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Interesting Read - Stop the Race to the Bottom on Corporate Taxes


Myth465
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http://www.ft.com/cms/s/0/8836f284-592a-11e0-b9f6-00144feab49a.html?ftcamp=rss#axzz1Hwh9a14J

 

I think the big countries should set a minimum progressive tax rate of (pick whatever earnings numbers you want) 5% - 10% - 15% or 20% on corporate tax rates (includes state, local, and federal taxes). You can do more but, no less. No loopholes, no dodges, no subsidies.

 

Otherwise things will keep .....

 

Thoughts. Bronco I know you have something to say.

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I find it fascinating that a local coffee chain pays ~46% of income in tax whereas google virtually nill.  (Ok, I've not checked recently, facts may differ.)  Same thing goes with the sales tax things re: online retailers like Amazon vs book shops.

 

It pays to be hard to tax ...   

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The day when US/EU finally have bullied all the 'tax havens' into complying with all of their demands will be a very sad day. At that point, when the competition is gone, there will be nothing whatsoever stopping them from turning predatory for real in terms of taxes.

 

LOL

 

INMO you are part of the reason why this country .....

 

You are really for billion dollar Corporations paying nothing in tax? Seems like a weird position unless you own a big chunk in a billion dollar company.

 

JOHANN HARI - But, you know, just to talk to something that Allison Kilkenny was saying, as well, about GE, these big companies, they justify this behavior by saying, "Oh, we do it all ourselves. We produce all this profit ourselves." I’d just like to say, try—let’s just do a thought experiment. You know, for one month, I’d like to do an experiment. Say Philip Green, the guy—hugely wealthy guy, refuses to pay taxes in Britain. Let’s take one of his stores for one month and take away all the services he refuses to pay for. So we won’t collect the garbage out of the back. When the rats come, we won’t send pest control. If there’s a shoplifter, we won’t send the police. If there’s a fire, we won’t send the fire brigade. If the staff get sick, they can’t get treated in public hospitals. And let him come back at the end of that month and say he did it all himself. He doesn’t do it all himself. These people make money using the infrastructure that all of us pay for. Now, there’s a term for that in medical literature: it’s called parasitism. If you are feeding on a body but contributing nothing to it, you’ve turned yourself into a parasite.

 

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I tend to call a spade a spade, or a tax dodger a tax dodger. If you dont like a countries tax rates dont do business in that country or lobby to change them.

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The day when US/EU finally have bullied all the 'tax havens' into complying with all of their demands will be a very sad day. At that point, when the competition is gone, there will be nothing whatsoever stopping them from turning predatory for real in terms of taxes.

 

LOL

 

INMO you are part of the reason why this country .....

 

You are really for billion dollar Corporations paying nothing in tax? Seems like a weird position unless you own a big chunk in a billion dollar company.

 

JOHANN HARI - But, you know, just to talk to something that Allison Kilkenny was saying, as well, about GE, these big companies, they justify this behavior by saying, "Oh, we do it all ourselves. We produce all this profit ourselves." I’d just like to say, try—let’s just do a thought experiment. You know, for one month, I’d like to do an experiment. Say Philip Green, the guy—hugely wealthy guy, refuses to pay taxes in Britain. Let’s take one of his stores for one month and take away all the services he refuses to pay for. So we won’t collect the garbage out of the back. When the rats come, we won’t send pest control. If there’s a shoplifter, we won’t send the police. If there’s a fire, we won’t send the fire brigade. If the staff get sick, they can’t get treated in public hospitals. And let him come back at the end of that month and say he did it all himself. He doesn’t do it all himself. These people make money using the infrastructure that all of us pay for. Now, there’s a term for that in medical literature: it’s called parasitism. If you are feeding on a body but contributing nothing to it, you’ve turned yourself into a parasite.

 

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I tend to call a spade a spade, or a tax dodger a tax dodger. If you dont like a countries tax rates dont do business in that country or lobby to change them.

First of all, I'm not American. I live in a by your standards very socialist country, so please don't play the ignorant card on me, and take your ludacris parasite talk somewhere else.

 

If you were aware of European history, you'd know that the foundations of the industrial revolution and our modern society were built on a VERY politically fragmented continent where lots of extremely different systems of government were battling it out against each other (you might for example have a look at how GB/Netherlands complemented each other during the early modern era, for one). There's absolutely no reason why sacrificing diversity for conformity for the mere purpose of bringing in a couple of billions extra a year to the treasuries will make our lives better off in the long run (deficits or not), when tax pressure already runs at 40-70% in the Western world.

 

On the other hand, bigger countries and organizations shadow-governing peaceful and successful countries like Luxembourg, Switzerland etc... That is a real problem. Damn, Switzerland is not even a member of the EU and STILL are totally unable to fend off 'anti-terrorist laws' and whatnot.

 

Countries having different systems of government is the only way we might keep the darker forces of government in check. Please keep in mind that the vast majority of all states that exist and have ever existed have been predatory in a way that would make the Sicilian mob blush. Something to think about the next time you complain about the existence of tax havens (i.e diversity and competition between states).

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I am all for competition but I dont see how anyone can defend a company which makes most of its profits in the US claiming US tax credits for R&D and then transferring the patents / profits to Luxembourg or Ireland to claim a lower rate.

 

The US is subsidizing the research, paying for the product via high healthcare costs (basically subsidizing the rest of the world in regards to pharma) and then not collecting any of the profits via taxes.

 

Our tax system is screwed up, but this is basically parasitic. Similarly it makes no sense that a local cell phone company which provides service in a country can someone say the income should be taxed in Luxembourg, Ireland, or Switzerland.

 

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I just dont see your side of the argument. This has nothing to do with competition and is just accounting / legalize tricks inmo. Every US job should go overseas if our tax rates are too high / uncompetitive, but if you are selling into the US, producing into the US, or are basically a domestic company you should pay US taxes.

 

Companies should be forced to pay up, or really move. If more moved the laws would be changed. Opening a mail box in a town with 10,000 people doesnt count. If I gave up my US Citizenship you can best believe I would actually leave the US. These companies have claimed they are not American companies and havent left the US.

 

If they had balls or basic integrity they would actually move and congress would figure it out and lower the tax rate. I own stock in Ensco which re domiciled to the UK. I support the move. They moved to the UK (execs) and have most of their revenue overseas. They also have alot of US based income. The US tax system is retarded, personal taxes are based on world wide income (not sure on Corporate).

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Guest Bronco

Myth - I didn't see the video and I am blocked at work, but I believe I read the article that summarized the video.

 

First point is that you can't criticize CEOs.  There fiduciary resposibility is to the shareholders, not the tax authorities where they reside.

 

The US is unique in its corporate tax system in that it taxes global profits.  So the US government has created, and this is UNDENIABLE, a system whereby they shift capital, jobs, plants, etc overseas.  Who is favor in such a system is beyond me.  Oh yeah, JFK - you can thank him.

 

So the game goes on and on.  We take our US property, shift it overseas, and leave the money there.  It is not just one or two companies, it is everyone that I can tell with the exception of Buffett.  He just owns a lot of US companies and businesses, and without me looking I bet his tax rate is higher than most.

 

There is still the hurdle of our wages being competitive on a global basis - that is why we need to be like Germany and stick to higher quality products. 

 

But the wage hurdle and the capital hurdle are too much to overcome for many industries. 

 

This is just the way it is. 

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But the wage hurdle and the capital hurdle are too much to overcome for many industries. 

 

 

Surprising I agree with you on this. The video talks about some of the worse aspects of this though. I am all for companies leaving. I just have a problem with them receiving the benefits and profits of being in the US and then shifting profits overseas.

 

Basically they leave without really leaving. If I move to Luxembourg or Switzerland I have to actually move, they should as well.

 

The video I linked for you though focuses on the so called cash repatriation holiday that you like to talk about. Basically says it happened in 2004 and few jobs were created. Companies paid dividends and just bought back stock.

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Guest broxburnboy

The flip side of tax cuts is always additional borrowing to close the deficit gap.

Therefore tax cuts are in fact only tax deferrals (if there is intent to actually pay back the principal, or at least the interest on the new debt). Those that benefit from these tax deferrals aren't planning on being around to pay back the larger P+I amounts, or will pay back with newly minted money hence "inflating away" the new debt.

This is of course a shell game... there is no free lunch... but those with higher incomes today can shift today's tax burden to those who will be paying in the future... a form of class warfare. They can also benefit by profiteering from the debt funded government malinvestment spending.. wars, roads to nowhere, government outsourcing etc...

IF taxes were raised equitably to balance government spending, there would be more responsibility in the way it was spent... when borrow, cut taxes and spend ever more is the mantra, the supply side stimulus train has an ever nearer appointment with a wall.

 

 

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Guest Bronco

I am not really in favor of the tax holiday.  I am in favor of repatriating profits without severe penalty.  In other words, I am in favor of a territorial system, and not taxing global profits.

 

To your point about companies here managing overseas entities - they are required under current tax law to charge those expenses, so a legal entity in Switzerland that receives management in the US will incur that cost in Switzerland.  Its as if the person was in Switzerland, so not such a big deal. 

 

Other smart countries fight like crazy to be competitive - you can't fault them or US companies for wanting to be competitive too.  It is really an archaic, illogical tax system that hurts our country.

 

And I don't give a shit what anyone says - you don't need to raise taxes to make some of these changes to be tax revenue neutral.  This is such bullshit.  Companies keep money offshore, and the tax rate is 0% until repatriated.  So it remains 0% in perpetuity. If you taxed overseas repatriated profits at 5% or 10% instead of 35% you would have huge spikes in tax revenue.  The opposite of what some would leave you to believe. 

 

So I am not in favor of another IRC Section 965.  I am more in favor of no tax on foreign dividends, or 5% to 10%.  That is the rare win-win - win for companies, win for American Jobs, win for the IRS, win for all US citizens.  It is only a lose for the intellectually ignorant or stubborn.

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Fair enough Bronco. I would agree with 10% on repatriated earnings. We need a VAT system and a lower tax rate. Hopefully congress gets into gear. It sucks they get 30% from Walmart, Home Depot, and thousands of small to medium businesses.

 

Lowering the rate would cause a loss in trillions, but multinationals will continue to move if the face overseas competition. Its tough. The system works for domestics but sucks for Multis.

 

 

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I am all for competition but I dont see how anyone can defend a company which makes most of its profits in the US claiming US tax credits for R&D and then transferring the patents / profits to Luxembourg or Ireland to claim a lower rate.

 

The US is subsidizing the research, paying for the product via high healthcare costs (basically subsidizing the rest of the world in regards to pharma) and then not collecting any of the profits via taxes.

 

Our tax system is screwed up, but this is basically parasitic. Similarly it makes no sense that a local cell phone company which provides service in a country can someone say the income should be taxed in Luxembourg, Ireland, or Switzerland.

 

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I just dont see your side of the argument. This has nothing to do with competition and is just accounting / legalize tricks inmo. Every US job should go overseas if our tax rates are too high / uncompetitive, but if you are selling into the US, producing into the US, or are basically a domestic company you should pay US taxes.

 

Companies should be forced to pay up, or really move. If more moved the laws would be changed. Opening a mail box in a town with 10,000 people doesnt count. If I gave up my US Citizenship you can best believe I would actually leave the US. These companies have claimed they are not American companies and havent left the US.

 

If they had balls or basic integrity they would actually move and congress would figure it out and lower the tax rate. I own stock in Ensco which re domiciled to the UK. I support the move. They moved to the UK (execs) and have most of their revenue overseas. They also have alot of US based income. The US tax system is retarded, personal taxes are based on world wide income (not sure on Corporate).

So basically you are making an argument for changing the system, which stems from the competition between systems making glaring holes in the US tax system perfectly clear. I don't see where your problems with my statements are? Agents in economies react to incentives, there's just no point in being morally outraged at widespread behavior that's not even illegal. Surely, Google moving altogether would not at all be preferrable for the US economy as a whole and most certainly not from the perspective of the treasury department, right? If income taxes were too high in an international perspective they most probably would move completely, though.

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Basically I am all for a company calling up a Governor and saying I would love to build a plant here but it doesnt make sense given .........

 

Then building the plant in another country, hiring people in that country, and doing business in that country. I dont even have a problem with them importing the goods to the US (at some point the US will lower taxes and raise imports). This is good competition, and drives good changes politically.

 

I am not for Vodafone or Verizon setting up a phony tax dodge when the business is completed, administered, processed, and sold in the US or UK. I am also not for companies claiming US tax credits for items researched in the US and then transferring the patent at the end of development to a low tax country. This isnt competition its just a tax dodge.

 

There is a tax issue in the US, and we need to change but these are largely legalize tax dodges that skirt the spirit of the law and are inmo unethical and should be illegal.

 

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Competition is fine. Countries should be able to lower tax rates to a point to compete (perhaps not below 15%) It is however a race to the bottom. The Cayman islands can charge 2% and have every company reincorporate there. They wouldn't have to actually provide any services to these companies and these companies wouldn't do anything in the Cayman they would just be basic flow through entities.

 

Basically all I am saying is companies are free to leave for "competition" but they should leave. They should give up the benefits of being US based like individuals do when they leave for tax reasons. 

 

My annoyance is you are debating competition when these are just largely tax dodges. Vodafone does business in the UK, sells in the UK, hires UK employees, and should pay UK taxes. As should Big Pharma with regard to the US. Grow a pair of balls and move. If Vodafone doesnt like the UK tax system they can exit the UK market and move the assets (people, phone lines, infrastructure) to a better market.

 

I dont know how anyone can defend Vodafone or Verizon.

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Guest Bronco

In theory, the IRS can assess a deemed royalty on intangibles moved from the US to a foreign country under IRC 367(d)

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I live in Illinois and earlier this year the legislature in their infinite wisdom raised personal taxes from 3% to 5% and corporate rates from 4.8% to 7% "temporarily" for four years. So far I haven't seen any spending reduction measures from the legislature!

 

"The bill, which passed the House in a 60-57 vote late and the Senate in a 30-29 vote."

 

http://www.foxbusiness.com/markets/2011/01/12/illinois-lawmakers-pass-massive-income-tax-increase/#ixzz1I0VxAxs3

 

Recently Caterpillar's CEO wrote Gov Quinn mentioning he has been approached by several other states with tax incentives to leave IL. Cat is one of the largest employers in the state.

 

IL is not very 'business friendly".

 

I need to move to a tax free state, maybe even to Switzerland like the 60 minutes video! I'd gladly pay 12.5% instead of double or triple that rate!

 

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Now thats competition done the right way in Illinois. Lets make some tough decisions. Cat should leave or stay, but should pick one. Buying a building in the Cayman and saying they are now a Cayman company and not changing anything is a cope out.

 

I pay no state tax in Texas  ;D.

 

Though the Texas model is showing cracks of late with massive cuts due to budget defecits. We have a winning plan bad education and low taxes (see the economist state taxes).

 

We import our talent though  when grads from other states (Michigan) cant find jobs;D. Great for Texas but not sure how sustainable it is for the US.

 

Again its perhaps a race to the bottom with everyone devaluing and cutting to win business. One state wins, but as a whole the US is weaker for it (poor education due to crappy states gaining all the good jobs and growth).

 

Its a tough deal. With that said I prefer no State Tax and dont know how you all deal with it.

 

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INMO this is ass backwards. We should agree on the level of services and the type of society we want (keeping in mind the price) and then decide on a way to collect it, but what the hell do I know.

 

 

Myth - you had to get me going again!

 

I was so good on not blasting politicians, tax policy, etc.  

 

I was so proud of you and myself lol. Oh well. 1 thread here and there want kill anyone.

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I dont know how anyone defends this as competition.

 

 

Thats my beef. Thanks for the post.

 

Mr. DRUCKER: Yeah, I mean, Forest has a nearly identical arrangement. They manufacture their drugs in Ireland. What makes Forest a little -what makes them a little bit different is that Forest, for its most valuable drug, an antidepressant called Lexipro - which is one of the bestselling antidepressants of all time - they're actually licensing those rights from an unrelated company.

 

They didn't come up with that drug, or they didn't largely come up with it. They contributed a little bit to it. But what's so interesting about Forest is that Forest kind of demonstrates how transfer pricing really just kind of removes real-world economics from the world of taxes for multinationals.

 

I mean, Forest is a company that does almost 100 percent of its sales here in the U.S. They have almost 100 percent of their employees in the U.S. They're headquartered in New York City, and yet the majority of their profits show up overseas, most of them attributed to a mailbox in Bermuda.

 

DAVIES: Does anybody know how much money the U.S. Treasury is missing because of companies that have taken advantage of these techniques?

 

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But you know, kind of what also goes on is a few years ago, in 2004, Congress passed the American Jobs Creation Act, which permitted companies to bring back profits from offshore one time, at a reduced tax rate - paying 5.25 percent instead of 35 percent.

 

And companies brought back about $312 billion that qualified for the break. And you know, there's a fair amount of academic literature that shows that very little job creation investment went on as a result of that. And in fact, most of that money was used to buy back stock.

 

 

And companies right now are lobbying for essentially, a repeat of that break. You know, John Chambers, the CEO of Cisco, has been kind of the most vocal person leading this charge. And so we may see a reprise of that.

 

Mr. DRUCKER: Well, I mean, there's a kind of - it's a great question. It's ultimately, a very complicated question. I mean, you know, there are many different aspects to different countries' tax systems that are different from our own, that kind of make income-shifting more difficult in some other countries.

 

You know, I think a very easy thing to understand is that a lot of these other countries that have what are called territorial systems for tax and corporate income - the U.S. taxes corporate income on a worldwide basis. Pretty much every other country in the world taxes just what goes on within that country. It's not quite that simple. I mean, they all have some form of taxing income outside the country, but basically that's what they're doing.

 

A lot of those countries have much higher marginal income tax rates on individuals. I mean, you know, if you were a multimillionaire in, you know, France, Germany or the U.K., I mean, you're looking at marginal rates, you know, sometimes close to 50 percent. A lot of these countries also have valu-added taxes - basically, what's effectively a national sales tax.

 

So you know, a lot of these other countries kind of have other sources of tax revenue. You know, and the U.S. should probably explore some of these other avenues. I mean, at the very least, the U.S. should probably be exploring kind of some way to deal with the fact that we're losing $90 billion a year to this.

 

I mean, we're in a situation right now - you know, Camden, New Jersey, is in the process of laying off nearly half its police force. And we can see kind of what is going on with kind of called-for cuts to teachers' salaries, and laying off teachers around the country - when there are tens of billions of dollars in tax revenues being pushed into mailboxes offshore.

 

 

 

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Thanks again great article. Competition at work perhaps, but sounds like a parasite to me.

 

I mean, the situation with Google, also - obviously - is very interesting because, you know, Google, as we know, is a company that has its start because of U.S. taxpayer funding. I mean, both the original grant at Stanford University, and the scholarship that sent one of its founders, Sergey Brin, to Stanford - those were both funded by you and me, by the taxpayers.

 

And so the question is: Should we have a system where taxpayers essentially help to fund success and create profitable companies, but then don't fully share in the thing that they need to pay when they make profits, which are their taxes?

 

People want t o reduce our Corporate taxes also dont want a VAT and dont want to raise personal taxes. Its quite interesting isnt it?

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I'm not going to address every single one of your statements, because it would get way too long and my purpose of reading and writing on this board is not to discuss politics. But anyhow, I don't agree on your main premise that businesses in any country owe an endless debt to their governments by the mere fact that they are operating there. I don't view the individual as a means to the government's purposes and consequently am not morally outraged by agents doing their best to further their own interests in the prevailing climate.

 

Myself, I happen to live in Scandinavia aka the utopia of American liberals, and I actually feel pretty sad when watching loads of 'progressives' overseas arguing in favor of a move towards more power in the hands of government. Americans of all people should know better. Heck, you guys fled these countries because of oppression from the state and church.

 

Your definition of a parasite is curious, too. A parasite, If I'm interpreting you correctly, is a producing member of society that do not want to give all their riches to the non-producing branches (i.e government)? That seems... backwards. In order to be a parasite I think you would have to detract something from the rest. Like government does :)

 

Thus, I also think that keeping governments in check to prevent them from becoming predatory is a way, way more important cause than any number of arbitrary social causes that the government/different ideologues invent to further themselves. Lastly, I think everyone on this board would be hard-pressed to say that Google do not and will not give way more back to American society as a whole than they take away - even if they do not pay US corporate tax.

 

Anyway, of course it's not good that companies operate under different game rules in terms of taxes, since that implies competitional imbalances. But that is a sign that the government is doing something wrong, not the companies - and even if you do not agree on that, the only way it actually will change is if the government changes its policies, so whining about the immorality of big business is pointless.

 

Got a bit long but that's about all I've got to say on this subject for now, I'm most certainly not going to enter a flamewar on politics. Also, I have strayed from the main point that I was trying to make, upon which I got attacked, and that was my moral outrage at bigger countries bullying smaller ones into adopting policies not of their own choosing (which is happening everywhere right now), and that's something that I think is truly disgusting for a country like US, which calls itself free and democratic. And in addition, a plethora of differently tweaked societies will most certainly benefit mankind more than a grey mass of similar social and economical rules. If history can teach us anything, it's just that.

 

Take care.

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