Warren Has a Good Beginning for Ending Corporate-Tax Avoidance

https://www.bloomberg.com/opinion/articles/2019-04-15/warren-has-a-good-beginning-for-ending-corporate-tax-avoidance

by Apocryphon • 7 years ago

53 96 7 years ago

nordsieck2• 7 years ago

All these sorts of schemes are doomed to fail for the very simple reason that corporations are more agile than the law making process.

Here's an easy plan to end tax avoidance:

1. Any company that sells more than $X/year to people living in the US needs to be registered in the US.

2. Flat tax with no exemptions (all corporations would be taxed like C-corps).

3. No more rules.

A plan that won't work is one that adds even more rules on top of the the enormous mound of rules currently in place.

scottlegrand23• 7 years ago

I would extend this sort of simplification to individuals as well. I'd give them a huge upfront deduction all the way up to the median income and then flat tax the remainder.

malandrew6• 7 years ago

This just creates a disincentive for those corporations and individuals that are being the most productive.

People need to remember that the United States doesn't exist in a vacuum. We are in competition with all the other countries out there. Maximizing productivity matters at a national level.

The more competitive we are, the better off Americans are on average. If we lose that lead position to other countries, we may achieve greater equality internally but we will be worse off relative to the rest of the world.

int_19h3• 7 years ago

Change that deduction into a tax credit, and you're basically describing one way to implement UBI.

I think it's not obvious to everybody that what you're suggesting is really a progressive income tax, BTW, since that flat rate is paid on different proportion of income, and with a high enough cut-off, it can easily be more progressive than our present arrangement for most middle class tax brackets and below.

AdamM123• 7 years ago

Just a thought. How about abolishing corporate tax and then making every entity as pass through entity for tax purposes? At the EOD all entities are owned by someone and that income is taxed at a progressive rate. From what I've read the corporate tax is only 10% of the federal budget anyway.

Edit: This wouldn't stop a company from doing what Amazon did and reinvest all the time but at least given a profit an entity would be pressured to pay out cash in order to cover tax liability of owners. Would help avoid hoarding of cash on balance sheets.

reitzensteinm2• 7 years ago

We have that in Australia & NZ, called Franking. When a corporation pays tax, it receives credits which can be distributed with the dividends it pays out.

While strictly better than the alternative for business owners, I always felt the incentives were a bit weird; if you left profits in the company to expand, you'd pay tax on that up front which would slow growth. So it would bias you towards withdrawing profits (at least compared to the tax policies of other countries).

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

In my opinion, corporate taxation should be tied to liability; essentially being the compensation to society for the risk that your company will go though bankruptcy. If you are willing to be personally liable for your business, you should be able to operate it as a simple pass-through vehicle. And this should apply even to something the size of Apple - investors willing.

It's commonly argued that capital gains combined with corporate tax is double taxation, but limited liability has a huge amount of value; making the link between them explicit and optional would (I think) be the best of both worlds.

smileysteve• 7 years ago

This! Shareholders either extract value through capital gains or through dividends.

And if you eliminate the corporate tax, it follows that repealing the bush tax cuts would be a thing, because no more double taxation argument.

skybrian3• 7 years ago

Investors can delay capital gains tax by not selling their shares. If they delay them until they die, they don't pay capital gains at all. (Step-up basis for their heirs.)

You kind of want to collect at least some taxes in the year the economic activity happened.

dmm• 7 years ago

Flat tax with no exemptions

The difficulty with taxation is not calculating tax rates, that's simple, the difficulty is determining what is taxable income/profit.

0_gravitas• 7 years ago

Some sibling comment to oc seems pretty straightforward: the profit taxed is the profit reported to shareholders

maxxxxx2• 7 years ago

"The difficulty with taxation is not calculating tax rates, that's simple, the difficulty is determining what is taxable income/profit."

Exactly! Flat tax is just another trick to reduce top tax rates while not solving any problems.

slg• 7 years ago

The government would and should never abdicate the potential to control economic incentives through taxes and subsidies.

olliej2• 7 years ago

Can’t we just say “your profit for the purposes of taxation is the profit you report to shareholders?”

rb8083• 7 years ago

Yeah I think this is the real problem. Most people think Amazon makes a lot of money. They even say they made $12B, but they gave billions to of RSUs to employees so the IRS wisely says they didn't make much. The truth is they didn't make much/any money which is why their tax is low.

olliej2• 7 years ago

The problem I have is being able to report different profits to different groups - you should be required to have a single pretax profit number, and that is what you report.

If you really don’t make money then you should be required to report that to your shareholders, and conversely if you tell your shareholders you’re making money, then you should be required to report that value to the irs.

I don’t care which one you use (I mean I do, but in this case it’s not the specific point), what I’m saying is you don’t get to make money by having overvalued shares (by giving one profit number or the market), while not paying tax (by reporting a different number to irs)

andrewstuart3• 7 years ago

Seems logical, but in the USA there always seem to be convoluted reasons why seemingly simple things can't happen, usually the result of vested interests pushing their agenda and getting their way for a very long time.

skybrian3• 7 years ago

Companies already sometimes report two numbers, based on GAAP and some other number that's supposedly more informative. I guess they'd do that even more, and stockholders would understand GAAP as the profits for tax purposes (so, lower) and do their own estimates of the "real" profits.

Andrew Yang's proposal of doing a VAT might be another way around it, though I'd guess that probably has other problems.

jopsen• 7 years ago

The thing is you're not required to pay tax on money that you reinvest in the business.. you would do away with that?

It has upsides and downsides.. it certainly encourages reinvestment, rather than pulling the money out.

malandrew6• 7 years ago

So much of the tax avoidance tactics ends up as more investment and propels our economy forward. Amazon is a prime example. The government taxes profits. Amazon instead of making a profit, reinvests the money into its business.

Even when corporations do stock buy backs, it's not like most of the money goes to the investors to spend frivolously. Instead most of it just gets reinvested in different businesses that have a better plan for the money than the company that did the stock buyback.

Any way you slice it, Warren's plans just reduces reinvestment and puts the brakes on economic growth. You can't tax your way to prosperity unless the taxes are used strictly for things that are an investment in the economic future of the country such as education and infrastructure. Taking the money from those investing it and blowing it on entitlements is a terrible idea.

At the end of the day, all this reinvestment creates jobs and allows individuals to provide for themselves instead of being dependent on sucking at the teat of the state.

moosey• 7 years ago

There are things that Amazon needs done to continue to run it's business effectively. Roads need repaired, crime needs to be kept down to acceptable rates, trash needs to be removed, they need to be defended from foreign nations, etc. The need of the corporations of our nation means that everyone, including these companies that don't build their own roads and militaries are on "the government teat".

The idea that money is better in private hands than in the collective hands of government is a story that is oft repeated, but is far from proven. Arguably, studies I've seen of late show loss of efficiency and increased cost when privatized. This is a requirement for profit anyways.

Further, money spent by government has had massive effect on economic growth. Hoover dam made the much of the West livable, nasa still had massive scientific output, and welfare programs are incredibly effective.

aeternus2• 7 years ago

I'd be interested to know which studies?

While I agree that Amazon should pay their fair share, I find it hard to believe that there is a general loss of efficiency when privatized.

Companies have strong incentives to reduce costs, whereas government projects often have negative incentives to reduce costs. (Cost-plus contracting and use-it-or-lose-it budgets).

NASA is a great example, that organization made some amazing breakthroughs early on, but has arguably stagnated. It is now being surpassed by private companies due to ballooning bureaucracy and cost-prohibitive mission proposals. Something that many thought impossible.

https://www.scientificamerican.com/article/space-exploration...

malandrew6• 7 years ago

Amazon pays for road repair. That happens through fuel taxes.

The main problem with taxes used for roads is that they are grossly distorted. We should be paying for roads on the basis of vehicle miles traveled multiplied by gross vehicle weight per axle. That would force those responsible for the most wear and tear to roads to pay for the maintenance. This may increase the cost of goods and services to cover those costs, but at least then those goods and services will be accurately prices based on the input costs and that will determine if they should be produced in the first place and if so, in what quantities.

If trash needs to be moved, charge for that service. That's what most businesses do. It's part of the costs of doing business and ends up impacting the price of the goods and services produced.

For crime and military, even those are being paid for, directly and indirectly, by the business. By hiring people or making purchases, they are paying sales and payroll taxes and the people they employ are paying income taxes. The amount of taxes paid is proportional to the economic activity they produce. If they reinvest more, they pay taxes on that additional activity.

The idea that some companies pay zero taxes because of zero profits is a blatant falsehood. Their activities still result in taxes being paid, just not on taxes on profit.

aeternus2• 7 years ago

Sure, we should be encouraging reinvestment but how do you resolve the unfairness of companies that choose to reinvest themselves vs. pay out a dividend and allow investors to re-invest?

Amazon benefits from many government-funded programs: educated workforce, road & rail infrastructure, national defense, judicial contract-enforcement, etc.

Is it fair that a company that reinvests gets all that for free while a company that makes a profit pays substantially?

SamReidHughes• 7 years ago

This is true for any form of taxation, such as income/payroll taxes when paying for daycare versus watching your kids yourself.

malandrew6• 7 years ago

How do you resolve that? You let the market decide. By buying Amazon, you’ve decided that Amazon knows how to reinvest that money better than you. If that were not the case, you can sell Amazon shares and buy a company that gives you dividends that you can reinvest as you see fit.

Eridrus2• 7 years ago

Why should I care about the corporate tax burden? Taxes come out of people's pockets, not corporations.

There's an argument to be made that we can get foreign shareholders to pay taxes they otherwise wouldn't, but that's a much different argument than "corporations aren't paying their fare share".

andrewstuart3• 7 years ago

> Taxes come out of people's pockets, not corporations.

That's not correct - corporations are meant to be paying significant tax.

asdfasgasdgasdg3• 7 years ago

It is correct. People own corporations. So if you're taxing a corporation, you're actually just taxing the people that own it. (And/or its customers or employees.) The only point in taxing corporations vs. people directly is if you're trying to target a set that's difficult to tax otherwise, such as rich people who own big corps but don't realize a lot of income on their own balance sheet.

Which IMO is a fair group to target. But that's the point. Corporations are just things that are owned by people. People, ultimately, pay the taxes. So the question ought to be, which people do we want to pay more taxes, and what's the best mechanism to get them to pay those taxes?

Lazare• 7 years ago

A lot of places have a tax on houses, but that doesn't mean the house is paying the tax. :)

Ultimately corporate taxes come out of the pockets of owners (via lower profits), workers (via lower wages), and customers (via higher prices), with the exact incidence depending on a number of factors.

peteradio• 7 years ago

So you are saying tax the shit out of the extremely high earning individuals?

jonknee• 7 years ago

Corporations are owned by people, start by taxing them simply. Income should be taxed the same whether it comes from a dividend, capital gain or as wages.

skybrian3• 7 years ago

It's a nice idea, but tricky to do. The difference is that wages and dividends get taxed in the year they happened and capital gains can't even be calculated until you sell an asset, because you don't know the price it's sold at. And capital gains taxes can sometimes be delayed forever (by not selling).

You could mark to market, but it's tricky for investments that aren't liquid. Do you want to pay capital gains tax on your house every year because the market price is supposedly higher? Do you get it back if the market goes down again?

int_19h3• 7 years ago

Capital gains are taxed when they're realized, and I don't think OP proposed changing that - only adjusting the rate so that it's not less than tax on regular income.

andrewstuart3• 7 years ago

Taxes are a good thing.

They pay, or should pay, for education, health, military, roads and infrastructure and a wide variety of other stuff that is good for everyone.

It puzzles me that people hate taxes so much.

programmertote• 7 years ago

I consider myself a fairly progressive person. But I think at least some of the people, who don't like paying so much taxes, don't like the fact that the government is allocating the tax money collected, and it could, according to their belief, cause inefficiency.

I agree with that notion to a certain degree. For example, I wish there is a way to allocate the tax that I pay yearly to the programs that I want to fund. Specifically speaking, say if I pay $100 in tax, I should have a say to paying at least $50 of that to programs that I think are important for me (e.g., dept. of transportation; dept. of education; EPA...)

chii• 7 years ago

programs that I think are important for me

Which is the whole reason why individuals should not be making such choices. Small, marginalised causes or departments should still get funding.

If we followed your method of fund allocation, some aspects of Govt would not get any funding at all. You may also end up funding departments which don't need as much funding. This misallocation is worse than today's imo.

seanwilson• 7 years ago

I wish there is a way to allocate the tax that I pay yearly to the programs that I want to fund

Isn't that what voting for representatives that represent your general viewpoints is meant to do? You delegate decisions to representatives because it wouldn't be practical to keep up with everything you need to make a large number of informed decisions.

Spooky23• 7 years ago

In the US, anti-tax movement came out of the Goldwater era where Western libertarian and resource extraction people joined up with segregationists to form the modern conservative movement.

The idea is that rugged individuals should have absolute property rights, and that business will take care of things.

TACIXAT• 7 years ago

In an ideal world I would prefer to reduce zoning so I could live near my work rather than pay a ton for roads that don't support me as a cyclist and transit user. For paying for healthcare, many illnesses are preventable and I do not think those should be paid for by others. As well, the military does some super questionable things that I do not support. Working in security, with my partner previously in healthcare IT, we have seen our share of wasteful or inefficient government contracts.

I don't have a solution for a better system, but I can absolutely see why people do not like taxes. They aren't building the world I want to see.

jimmy1• 7 years ago

It puzzles me that people hate taxes so much.

People's problems with taxes typically fall into two buckets, sometimes both.

1. On a fundamental economics level, the Government is an inefficient third party spender: it spends other peoples money on services it doesn't utilize. There is no feedback loop there besides bureaucracy.

2. We actually have a pretty moderate tax burden already, mostly footed by the average US worker. Everyone talks about the top rate, or federal taxes, but we also have sales tax, property tax, estate tax, in some areas a county tax on top of city or municipality tax, and additional education-related taxes, not counting the outlier states that have even more taxes on top of that. (There's a saying in NYC: Every day is tax day). The common worker pays the majority of the taxes, and they are the ones who are most sensitive to any increase in taxes, and feel pinched already, so they naturally, and very expectedly are against being taxed more. (Realize that the typical HN'er is not the average US worker, making ~60k median salary with few benefits)

zzzeek2• 7 years ago

76% of voters favor higher taxes on the wealthiest americans, 61% favor Warren's "wealth tax", and even 40% support a marginal tax rate of 70% on americans earning $10M or more:

http://fortune.com/2019/02/04/support-for-tax-increase-on-we...

this would contradict your theory that "the common worker hates taxes", since most Americans want more taxation, not less.

rb8083• 7 years ago

I'm not sure if you're in America, but in the US it federal income taxes largely goes to 14 giant aircraft carriers, a huge network of nuclear weapons, corporate farmers intensely growing carbs that makes our nation fat and payoffs to various politically well-connected lobby groups. State and local taxes probably are more useful for the things you think benefit society. Social Security and Medicare are of course funded separately. There is nothing for the endless army of homeless people living on the streets.

I know in many countries people are happy to pay taxes, if I saw everyone was treated well, got free healthcare and free universities I'd probably be happier about paying tax too.

jcranmer• 7 years ago

largely goes to 14 giant aircraft carriers

How much do you think the Navy actually costs? Crunching the numbers, the tax the corporation I work at (admittedly, not a small company) is by itself sufficient to pay for running one of those carriers.

tptacek2• 7 years ago

If you're in the US, federal dollars overwhelmingly go to Medicare and Social Security; the United States is a health insurance and HR benefits provider that happens to have an army.

refurb3• 7 years ago

They hate them mostly because the money is wasted or appears to be wasted.

I’m on the more conservative side of things, but I’m not opposed to taxes if they are efficiently spent.

sigzero• 7 years ago

I don't agree with the education part. There are other ways to do that. Health I could be on board for, but they lost me at you get fined if you don't participate. That's crap. A lot of people are already taxed to the breaking point and you would have a hard time convincing them. Lastly, the money is mine and not the governments and they already play fast and loose with taxes.

basetop• 7 years ago

There are specific taxes for specific projects. I'd say specific taxes are a good thing. For example, gas tax for roads, healthcare tax for health insurance, etc. What most people are opposed to is income tax ( which historically was only used to fund wars ).

I wouldn't classify taxes as "a good thing". I'd say it is a necessary evil or something that could be good in a limited form. If it truly was a good thing, then we should maximize the good and tax everyone at 100% and give all our income to the government.

Also, considering the poor state of our education system, healthcare, infrastructure and "wide variety of other stuff", arguments can be made that taxes aren't as good as people think. Toss in the neverending wars to justify military budgets, you could argue taxes are bad.

But I think most sensible people reject the good/bad extremes and take a moderate view. Some taxation are or can be good. It can also be wasteful and bad.

closeparen2• 7 years ago

Puzzlement is good. Puzzlement is on the path to understanding. Pull the thread and see where it goes!

Your examples are great places to start. Is the military good for everyone? How have we been using it since WWII, and how has that worked out?

Is spending on roads good for everyone? Is the Interstate Highway System’s effect on the American lifestyle and built environment, on average, a positive one?

How is education funded? How is funding related to outcomes? Can you improve outcomes by spending more?

How closely does the political process track popular will? What considerations determine whether something gets funded and how much?

The world may be less puzzling (or at least, puzzling in different ways) when you become more familiar with the complexities and controversies in these questions.

calibas• 7 years ago

Don't elect wealthy politicians who are in bed with industry lobbyists and watch things change overnight.

qmanjamz• 7 years ago

Corporate taxes shouldn't exist in the first place. They're just a sneaky way of double-taxing people.

Corporations are really just groups of people. Those people already have to pay taxes on the income they receive from the corporation. They shouldn't have to pay taxes on it again when the corporation reports it as income.

tomhoward• 7 years ago

I'm sympathetic to the argument in principle, but it hinges on the system for assessing income of/collecting taxes from individuals being adequately rigorous and efficient.

The presence of loopholes, tax havens and other mechanisms (including corporations themselves) for hiding personal income means the bucket is very leaky.

Given that corporations have to maintain complete records of their cashflows and disclose them to investors and authorities anyway, using this data for intermediate tax collection seems reasonable.

gnicholas2• 7 years ago

The Bloomberg article links to a blog post by Warren, which is headlined by a graphic that says: You probably pay more in federal income taxes than America's biggest, most profitable corporations.

This strikes me as an inflammatory — and generally untrue — statement. Even if you assume that all of these corporations pay zero federal income tax (they don't), then roughly half of Americans don't pay more (recall Mitt Romney's impolitic-but-true statement about 47% of Americans not paying any federal income tax).

But of course, most companies do actually pay federal income taxes, and when they don't it's often because of loss carryforwards. This particular aspect of tax law is not a "loophole", and lumping it in with lobbied-for tax credits/deductions doesn't help move the discourse forward.

The scope of the proposed tax hasn't been fully fleshed out, and I won't comment in-depth on it (as a former tax lawyer) at this point. But when I click through to see the original proposal and am greeted by this inflammatory and untrue statement, I am reminded that even the wonkiest of policy wonks will spin things pretty hard when it's election season.

refurb3• 7 years ago

The other thing that i see a lot is cherry picking of data. “Company X paid no tax this year”. It’s often because of some event where they had a big loss, conveniently ignoring all the past years where they paid hundreds of millions in taxes.

tschwimmer• 7 years ago

Mitt Romney's statement was not primarily in character a factual observation that 47% of people pay no income tax. It was something far more opinionated and in my opinion, deeply inhumane and unethical. The full quote:

"There are 47 percent of the people who will vote for the president no matter what. All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. That that's an entitlement. And the government should give it to them. And they will vote for this president no matter what…These are people who pay no income tax."

This is Protestant work ethic taken to a corrosive extreme. This is Romney playing to an audience that believes those who take government assistance are conniving malingerers looking to squeeze every penny they can out of hard working taxpayers. It is an indictment of people who had the audacity to be born without the ability to fully support themselves. It begrudges them for daring to ask for a home, food, healthcare and maybe even a few spare moments of happiness.

In my opinion, this type of thinking is the greatest moral failing of the 21th century. It frees the thinker of any social responsibility by demonizing those least equipped to defend themselves.

I do not agree with many of Elizabeth Warren's policy proposals. Her thinking on technology is dangerously benighted. I will not vote for her. But the essence of Warren's argument is that we need to rethink the relationship between the most successful members of society and the least. Tax loss carryforward is a standard accounting practice that makes rational sense. Nevertheless, it's the type of policy that helps those who need help the least, and I think we need to start to rethink these kinds of policies.

We as a society can continue to pass legislation that favors the strong and punishes the weak. What we can't do is look at ourselves in the mirror afterwards and continue to believe that we live in a humane, compassionate, egalitarian society.

gnicholas2• 7 years ago

Tax loss carryforward is a standard accounting practice that makes rational sense. Nevertheless, it's the type of policy that helps those who need help the least, and I think we need to start to rethink these kinds of policies.

Get rid of this and you will find all manner of foolish inefficient corporate behavior. Companies with huge losses will be bought by companies with gains they want to soak up that year. Companies will make investment decisions based on their current year's tax position instead of the needs of the business. The end result will not be a more equitable system; it will be a system in which tax lawyer and accountants are the only ones who come out ahead.

And to be clear, I only mentioned Romney's infamous 47% line because it is well known and makes the point quickly. There's no need to rail against the larger message he was giving, which doesn't bear on whether Warren's headline is accurate or misleading. It leads us down a rabbit hole of discussing whether it was appropriate in the context (stumping to potential donors, IIRC), etc. I only referenced it because many people are aware that he said it and that it was a controversial comment but a true one.

comnetxr• 7 years ago

According to the model in this proposal, corporations report their "true" profits to shareholders, and artificial "profits" to tax authorities using corporate accounting tricks (i.e. https://en.wikipedia.org/wiki/Double_Irish_arrangement) to lower tax liability.

This proposal assumes that, when the tax rate is based on the value of reported shareholder profits, corporations will continue to report their "true" profits to shareholders, rather than just reporting the values returned by corporate accounting tricks to shareholders. I doubt that would be the case. The best argument for it I've seen is "Presumably they want the stock to go up so they will report a profit", i.e. investors will move to companies that are on paper more profitable. But actually, investors do their research and can update their profit models of companies; a higher reported profit number will be seen as (and will actually be) a liability to the company. Companies that forgo accounting tricks will be seen as forgoing potential profit by paying taxes that they don't need to. (The same is true today; if Google announced today that they were voluntarily giving up tax accounting tricks and paying full rate, their share prices would go down.)

The one caveat is whether the SEC enforces that the reported profits really are the true profits. But that model of enforcement (self reporting, cheaters rarely get caught and if they do settle the cases for amounts less than their profits) is silly. If we want taxes paid on true profits, we should implement tax law that precisely defines what those are and instruct the IRS to determine those exactly and send them a bill. Reporting requirements to the IRS should be set up with incentive structures that make cheating unprofitable or impossible.

rland• 7 years ago

Tax for revenue's sake (as opposed as one legislated to change behavior, like a carbon or environment tax) should be 0% on businesses. The rhetoric I see coming from the left is very worrying. "We will pay for this by just taxing 'corporations.'"

What happens under high corporate taxes is that executives of the corporation manage to extract their share, while using the share of those not in control (the workers) to pay the tax. The end result is that the government does not decide who must pay; instead, those with power in the corporation decide. This outcome is always unfair to the worker: a line cook at McDonalds cannot decide whether McDonald's should cut wages or decrease dividends to pay for the corporate tax this year.

That doesn't even describe the case where a business cannot operate under a heavy tax burden and ceases doing business, which is a loss for everyone in the economy.

Taxes on corporations should be reserved for those situations where we need to control behavior at the corporate level, where a tax at the individual level cannot efficiently be used. For example; a carbon tax levied on a corporation to effect the corporation's behavior re: carbon.

This is not an argument for lower taxes.

Warren Has a Good Beginning for Ending Corporate-Tax Avoidance

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