Obama presses to end corporate trick for evading taxes

http://www.reuters.com/article/2014/07/24/us-usa-tax-obama-inversions-idUSKBN0FT13K20140724

by dataminer • 12 years ago

36 60 12 years ago

icehawk219• 12 years ago

Maybe I've just become jaded about American politics but every time a politician says something like this I tend to just assume that they're doing it to gain favor with the public while knowing there's nearly a 0% chance it will actually happen.

jasonwocky3• 12 years ago

These things look the same even when there is an actual chance of it happening.

alwaysdoit• 12 years ago

It's ridiculous that lawmakers to try to guilt or shame companies into paying more taxes. If they want companies to pay more or not use loopholes they should raise taxes or close the loopholes. Otherwise they are penalizing any company that tries to "be patriotic" or "pay its fair share" by forcing it to compete on an uneven playing field with companies that aren't paying those higher taxes.

bitJericho• 12 years ago

How do you expect bills to get passed if the President doesn't talk about them?

jasonwocky3• 12 years ago

He's not trying to guilt companies into paying more taxes. Fairly certain he knows that would be a colossal waste of time.

He's trying to stir up support for closing the loopholes.

mmanfrin• 12 years ago

To change a law, you don't just put up a bill for a vote; you first need to drum up support, which means getting politicians motivated for it which means riling up their political base. That is to say, to change a law, you have to get citizens caring about it -- hence the rhetoric about 'economic patriotism'.

doctorwho• 12 years ago

Sounds good, but they damned well better apply the same rules to individuals who use offshore tax shelters too. How unpatriotic is that? Deserters!

wyager3• 12 years ago

How unpatriotic is that? Deserters!

Yeah! Nationalism! Everyone should put the interests of a blob of land delineated by imaginary lines above their own!

Can we stick to arguments not based on nationalist fervor?

diminoten3• 12 years ago

...he says while sipping a glass of nationally funded water, on his computer which arrived via nationally funded sea ports, which sends data over nationally funded computer networks, using a protocol developed with national funding.

jasonwocky3• 12 years ago

Can we stick to arguments not based on nationalist fervor?

We can, perhaps. The POTUS generally has a harder time winning arguments by doing so.

saosebastiao• 12 years ago

The corporate tax is an absolute mess. Compliance costs are insane. Closing one loophole opens up another. It creates incentives for "paying" executives with look-the-other-way corporate jets and luxury hotels and conferences in the Bahamas.

It is also indeterminate in how regressive it is[1]...some companies and industries can offload almost all of the tax burden (incidence) onto their workers, while others offload it onto their shareholders. Even in the case where shareholders shoulder the majority of the burden, ownership distribution can still heavily affect how progressive it is in reality.

The worst part is that it just isn't that great of a form of revenue. Doubling our effective corporate tax rate would be impossible politically. Superficially, rates can be raised, but tax lawyers will exploit the shit out of it anyway. A coalition might be able to raise it by an effective 25% max before every corporation in the US teams up to vote them six feet under. Seems like a lot of political capital to waste just to get a measly $80B/year. [2].

IMO, the perfect solution would be to eliminate the corporate tax altogether, and tax capital gains and dividends as income instead. At least then you can be assured that it is progressive, and you have more direct control over how progressive it is.

[1] http://www.urban.org/uploadedpdf/1001349_corporate_tax_incid... [1] http://www.kc.frb.org/Publicat/RegionalRWP/RRWP07-01.pdf [2] http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Doc...

chimeracoder3• 12 years ago

IMO, the perfect solution would be to eliminate the corporate tax altogether, and tax capital gains and dividends as income instead.

We already tax capital gains on short-term investments as income. Taxing long-term capital gains at the same rate as income would have a number of other unpleasant consequences

- It would eliminate the incentive to hold investments for longer than 365 days

- It would reduce the incentive to invest in the market (since you would quite literally be paying double taxes on this income, instead of more like 1.5x the tax (which is what we sometimes misleadingly refer to as "double taxation"))

Regarding point #1 - if you sell a stock before 1 year, you already pay normal income tax on any gains. This encourages buy-and-hold, long-term investing, which I believe most people on HN would agree is good for the economy at large, as it reduces volatility and ensures that shareholder incentives are better aligned with growing the company.

Regarding point #2, which is mildly controversial (but IMHO only because it is misunderstood): it is good to encourage investments in the economy, because this is literally how business raise capital. Readers of Hacker News should be well aware of the importance of this in the private equity markets (ie, venture capital, which is technically a form of private equity). Similarly, in the public markets, it is good to create incentives for people to park their money in places which help spur the economy[0].

[0] In theory (obviously not always in practice), providing capital to a business has the potential to stimulate the economy more than providing capital to an individual, as the business uses that capital to pursue a profit, hire employees, etc.

cliftonk2• 12 years ago

In theory you are correct but the marginal investor (who sets the price of an asset) will always trade based on its present day value. So, in reality, it wouldn't affect market rates much.

The corporate tax, on the other hand, is a heinous tax that hurts our economy substantially. We have to make the money somewhere.

dllthomas2• 12 years ago

"- It would reduce the incentive to invest in the market (since you would quite literally be paying double taxes on this income, instead of more like 1.5x the tax"

Please distinguish between:

I make money. It is taxed at X%.

1) I put that money into the market, other people use it to make more money, I receive some money ($Y) for that (in dividends or raised stock price) and that is again taxed at X%.

2) I put that money into making myself a better worker. Next year, I make $(X+Y) more than I would have. The $X I spent, I got to write off as a business expense (maybe). The $Y is taxed at X%.

buerkle• 12 years ago

Point 2: You are not paying double taxes on the income. You are paying taxes on the profit you made selling the investment. If I invest $100 and make $10, I pay taxes on the $10, not the original $100 investment.

cliftonk2• 12 years ago

IMO, the perfect solution would be to eliminate the corporate tax altogether, and tax capital gains and dividends as income instead.

I enthusiastically agree with this. There should be little benefit to holding an asset for longer period to evade taxes. I have friends who regularly end up with losses on trades just so they would avoid being "taxed at income" for gains. It's absurd.

There are also plenty of loopholes for those who know what they're doing... like shorting a futures contract where you own the underlying asset, effectively locking in it's price until past the 12 month mark.

chimeracoder3• 12 years ago

There should be little benefit to holding an asset for longer period to evade taxes. I have friends who regularly end up with losses on trades just so they would avoid being "taxed at income" for gains.

Without more detail, I'm not entirely sure what you're referring to, but you seem to be conflating two concepts (the tax effects of a long-term capital loss and the tax effects of a short-term investment compared to a long-term investment).

IMHO, there absolutely should be a benefit to holding an asset for 12 months (compared to less), as buy-and-hold investing is better for the companies being traded, and reduces volatility in the economy compared to speculative day-trading[0].

like shorting a futures contract where you own the underlying asset, effectively locking in it's price until past the 12 month mark.

This is a strategy that's beyond most casual investors who simply trade mutual funds, sure, but I'm not sure I would classify this as a tax loophole - if so, we'd have to call a normal covered call an "investment loophole".

[0] This has nothing to do with high-frequency ("ultra short-term") trading by computers; it's about encouraging long-term vs. short-term investing by individuals.

Alupis5• 12 years ago

Absolutely in agreement. The Tax code in the US is insane.

Instead of criticizing companies that do the math and determine it's a smart [business] decision to relocate or whatever just to reduce tax liability, why not instead focus on what is making these companies so inclined to make said decision?

Shivetya• 12 years ago

What companies are doing is nothing more than citizens within the US can and choose to do, they move to places where their tax burden is less. Where you can get the same or similar services for less of your income.

However politicians know it is easy to vilify corporations thereby allowing them to either out right lie about how taxation works or lie by omission.

Companies moving their head quarters out of your country should be a clear signal that your doing it wrong, except in the case of the US politicians want to punish them for doing what is right for them, their share holders, and their employees.

The power tripping in Washington is so extreme that punishing is their first reaction to anything they don't like.

Scuttles• 12 years ago

The Administration will probably just Executive Order their way into a "solution".

MereInterest• 12 years ago

I'm confused. If I cut off my big toe and mail it to a different state, can I claim that I should only pay taxes in that state? Why, then, can a company move a small and inconsequential part of itself to a different jurisdiction, then be taxed under that other jurisdiction?

Companies moving out entirely would be analogous to people moving. Companies moving out on paper while continuing to do business in the same location is analogous to tax evasion.

davidw• 12 years ago

What companies are doing is nothing more than citizens within the US can and choose to do, they move to places where their tax burden is less.

Wherever you, as an individual, move in the world, you are still supposed to pay US taxes. The US is one of the very few countries in the world to do this. The number of people renouncing their US citizenship to get away from this is on the rise.

rogerbinns• 12 years ago

What companies are doing is nothing more than citizens within the US can and choose to do, they move to places where their tax burden is less.

Note that is one thing US citizens cannot do, if you mean a different country versus a different state. The US is one of relatively few countries that tax citizens (and green card holders) no matter where you choose to live, or where your income is earned. (There can be some allowance for taxes already paid.) You can of course give up your citizenship, but good luck getting back into the country.

The amusing thing is that corporations are legally considered people. Why aren't these now foreign companies forced to jump through similar hoops foreigners are, and also subject to the same restrictions on applying money to the political process?

ebiester• 12 years ago

This would require significant tax treaty changes. http://www.crossborderalliance.com/Resources/NRA%20Tax%20gui... has some of the basics of how it works.

Essentially, this has major consequences on foreign investments which were built on the assumptions of a individual tax.

Further, there are trusts that can limit tax burdens. It is quite possible that the total taxation would decrease, and it would decrease on those at the top of the heap, not at the bottom.

We would have to figure out how to rebalance. Consider this a refactoring on code that is not easily unit testable.

crazy1van• 12 years ago

"Economic Patriotism" as described here is a ridiculous concept. There is nothing patriotic about demanding that another guy pay more taxes. Its like signing up someone else for the military. Want to show patriotism? Write a check of your own money to the Treasury Dept.

Edit: I don't mean to suggest the tax code shouldn't be changed. I just mean compelling others to sacrifice, doesn't make a person patriotic.

SolarNet3• 12 years ago

But the argument here is that corporations are not paying their fair share of the taxes. To pay your share of taxes is patriotic. Hence avoiding taxes, while reaping the benefits, is not patriotic. People get angry when poor people abuse welfare, why aren't they annoyed when wealthy companies abuse a countries benefits. We have an educated base of people, a leading technology base, a law structure which favors corporations in many ways, and a secure place to put offices, all of which the government is directly responsible for. (I would have also put, infrastructure but... we don't have that anymore, nor do we have low crime rates, at least in comparison to other modern industrial nations).

We aren't calling Obama patriotic for suggesting or implementing this. We are calling the companies who do this anyway, who pay U.S. taxes when they could avoid them, patriotic, and those who don't, who mainly operate here, who reap the benefits of our country and don't pay their share? Parasites.

Millennium• 12 years ago

But what does it mean to pay one's fair share? What criteria should be used to determine it? Are taxes the only way that one's fair share can be paid? How should we treat outliers on both ends of the spectrum?

We haven't even finished debating questions like these. Yet taxation is needed in some form, so people do the best they can. Unfortunately, that means planning based on the assumptions of specific answers to unsettled questions.

to3m2• 12 years ago

You seem to be describing tax evasion. Tax avoidance is paying your share of tax!

delecti• 12 years ago

I think he is incorrect in his assertion that companies should choose to pay more taxes than legally required, but I think he is right to say it, because it'll build political support for changes to laws which (in my opinion) need to be made.

Alupis5• 12 years ago

In the US, we encourage everyone to "go out and live the American dream". Open a business. Be successful!

But as soon as you become successful, we will punish you via a huge tax burden among other things.

We explicitly advocate success, yet implicitly advocate punishment of success.

It's not hard to imageine why so many companies often see relocation as a way to relieve their tax burden. It's nothing a normal citizen doesn't do.

Instead of focusing on punishing companies (who will eventually just up and leave altogether), we need to fix the core problem that is encouraging the behavior -- ie. the tax code.

talmand4• 12 years ago

You bring up the part I'm always bothered by with the rich people complaining that the current tax code doesn't tax them their own fair share.

The Treasury Department is more than happy to accept above and beyond your current tax liabilities.

But it's not tax deductible.

peapicker• 12 years ago

Bad headline. The "trick" is not a trick, it is allowed under the current law. Should read, had the headline been written by an objective journalist, "Obama presses to close corporate tax loophole."

talmand4• 12 years ago

I would even say that referring to it as a loophole is not fair.

"Obama presses to reform badly written corporate tax laws."

mark_l_watson• 12 years ago

Actually, the US government is behaving very rationally. Realizing the pressure on the US dollar, especially since progress is already happening in moving to SDRs (special drawing rights) as the world's reserve "currency" and trading blocs are increasingly using their own currency for bilateral trade.

President Clinton signed a bill that confiscates part of someone's net worth over a threshold for renouncing US citizenship and moving to another country. Bush and Obama are taking similar steps to keep assets in the USA. While it is reasonable to go after money laundering, it is becoming increasing difficult to do some business transactions internationally, open bank accounts in countries where one spends a lot of time on vacation or has residency, etc.

nateabele• 12 years ago

I feel compelled to bring up, as a public service, that 'patriotism' has nothing to do with one's government, and using it in an attempt to manipulate people into financing more and more mass murder is disingenuous and disgusting.

tyoma2• 12 years ago

Wait, US corporations are moving to Europe for lower taxes? I thought taxes there had to be extraordinarily high to support their free healthcare systems, paid maternity/paternity leave, and lengthy vacations?!

On a serious note, I wish articles like this actually gave some mechanics about the actual 'tax evasion'. The issue is that the US taxes worldwide earnings at the US tax rate. Other countries, such as the UK[1] don't do this. So if you're a multinational with sizable non-US earnings, it makes a lot of sense not to be domiciled in the US.

[1] https://www.gov.uk/government/uploads/system/uploads/attachm...

talmand4• 12 years ago

I believe you answered your own non-serious question.

If the foreign nation only taxes the company for profit inside the nation and the US taxes profit worldwide, then it isn't too hard to see the better deal even if the foreign nation's tax rate is higher.

tyoma2• 12 years ago

The UK corporate tax rate is lower, 21% vs 35% in the US.

Obama presses to end corporate trick for evading taxes

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