handing out cash to their employees, yet that (almost) never happens.

Same goes for financing, while dividends can only be paid out from post tax profits loan payments and even stock buybacks can be structured in a very tax efficient manner. Yet that doesn’t happen that often either.


This is the case with any form of government financing - taxes, deficits, and inflation all introduce market distortions where they reduce productive activity. This is inherent to economics, because a basic principle is that there is no free lunch: if you are going to spend resources on spending, those resources have to come from somewhere else, and the private sector by definition is the "not public sector".

But if you don't accept these deadweight losses, which means that there is no way of funding a government, which means that the essential services a government provides - notably a monopoly on violence and a peaceful way of adjudicating disputes - no longer exist. This is more damaging to businesses - when business every business needs to hire a protection racket to avoid being ripped off and killed, productive activity tends to come to a halt.


Different taxes have different amounts of dead weight losses.

For instance, land value tax has no dead weight loss. Corporate tax has one of if not the highest dead weight loss.


9. Just kept in a large pile like Apple does.


Apple's cash reserve hasn't grown in a while since they are spending it on stock buybacks and dividends.

But the very reason they didn't repatriate it and spend it in the US is the corporate tax the GP is arguing against.


This is really a case of 8. I doubt that Apple has an account full of US dollars, and I mentioned that low yields on safe investments is already a way of “taxing” this money in order to encourage spending or riskier investment.


More like a large mountain range.


I don’t see how that’s a problem. It’s just delaying the inevitable taxation of that cash. It’s not avoiding it.


> ...dividends and buybacks create income for individuals who will pay tax on that income)

This is an important point people miss. The owners of those companies eventually pay taxes on the profits, so a corporate tax is a double tax.

There are a lot of things that get taxed: property, income, sales, corporate profits. You can vary these rates and still come up with a viable government revenue model. Oregon doesn't have a sales tax; Washington state doesn't have income tax. The only problem, and it's what this deal is about, is when these varying policies interact, or one jurisdiction does something very different from others.

What you end up taxing is a social policy lever, but it's otherwise not all that important. The important part is getting some degree of alignment so you don't encourage people to live in Vancouver, WA, but buy everything in Portland.


> The owners of those companies eventually pay taxes on the profits, so a corporate tax is a double tax.

Will they? Countries have a wide set of positions from "tax only corporate income" to "tax only dividends", with a lot of them sizing both taxes taking the other one into account.


I agree about the "corporate tax creates work in tax avoidance", but if corporate taxes are abolished, wouldn't it drive more individuals to incorporate their own businesses?

The tax avoidance industry now shifts to servicing individuals, and again we find ourselves with inequality between individuals who can afford those services and those who cannot.

An alternative way to tax would be to simply raise interest rates, and discourage capital from not being deployed productively.


Incorporation and maintaining related documentation is a tough job.

I guess one solution could be to classify various types of corporations and tier them. And then tax rules change accordingly.

Similar to how tax breaks are given to startups.


If they want to use their money then they have to pay dividends or wage.


Unless they run a catering business out of their home.

They need furniture, computer, food, and a home for that business, so boom...using the money 'for the business' tax free.


that is an idea that I've been floating for a while, unfortunately people who don't understand economics and rely mostly on their feelings don't approve, and those are the majority of votes hence the politicians don't want to commit political suicide by promoting something like that.

Think about it, a no tax corporate tax, yet taxing the recipients of dividends and distributions would:

* eliminate tax heavens * foreign companies would come to the US * stimulate the economy * benefit the shareholders at large

Of course the shareholders would pay taxes, and distributions to foreign entities could be taxed at the source.

Easy, smart, logic.


This is how corporate taxes work in Estonia. There is no income tax, but dividends/distribution is taxed. I think it's great overall.

However there are some loopholes that companies still figure out. In Estonia's case we have big international banks that found a juicy loophole. The local Estonian branches pay no corporate tax, but they also never pay dividends. Instead they give out a no interest loan to their foreign mothership and have no intention of ever getting it back. This loophole has since been patched, but it shows that companies will still hire teams of lawyers to find new loopholes to not pay a single cent.


Let's face it, no regulation can ever be perfect, make rule(s) and someone will find loopholes, then... close the loopholes and the cycle continues.

That is life.

And that should not be an excuse to impede improving society.


Corporations pass the tax expenses on to consumers as higher prices of produced goods, lower wages to employees, and lower returns to owners that supply capital. These taxes are all paid by us but they are largely invisible and justified to the voters as making corporations “pay their fair share”.


These taxes are paid by various stakeholders and entities around the business. The public gets the tax income and uses it for services to allow the business to operate.

Do you feel the cost/value of having the ability to a call a number and have a well trained team put out a fire in minutes that could ruin your business is 0 or free? What about rules/services that allows your business to have an advantage over another in a different region?

Taxes need to be paided by everyone. Corporations use more services than you would think and rely on a stable government that they need to contribute to.


Getting more money in the hands of governments is not going to do to us any good, they will just increase spending.

It will end up being: increase in price -> increase in government spending. Everyone will pay the increased prices, governments will pocket a % to keep their employees busy or employ their friends for public work, some of it will be redistributed to a portion of the population.

I believe taxes shouldn't be paid by anyone and governments should disappear.


> Do you feel cost/value ... is 0 or free?

No, of course not. (Why the insulting tone of your rhetorical question?)

> Corporations use more services than you would think ...

How many publicly traded companies have you started?


Corporate tax, as a share of total taxation in the US, has dropped from 30% to 10% since the 50's ... yet wages have been pretty stagnant since the 80's (in real terms).


The top corporate tax rate had been ~35% for roughly 25 years ; in 2018 it dropped to 21% and wage growth has indeed increased since 2018. Were wages positively affected by the lower corporate tax rate? I don’t know, so many factors affect the economy; corporations might choose to lower prices or do more research on better products or issue greater dividends to attract capital for expansion. I was just making the point that we humans end up paying somehow for the spending that the government chooses for us and that I would rather make these tax costs more visible to the people actually paying the taxes.


Average effective tax rate for corporations is considerably less than the top rate, so much so for companies like the FAANGs as to make a mockery of corporate tax as being anything more than a guarantee of full employment for tax attorneys. OTOH, brick and mortar which has to compete against Amazon has the privilege of paying for Amazon.


Corporate taxes are not expenses. An expense is the cost of operations that a company incurs to generate revenue, either on cost or accrual basis. Corporate taxes are based on declared profits, gross revenue net of these expenses.

Furthermore, these taxes are not paid by all of us. They are paid by the owners of the corporation who and which receive considerable benefit from the government services they are paying for.

Consider corporate taxes, if you will, as use taxes for using the economy.


Effectively they're paid by the customers though. Investors will want to get their return on the money they invested regardless what happens. If they can't get their return they will simply invest in something else and the business never gets off the ground.


These are accounting definitions.

For example, if a corporation has no profit, common for startups trying to get off the ground, they pay no corporate income tax. This is the case because corporations pay income tax on profit not revenue. Having no corporate income tax would only shift that burden from the economic use case to elsewhere which is what happens with the FAANGs and multinationals. That elsewhere ends up as brick and mortar and individuals. BTW, tax fairness means lower as well. Brick and mortar and individuals would pay less if the FAANGs and multinationals paid fairly.


One problem is that this would effectively distribute tax revenue from a company by the citizenship of the owners (6 and especially 7) but most countries think they are entitled to some tax revenue from companies operating in their nations even if the company is wholly owned by foreigners.


That’s usually the case of any kind of operation, no? If you use the infrastructure and services of a particular country its seems reasonable to pay taxes on your profits there.


It does seem like a reasonable principle, which makes abolishing the corporate tax unpersuasive. If there were only a single jurisdiction the argument would be more compelling.


It certainly isn't impossible for nations to tax foreign individuals operating companies locally without a corporate tax. A way would be:

a) similar to KYC laws, make knowing all persons who own part of a company mandatory, regardless of how many structures (corporations, trusts, whatever) you have to go through.

b) preemptively tax every individual on profits/salaries/perks/payments from the company at some established rate.

c) come tax season, ask for a global income statement from everyone taxed. Adjust their taxes based on whatever bracket they land in.


Even without a corporate income tax companies would still generate tax income in foreign countries where they sell goods and services, e.g. VAT/sales tax. They would also pay property tax on any physical presence they maintain and probably a myriad of other taxes depending on the country.


While the tax incidence (where the burden lands) of various taxes is a thorny question subject to much debate in the literature I don’t think it’s especially controversial to say that sales, property, and wage taxes are likely to have different incidences than a tax on profits.


> ... but most countries think they are entitled to some tax revenue from companies operating in their nations even if the company is wholly owned by foreigners.

Any individual in the EU buying anything from a foreign company operating in their EU nation pays the VAT on the good or service. That's usually 21% and up to 25%. And that's not on the profits.

That's already quite something.


9. Buying and controlling media for desired political outcomes.

10. Astroturfing

As different sectors of business have different structures of material costs, labor costs, profit and investing. Maybe having at least some kind of equal corporate tax can be seen as being fair across different types of businesses.

Additionally many forms of business have externalities which are negative for the rest of the humanity. Often it has been the public sector which has to pick up the slack or clean up the mess.

Also most people agree that there exist at least some forms of infrastructure which are best managed publicly and are difficult organize privately in a way that encourages competition. Also corporations often directly benefit from different forms of public infrastructure, so in this sense it can be seen as fair to directly tax them.


Your 9 and 10 aren’t captured by corporate tax either, because spending money reduces profit.

But your 9 and 10 are captured by the income tax of the people tasked with executing these operations.


The problem I don't see addressed is that no/low corporate tax leads to bad market incentives. It is more efficient for my company to buy me things than for me to buy me things. But my company will inevitably buy inoffensive/cheap things that appeal to all employees rather than what I really want. This is most often implemented as a food perk or car perk, but obviously extends to almost any consumable purchase.


Aren't those usually limited though? Ie a company can only give $x in perks per employee and everything above that is taxed in some way?


Only if it's not a legitimate business expense. Which in practice means if you get a meal with coworkers and talk about work it counts. Even easier if you have clients


This does not address the issue this new tax agreement is supposed to tackle: that big companies produce income in country X but shift profit to country Y where it is taxed less, effectively extracting wealth from the first.

If you only taxed dividends the problem would not go away.


How would it not go away? If there's no corporate tax then the profit is going to be taxed at 0%. Moving that money around won't help you. But if an investor wants to personally use that money, then they'll have to pay personal income tax in the country he's in or is a citizen of.


Because the problem would be that "Jeff Bezos has extracted X money from France" instead of "Amazon has extracted X money from France".

The problem is not that the money disappears from earth, but that is shifted from one country to another.


Ending corporate tax would be an interesting proposition and it would be interesting to study the possible effects of that

However I think the main downside on the abolition of corporate tax is that companies are hiring even fewer people with time (automation, subcontracting, etc) so the taxation "opportunities" are reduced if you only have "payroll"/income taxes and sales taxes.

The current situation leads to things like Starbucks having an exaggerated advantage over local cafes for example, since they 1) pay much lower effective tax 2) can have more advantageous rental agreements which leads to some ridiculous situations where one Starbucks is visible from another.

(Though yes, governments do overtax people and companies IMHO)


The government could tax shareholders, i.e. the people who receive a corporations profits to begin with.


I love the imaginary world where people debate this based on hand waving and I suppose emotional feelings and how it literally contradicts recent memory[0]. The debate is over, just like for trickle-down economics because the results have long been in, so at this point the only reason I can surmise is people who make this argument are either ignorant or selective of the facts they use, are disingenuous, or are just too high on their own supply to really interrogate it.

[0] https://apnews.com/article/438fae12f9204b1fbd8e8b1985ae554f


I think some people would find issue with the distribution of wages paid in #4.


Then again there are hefty (progressive) income taxes involved. The worse the distribution the higher the tax revenue.


"All that the corporation tax adds to this picture is the creation of work in tax avoidance services, and an unjust inequality between those firms that can afford those services and are structured to take advantage of the rules, and those that can not and are not."

This already exists in the United States.

An "S-Corp" is a passthrough corporate entity wherein the corporation (or partnership) is not taxed at all and all profits flow to the owners of the entity who are then bound to pay the taxes on their personal returns.

Almost all small businesses incorporated in the US are such entities. It is not exotic in any way and is totally accepted and normal.

The trick is ...

With some minor exceptions, all of the profits need to flush out of these passthrough entities every year. You can't just keep piling up untaxed profits in the company bank account. The corporation is required to disburse the profits and create taxable income for the owners.

Big coporations which are not passthrough entities can keep the money and do not have to disburse it ... but they have to pay taxes on it.

So there are pros and cons to these structures.

I personally feel that passthrough corporate entities are much simpler, much more comprehensible and do not have the societal inefficiencies (pursuing tax avoidance strategies, for instance) that you mention. But at the same time I think we're asking for trouble if we let (big multinationals) just pile up bigger and bigger mountains of cash in their bank accounts, untaxed.

So, in absence of a better solution, taxing non-passthrough entities seems like the least worse solution ...


I don't think corporate taxation has always been this bad, so there's no reason why is should be impossible to return. To something reasonable.

And while 1-5 are good, they don't pay for the massive infrastructure and other investments that governments have made the enable corporations to do business in the first place. Those resources have to come from somewhere. I don't see it likely, for example, for dozens of corporations to come together and fund interstate highway and bridge maintenance.

I might agree with you more if corporate profits were plowed back into higher pay or better benefits for employees, significant voluntary investment back into society, etc. But benefiting from government investments in their ability to do business without paying taxes essentially means they are extracting their profits indirectly from all individual tax payers whether or not they are even customers.

I do #1, #3, #4, #5 and I'm still expected to pay taxes.


>they don't pay for the massive infrastructure and other investments that governments have made the enable corporations to do business in the first place

Firstly, that infrastructure is for everyone to use and I think it's semi-useful to view private business as infrastructure as well. They exist to provide goods and services to the people.

Second, it seems obvious to me that you'd simply increase other taxes to make up the deficit. The impulse to create special taxes is a bad one, imo. It only serves to complicate the tax code, obfuscate how much we're actually paying in taxes and makes it more difficult to actually provide incentives when they are needed.


Why should a corporation not pay taxes to support the infrastructure they use (which is paid for by taxpayers) to undertake their business. Amazon ship a lot of goods, that is a lot of road miles. I pay toward the upkeep of the roads and I get considerably less use out of them than Amazon do, in fact they are vital in order for Amazon to do business, so they should be willing to support it. The only reason they dont (support it) is because they are rich enough to argue with the government over it, and that argument is not due to ideological reasons, rather it is because arguing (in court) is cheaper than paying the taxes. So it is just because it is financially beneficial, even if the net effect is negative to society.


The main issue tackled here is that multinational corporations operate across borders, and thus create problems of capital flight out of a country. Thus, even if the economic activity is almost entirely happening within a country (e.g. a local shop uses locally targeted online ads, sold by a sales team working out of a local call center, to attract neighborhood customers), the profits could be captured somewhere else, like an Irish subsidiary handling profits from continental Europe. Even if those profits get reinvested or distributed to shareholders, they might not get reinvested or distributed in that country where the revenue was generated.


One thing to keep in mind is the non-monetary side of taxes: they are used to influence behavior. Offering employee benefits (healthcare, retirement, etc.) is incentivized by US tax code thus influencing more companies to do so.

I'm not saying that corporate behavior becomes uninfluencable when profit taxation is removed, but rather that it will require a different incentive mechanism. That is assuming that we still want to influence corporate behavior through government without legislating it.


9. Pocketed by corporate executives / board members

Trickle up economics, right?

Now make a list of all of the things the money could do if it is taxed and gets to the government. Schools, roads, etc.


Pocketing corporate money is illegal. If they do it legally, it’s taxed as income/dividends/capital gain.

I don’t see the problem.


if corporations paid less taxes that means more of the revenue could go into the profits section which would most likely end up in the pockets of greedy board members.

is that a bad assumption?


Yes, a bad assumption. Corporate profits cannot end up in the pockets of greedy board members without being taxed.


And they would pay personal income taxes on that money.


Here’s an idea, let’s charge tax on revenue and it can just be the cost of doing business. Small businesses get a tax holiday for the first few years. Problem solved.


Taxes on revenue create strong incentives for vertical integration and consolidation (because there are fewer links in the chain to be taxed).

If one entity owns the farm, the food distribution, and the grocery store, they have one revenue transaction to be taxed. A small farmer selling their eggs to a distributor who sells them to the grocer who sells them to you is taxed three times on what amounts to same activity.


This is perhaps true of revenue tax. But for VAT You can deduct VAT of sales from VAT of purchases.


Indeed. Which is why VAT is a much better and more common structure of taxation than a tax on all revenue.


Most countries on earth--US being a notable exception--have a better version of this: the VAT.

It's a very elegant tax on paper, but significantly complicated from an accounting POV. It's one of those areas where there are huge gains to be had from digitizing financial records, and countries that have succeeded in this (like Mexico) create a very powerful revenue source.


Why tax a corporation's income at all when you can tax its shareholders income instead?


Well, the shareholders may live in a different area or country than the one in which the company operates. If a corporation is largely owned by American investors, but does its production largely in a developing nation (relying on their infrastructure to operate), then I think it's fair to say that both the developing country and the US should both get a slice of the pie: 1 for providing the infrastructure and labor market, and the other for providing the comforts of a developed country to shareholders.


Hmm, insightfully looking but profoundly ignorant.

Take a look at the history of tax. And make a judgement on the necessity of tax yourself. Stop wasting time coming up with some seemingly clever explanation of things.

https://en.m.wikipedia.org/wiki/Tax#:~:text=The%20first%20kn....


People's attitude towards Amazon is the biggest counterexample of this. They have avoided a lot of taxes not through nefarious means, but by constant reinvestment (items 1-5). At some point, when a company is bringing in enough revenue, a lot of public attitude seems to be that it should be paying taxes regardless of whether it's investing that revenue in things that we generally see as positive.


Which "people"? Consumers are delighted with Amazon, otherwise Amazon's revenue would dwindle. Investors, even more.

I think the attitude you are talking about is largely driven by media.


I know people personally that are always complaing about Amazon being too big and a monopoly while also being prime members and basically addicted to getting packages everyday in the mail. Sums things up pretty much.


The main reason Amazon is paying a $15 minimum wage is because of substantial pressure from progressives - there's an extensive record of this. The media reporting has largely been coverage of Bernie Sanders and the like, so it's pretty clear that there are non-media folks who have been driving it.


Artificially putting a floor under the price one's allowed to charge for one's services benefits only politicians proposing such populists ideas and the non-working.


Spoken like someone who's far away from minimum wage. One would think it also benefits the people who receive the wage increase, yeah?

My country has a $20 minimum wage, and yet the unemployment rates, small business survival rate, and inflation are all around the same levels at the USA, so all the talk of impending economic catastrophe if we give poor people a few more crumbs seems to be hot air from where I'm sitting.


That sounds like an argument about "if one's time is worth less than minimum wage, one cannot find a job". And sure that is true for some people, but saying it benefits _only_ ... sounds like it is never good for any worker, which is way too strong a conclusion, because other situations exist.

For example: hiring one of two candidates, Nick and Joe, would be profitable under 30$ per hour. Nick asks for 15$, its Joe's first job so he's willing to take 10$, I go to Nick and say, "look Joe will do it for 10, so I really can't justify paying more, but I'd prefer to pay you those 10, since you're experienced". If Nick has a better offer elsewhere, he has no problem. If not, Nick gets just 10.

If the state says 15 is the minimum wage, not only Nick but also Joe must get 15, so my best move is to take Nick at 15. Clearly, a higher minimum wage _can_ benefit the worker, and not only the very weakest one.

Capitalism allows each participant to seek only the best available deal that is agreeable to them, sure, but availability is subject to negotiating power, and that is distributed very unevenly.


I'm perplexed with your endorsement #2 above: Why would it be a good thing for tax breaks to end up flowing into landlords' pockets?


Buybacks to a large degree end up not being taxed or only much later. Most people are holding on to stock for long periods now. Behavior can also often be easily be adjusted to capital gains tax. Extreme example is Larry Ellison buying in island with a loan backed by his stock rather than selling the stock and buying the island from that directly.


Isn't that just how every billionaire "spends" money tho?


If it is, it undermines the point that buybacks get taxed


Buybacks are effectively identical to dividends so that end it would be accomplished

Why not just tax buybacks? When a company buys its own stock, it pays a tax on the value of that stock to the government.

Sure, this makes stock prices lower. But it encourages dividends by comparison, which is probably a good thing, or at least everyone seems to think it is, and then these are taxed as regular income (not usually subject to gains rate).


I am with you, we should tax on things that are undodgeable and stop this wasted energy on corporate taxes.

* Property tax is 1 obvious place, you want the land in this country? You pay the tax for it.

* VAT is another obvious one. You want to sell in this country? You pay the tax.

There are plenty of things that can be taxed which are undodgeable, we just have to be creative.


How is VAT the obvious one? The practice is far from theory. VAT is effectively a tax on consumers not on corporations.


Absolutely not.

Not only is this massively regressive, it ignores how much of our public infrastructure is built to support the economy. This proposal would effectively allow shareholders to turn infrastructure tax dollars into shareholder money without having to kick a single dime into the bucket. That’s absolutely nuts.


The conversion into shareholder money is where the tax happens.

The idea is that if you want to tax rich people do it directly. Don't make it complicated.


The economy is part of the infrastructure. That's why governments go to extreme lengths during economic problems. If the only store in the village shuts down it sucks for the store owner, but it sucks even more for the villagers who now have no access to the goods.


Wouldn’t that exacerbate the tech giant problem? Currently their war chests only get opened to vulture up fledgling companies. I’m not saying it can be instantaneously transmuted into gold if the government tried to take more, but I can’t see your proposal alleviating that problem.



I think this idea, but I always thought that a country or countries should just be on the cap table.

Forget tax, but if I want access to the Canadian grant ecosystem they take 7%.

I want Delaware Chancery courts the U.S takes 8%

Swedish bank secrecy, 6%

And we access states more like VCs and their value add.

Obviously all numbers are made up


How is that functionally different than how tax works now?

Ownership gives you two things. It's a right to future profits, and the ability to resell that right to someone else. Company tax gives the government a percentage of the profit, and capital gains tax gives them a percentage when the shares are sold.

The only thing your proposal would do is delay when the government gets it's slice because the company doesn't have to pay a dividend right away.


This would make total sense if the entire world were under one tax system. Taxing corporations is a way of of taxing the dividends of shareholders outside your country, whose income you can't tax individually.


Are you kidding me? All of modern history points to the money being spent on only one thing: executive compensation. You really things the wealth of the world should prioritize Zuckerberg buying another island in Hawaii??


Zuckerberg's salary is $1. The billions of dollars he has come from his equity share from, you know, founding the company.


This is not about fairness nor liberty. It's about control; incentives and subsidies, made to keep the big bosses in check, and also about making sure they don't get undue competition, since taxation like that makes it harder to compete with the giants, by both outsiders and by smaller companies since margins are lowered. In short, it's about stability and keeping up the status quo of the too big to fail.


i really don’t get why people get upset over share buybacks but not dividends. they’re literally the same thing.

as a stock holder there’s no difference between the stock going up 10 cents from a buyback versus me getting a 10 cent dividend. other than the fact that i can have more control as a shareholder in the buy back


FTFY: "they're _almost_ the same thing."

Dividends lower stock price by moving cash from company to owner, buybacks increase stock prices[1] by de-diluting, so only one of those is evidence of the CEO (whose compensation is often tied to stock price) acting on his own interests. Also taxation is different.

[1] https://www.investopedia.com/articles/active-trading/073015/...


Didn't uber, lyft, et. al just spend $100 million on getting prop 22 passed?


None of those things directly go to improve society and infrastructure though.


When companies generate more profit they very rarely do any of the things you mention, why would they start doing it if they didn't have to pay taxes at all? In reality when a company gets to generate more profit the result is an even bigger gap between C-levels and normal employees salaries.

Here is a better idea: companies should be the only entities paying taxes in a capitalist society. If you think about it it really makes perfect sense :) since they already do all the boring accounting stuff and with the power of their lobbies they could make tax law simpler and more efficient (something that normal citizen will never be able to push forward).


> when a company gets to generate more profit the result is an even bigger gap between C-levels and normal employees salaries.

This is #4 "spent on wages" no?

We already tax wages. A graduated income tax targets specifically the problem you are flagging here. Taxing corporations exclusively would do away with this.

If you're making an equity argument, why not argue for the opposite of what you're saying: reduce corporate taxes to zero, then make up for it by taxing only the highest earners' wages? Not advocating for a policy position here, just pointing out that the argument in the GP post is precisely that they lack of those granular policy levers is a drawback of taxing corporate income. Policy levers which could be used to nudge the income gap down by taxing the "excessive" executive comp at a higher rate, for example, don't work if you collect that tax revenue as a monolithic corporate profits tax.


To me "spent on wages" means on every employee's salary, not only the top 0.01%

It would be pretty awesome if companies increased salaries for everyone at the same proportion of their interment of profit.


Yeah but you gotta use the tax code's definition of wages when arguing about the tax code ;)

> It would be pretty awesome if companies increased salaries for everyone at the same proportion of their interment of profit.

It would be pretty awesome if corporations didn't pollute our air too. But corporations are sociopathic profit maximizers. Presumably you support regulating their emissions, rather than just wringing your hands at the bad people. Moral suasion arguments are not effective as tax policies.


I’m of the opinion that there should only be income tax (paid as a function of standard deviations from from the mean wage on the logistical curve). And all personal profits should be considered income, including sold shares, paid dividends, earned interest, etc.

However I can see how that system would be abused. E.g. instead of buying that yacht from your personal money (which you need to pay 70% tax on when you transfer it from the company) you simply have the company pay for it and say this is a company yacht. Then I can see how people would continue to hide their wealth in off shore shell companies that they never have to pay a tax on. So even with this scheme it is still ripe for tax havens.


This seems sensible to me, so long as I’m allowed to use corporate personhood to tax a company’s income under this scheme.

If your money counts as speech because you have first amendment rights, then your income counts as income because you have IRS obligations.

I’m 100% over letting corporations pick some of the benefits of citizens but skate away from all the obligations. If you want the rights, you get the obligations. If you don’t want the obligations, you don’t get the rights.


How about the self-sustaining farmer who doesn't need to work in society? Completely capable individual, has a certain way of life, and suddenly they don't need to contribute?

How about the person who has so much wealth that they will never need to work in their life?

Government is labor that benefits the people. The only way an individual can escape the duty is if they are incapable or if society deems that they deserve a break.

Taxing only income misses the mark by a bunch.


Indeed. Which is the reason why my conclusion was opposite to the opinion. The real world gets in the way of it being practical.

But in my ideal world inheritance is considered income and is taxed as such. And on a logistical curve a billionaire inheritance is taxed really close to 100%. Anybody that has earned so much money they no longer need to work has paid as much in taxes (and continue to do so as interest is taxed as income). Additionally on a logistical curve it is almost impossible anyway to earn this much since a huge earning is taxed close to 100%. For example, someone making 5 standard deviations above the mean pays 99.33% tax on it, so they will probably end up with less after taxes then someone earning 2 standard deviations below the mean (11.92% tax).

As for the farmer who is self sustaining. I guess they are not using up much of the shared infrastructure anyway, I see no need for them to be paying taxes.


Wow, that's some pretty dystopian stuff.


Dystopian only to the wealthy class. Utopian for those of us who will never see an income (inherited or otherwise) above the average income.


They would pay property taxes at the city level and other fees still.


Capital gains is much lower in the US compared to other countries, your idea floats the value at your current tax bracket.

It could work but where do royalities fit in? Estate taxes?


This is incorrect, capital gains rates in the US are currently similar to or higher than many European countries. Federal (20%) + NIIT (3.8%) + State (up to 13.3%) puts you firmly in the middle of the pack for European countries. The proposed changes would make them the highest in the developed world, by a large margin.

The elephant in the room is that the main difference between US and European tax rates is that the middle-class tax rates in the US are much lower than their European counterparts. If you are in the top tax bracket in California, the income taxes aren’t that much different than in most of Europe and the capital gains taxes are typically lower.


The full amount of a short-term capital gain (property held for less than 1 year) is taxed as regular income. Long-term capital gains are taxed at a lower rate than regular income, but the amount depends on your tax bracket. Long-term capital gains in the 10% and 15% tax bracket aren’t taxed at all, those in the highest tax bracket are taxed at 20%, and everything in between is 15%.

In the US, capital losses can reduce capital gains and up to $3000 of regular income. If losses are $3000 more than gains, you can carry them forward to future years.

If you make 90,000 in Florida City, Florida. You purchase a home for 100,000 sold for 200,000 your capital gains is: $15,000 15% federal 0% state 0% local

In VermountVille New York State 21409 15% federal 6.41% state 0 local

In Sf 24,500 21,000 if you are married.

In order to pay 36% you have to be earning over 500,000 to pay that rate and single.


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