Paying our fair share.

[meus-ovatio.livejournal.com]

I am naturally sympathetic to the idea of reducing corporate taxes in the United States. But what strikes me is that my misplaced concern is well... misplaced. Perhaps if we tax them less, workers can get more of a share. This doesn't work out. Corporations have been steadily paying less and less taxes for thirty years, and workers aren't getting anything but debt and credit cards. The problem, as it always is, is that statutory tax rates and actual tax rates have very little to do with each other. Whenever you hear people whining about U.S. taxes, it invariably takes on some form of complaint about "complexity" or it being "burdensome". Of course, just why it is so burdensome is largely left off in silence...

...because corporate taxation is a game. Very few companies pay anywhere near 35 percent of their profits in taxes. In fact, the largest corporations in America pay zero percent in taxes. The idea that lowering tax rates will stimulate revenue is specious in this environment. They're already paying zero.

And don't think it is a very expensive game either. Paying three lawyers a total of 300,000 dollars per year in salary is pretty much all it takes to finagle the system. This is not even counting outright tax evasion caught by various countries like Norway, Sweden, Denmark or Iceland. The idea that anyone in corporate America (or elsewhere) pays anywhere near their statutory tax rates is a farce. There are all kinds of games. "Transfer pricing", for instance, is where you sell some product made in country X, to a subsidiary in country Y, at a loss, so that tax burdens are reduced in country X. That really pisses people off. Country Y, of course, has a significantly lower tax rate, so the difference is easy to cover.

Another game is to pay rent to yourself and deduct the cost. That is impressive. I like that one. That one deserves a medal.

The oil companies, however, often pay at or above 35 percent, because oil companies are generally tethered to foreign countries that charge more than the United States. In the oil industry, America's tax burden is decidedly behind the power curve in comparison with the major oil-producing countries. (And let's face it, giving Exxon a break is not going to stimulate oil jobs in America.) Even then, ExxonMobil paid zero taxes to the United States.

As for the banks, well, they have no tax worries for a long time to come. Bank of America is on the hook for some 50 billion dollars worth of steady losses, all of which will be incrementally meted out to offset any and all profit income. And as we all know, losses offset gains and revenue. So, so much for BofA or Wells Fargo paying their fair share. At least they'll lend us money. Or maybe not.

Hewlett-Packard pays about 18 percent in taxes. In the communications sector, for example, capital outlays and investment in infrastructure are tax deductible, meaning that all of your fancy new phones and 4G networks are effectively subsidized by you and your ridiculous cell phone bills.

Overall, the decline in corporate citizenship is best shown by the following numbers: Corporate taxes paid for more than a quarter of federal outlays in the 1950s and a fifth in the 1960s. By the second half of the 1990s, corporate taxes still covered 11 percent of the cost of federal programs. Inn fiscal years 2002 and 2003, corporate taxes paid for 6 percent of federal expenses.

The 2003 effective tax rates for sectors were as following: transportation (4.3 percent), industrial and farm equipment (6.2 percent), telecommunications (7.5 percent), electronics and electrical equipment (10.8 percent), petroleum and pipelines (13.3 percent), miscellaneous services (14.4 percent), gas and electric utilities (14.4 percent), computers, office equipment, software and data (16.0 percent), and metals & metal products (17.4 percent).

And don't think it's about jobs or innovation either. American innovation has fueled three decades of outsourcing. What, do you think automation and technology improvements exist for any other reason than letting the company move jobs off-shore? You think all that fancy, high-paid engineering means anything other than being able to get monkeys to push buttons that produce your widgets? Come on now, you know better than that. Jobs move based on prevailing wage, and resource availability. You can't move jobs that you can't down-train to barely educated workers.

So why all the yammering about corporate tax? Because it makes for good copy, confuses people, and keeps your eye off the ball.

Comments

[squidb0i.livejournal.com]

My only beef: backup for your claims.

Not that I'm arguing against - I completely agree.

But you know that others will.

[meus-ovatio.livejournal.com]

Nah, I'd rather see who pretends to know anything about business and those who are fully familiar with the well-known common knowledge of actual operators.

[squidb0i.livejournal.com]

Fair enough.

[gunslnger.livejournal.com]

While it all sounds plausible (and thus likely isn't completely accurate), I'd agree with squid. Show some factual support for your assertions. "Common knowledge" is often wrong.

[mahnmut.livejournal.com]

Reminds me of a quote from Discworld. Something along the lines of:
"Ankh-Morpork is not lawless. We have many laws. It's just that nobody obeys them."

[rev-proffessor.livejournal.com]

The Turtle Moves.

[torpidai.livejournal.com]

The Camel I'm led to believe is of doubtful parentage!

[policraticus.livejournal.com]

The most uncommon knowledge is that all corporate taxes that are paid don't come out of the evil company's pockets, but out of the consumer's.

[chron-job.livejournal.com]

A truism of any business cost.

But not really relevant to the problem stated. Consider: If we presume that the tax burden is always passed along to consumers, and if we further presume that because of their size some corporations have an extreme advantage in avoiding tax, then, from the perspective of the consumer, large corporate services will simply be more efficient than equivalent services provided by smaller single owned proprietorships, partnerships, or small corporations. They have a competitive edge created not by worker productivity or better manufacturing processes... but simply because they're better at gaming the tax code. Such an edge will most probably manifest itself by such beasts pushing any competitors out of the market (except for some niches where other forces predominate.)

Large corporations already exploit many other more legitimate efficiencies of scale. Do they need yet another? If we're interested in rewarding the real efficiencies of production, rather than the pseduo-efficiencies of tax manipulation, it behooves us to modify the details of our tax code so that the system isn't so easily gamed.

[policraticus.livejournal.com]

it behooves us to modify the details of our tax code so that the system isn't so easily gamed

I agree. Abolish the corporate tax and the capital gains tax, lower the income tax rate, eliminate the deduction boondoggles and add some kind of consumption tax to be named later.

[chron-job.livejournal.com]

> Abolish the corporate tax

Why not abolish the corporate legal structure itself? It's just a way of avoiding liability by inventing a fake person to take the fall. Then, the formerly 'corporate' profits would either get taxed more prosaically as either the owners income, the employee's wages, or capital gains.

> capital gains tax

Alas, there are people who's entire job and income fall under the current definition of capital gains (managers of Mutual funds, for instance) Why is there work tax free, or even at a lower rate, then a guy on an assembly line, or an engineer?

> lower the income tax rate

As long as the revenue is made up somewhere else, and in a non-regressive way, I'm not adverse.

> eliminate the deduction boondoggles

It hurts me to say this, since charitable giving will take such a hit, but it might be that the costs of an exploitable tax code outweigh the benefits of a mechanism to inspire charity.

> add some kind of consumption tax to be named later.

Again, no argument in principle, but it would have to be very intricately targeted and tweaked to keep from being regressive. Such a system might end up introducing more complexity than it removes.

[policraticus.livejournal.com]

Why not abolish the corporate legal structure itself?

Because corporate structures are useful. They encourage people to take innovate while dispersing some of the risks and hopefully multiplying the benefits.

people who's entire job and income fall under the current definition of capital gains... Why is there work tax free?

That would have to be addressed, but I'm not sure how. If they are paid out of the gains accrued by others, as in the case of a fund director, then I don't see why that isn't simply a salary. Tax it as simple income.

the revenue is made up somewhere else

A lot of this is predicated on substantial change in our patterns of spending. So... I wouldn't hold my breath.

since charitable giving will take such a hit

I think you might be surprised.

[rasilio.livejournal.com]

"It hurts me to say this, since charitable giving will take such a hit, but it might be that the costs of an exploitable tax code outweigh the benefits of a mechanism to inspire charity."

Yeah, I don't think there are really very many people who are going to donate $100 to charity so they can save at most $35 in taxes (and that is before you account for the cost of acquiring and maintaining appropriate paperwork to get that deduction).

Tax deductible charitable donations certainly help charitable donations however I doubt that it is a significant amount.

[politikitty.livejournal.com]

Doesn't this ignore that most consumption taxes weigh heavily on capital intensive businesses? And including loopholes might save coporations money, but the cost of compliance is still pretty high.

[policraticus.livejournal.com]

I see it as a pretty modest tax. I would have no loopholes. Loopholes are a problem. If the tax isn't fair without loopholes, in my opinion, it shouldn't be a tax. But that is just me wanting things to mean what they say and say what they mean.

[politikitty.livejournal.com]

A modest tax that in 2009 raked in almost exactly the amount of the federal corporate income tax. (sales tax (http://www.cost.org/Page.aspx?id=69654) | income tax (http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=203)) And that includes states without consumption taxes, generous manufacturing exemptions and virtually no taxes on services.

Federal corporate taxes are only 130 billion. At the state level the tax burden is 540 billion. If we're truly concerned about hurting business growth through taxation, we're not looking at the right problem.

[policraticus.livejournal.com]

No, I was talking about my amorphously proposed consumption tax, which would hit everybody. Not the current corporate tax!

We're looking at the right problem, just not all parts of the problem in this particular post. I'm with you on the state taxes, totally agree, but that is something dealt within each state.

[politikitty.livejournal.com]

Right. And there's no reason to suppose that your amorphously proposed consumption tax would be more modest than current federal corporate tax.

Right now businesses are paying about the same in consumption taxes as they are in federal income tax. The study distinguishes the sales tax paid by consumers and businesses. A bit over one third of consumption taxes are paid by a business. And that's with some business friendly exemptions in place.

Exactly how will your proposed consumption tax be even more modest?

And remember, once you hit ten percent in consumption taxes (something a lot of states are already painfully close to), studies find that evasion goes WAY up. Even in VAT systems. The Laffer curve is much more lenient on the income side because it's easier to police income flowing in than out.

Economically speaking, the inefficiency of imposing a flat consumption tax and a flat income tax are the same. So exactly where is the benefit of a consumption tax over an income tax?

[policraticus.livejournal.com]

My amorphous proposal envisions both a income tax and a consumption tax, hopefully amounting something less than the current rate, on average. Something like a mildly progressive income tax ending at about 25% and a federal sales tax of 3%? It is seriously too complicated to be didactic about this, but that is the fantasy.

My idea is based on having all taxes be as direct as possible. The biggest problem with the corporate tax, to my mind, is that it is really an indirect tax on the corporation's clients. I want taxes to be paid as fully and directly by the people as possible. That's why I would eliminate all write offs, all incentives, etc. Ideally, and this is pure fantasy, I'd eliminate withholdings. Everyone would sit down on April 15th and write out a check to the US Treasury for the sum of their tax burden. Yeah, I'm not holding my breath.

I'm with you on the trade offs between the various sales/VAT/income taxes. My main reason for wanting the two pronged approach is to put as many people on the hook for taxes as possible. Let the income tax bite the more wealthy and let the consumption tax remind the less wealthy that they also have a stake in fiscal responsibility. Yeah, I know, I'm not holding my breath for politicians to let people know explicitly how much government costs them.

[rasilio.livejournal.com]

"Everyone would sit down on April 15th and write out a check to the US Treasury for the sum of their tax burden. Yeah, I'm not holding my breath."

lol I couldn't agree more but the reason this will never pass is it would give more people real insight into what they really pay in taxes and therefore they'd be a lot more sensitive to any tax increases.

[policraticus.livejournal.com]

Can you imagine? I would have written a check for almost $6K. Even that relatively small amount focuses the mind on the direction of the federal budget to an uncomfortable degree.

[rasilio.livejournal.com]

The taxes might be higher, but the compliance costs are negligable since consumption taxes are typically collected at the point of sale by the seller and then passed to the government.

[politikitty.livejournal.com]

Working in state and local tax, I'm pretty sure that's not true.

Compliance is continual, rather than seasonal. When we make purchases out of state, we usually have to maintain the invoice and pay tax directly to the government. If we buy 1000 widgets to send out to 15 stores, we need to keep the records and file in 15 different jurisdictions. You need to keep evidence of your customers, and if you sell anything wholesale, you need records of resale certificates. Should you try to cut your losses (as cell phone companies do) and sell something under the wholesale cost, you need to maintain resale certificates and make certain they are kept up to date. Some states expire every year, some every four years.

The number of companies I've seen pay thousands in tax that they legitimately don't owe, but failed to maintain records is abysmal. Further, every income tax audit I've seen has been a cakewalk compared to the clusterfucks of sales and use tax audits.

The Supreme Court has found that income taxes have nexus if they merely have economic presence in a jurisdiction. Conversely they've consistently found that for consumption taxes, physical presence is required. Their reasoning has been that the costs of complying with sales and use tax is simply a too costly a detriment to interstate commerce and violates that clause in the constitution.

[rasilio.livejournal.com]

Yes, because you are looking at a State Consumption taxes, a Federal Consumption tax would be the same everywhere.

[politikitty.livejournal.com]

The Supreme Court has found that local income taxes are not as costly to apply as local consumption taxes. So the burden of taxation can be higher without impeding commerce.

Does the United States not have borders? Do we not have imports and exports? There would still be a need for resale certificate maintenance, use tax accruals and returns would need to be filed monthly, if not biweekly like payroll taxes.

With income tax there is a busy season. With sales and use tax, there's always work. You are extra busy when an audit comes along. Or you need to renew your registration. Or you need to implement a rate increase or sales tax holiday. But a company is constantly incurring costs of compliance.

You, rasilio, wouldn't have to pay anything for the compliance. But isn't that the problem with indirect taxes? We don't know what we're paying because it's imputed in the price of goods and the wages we're offered by our employers.

That's bad governance, and a serious move towards what people say they hate about the current system.

[rasilio.livejournal.com]

Mostly true but not 100% accurate.

The true part is that corporations NEVER Pay taxes.

The not quite true part is that it is always passed on to the consumer.

In most cases it is, however it is also possible that the corporate taxes come out of the pockets of the employees in the form of lower pay or in very rare circumstances out of the pockets of the owners/shareholders in the form of lower profits.

Either way some private individual is paying the taxes and not the corporation

[policraticus.livejournal.com]

Fair enough.

[nevermind6794.livejournal.com]

Most of the burden is actually on wages at the company. Not sure how that's spread amongst high- and low-earners.

[policraticus.livejournal.com]

One way or another, it doesn't come off the bottom line.

[badlydrawnjeff.livejournal.com]

Very few companies pay anywhere near 35 percent of their profits in taxes. In fact, the largest corporations in America pay zero percent in taxes. The idea that lowering tax rates will stimulate revenue is specious in this environment. They're already paying zero.

SOME pay zero. You've read the headlines but not the stories (http://www.reuters.com/article/idUSN1249465620080812):

The Government Accountability Office said 72 percent of all foreign corporations and about 57 percent of U.S. companies doing business in the United States paid no federal income taxes for at least one year between 1998 and 2005.

This is because we tax profits, and if profits are low and they note their losses in other areas, that tax level goes away. 10-15% of the US's revenues come from corporate taxes (http://www.taxpolicycenter.org/briefing-book/background/numbers/revenue.cfm), so clearly they're paying them.

In the oil industry, America's tax burden is decidedly behind the power curve in comparison with the major oil-producing countries. (And let's face it, giving Exxon a break is not going to stimulate oil jobs in America.) Even then, ExxonMobil paid zero taxes to the United States.

Again, stop reading ThinkProgress and start reading the actual articles (http://www.forbes.com/2010/04/01/ge-exxon-walmart-business-washington-corporate-taxes_2.html):

Though Exxon's financial statement's don't show any net income tax liability owed to Uncle Sam, a company spokesman insists that once its final tax bill is figured, Exxon will owe a "substantial 2009 tax liability."

Here's a blog post showing Exxon's tax liability in 2006 and 2007 (http://seekingalpha.com/article/63131-exxon-s-2007-tax-bill-30-billion). All oil companies pay taxes - both on profits and on severance taxes. The taxes themselves are ridiculously high. Will cutting them stimuluate oil jobs? Probably not, but if you don't think that lowering or removing those taxes will do a significant amount of lowering business costs for those who use oil...

Overall, the decline in corporate citizenship is best shown by the following numbers: Corporate taxes paid for more than a quarter of federal outlays in the 1950s and a fifth in the 1960s. By the second half of the 1990s, corporate taxes still covered 11 percent of the cost of federal programs. Inn fiscal years 2002 and 2003, corporate taxes paid for 6 percent of federal expenses.

But I thought the corporations were already paying zero. That's what you said 5 paragraphs ago.

So why all the yammering about corporate tax? Because it makes for good copy, confuses people, and keeps your eye off the ball.

Because removing the corporate tax is the best, easiest option we have to lower the cost of doing business. 100% of that tax is passed along to the consumers of the product the corporation is providing, so removing that tax removes some uncertainty and gives a significant assist.

[eracerhead.livejournal.com]

Many municipalities have adopted a gross receipts tax. These taxes are fixed and simply added into the cost construction as a known expense. What we will eventually pay in federal and state taxes is largely a guess. When tax time comes there is a great emphasis on paying as little as possible because as it is done post-hoc, it directly affects profit margins. A better, simpler system IMO would be for the fed to also adopt a gross receipts tax. It would certainly stop a lot of the nonsense and would reduce a huge volume of paperwork and tax regulation that is a significant expense to small business.

[3fgburner.livejournal.com]

Let's say you have a gross receipts tax of 30%. Your actual profit margin before taxes is 1%. You're now sustaining a net loss of 29%, and go out of business.

[eracerhead.livejournal.com]

Gross receipts taxes are generally A LOT lower than income taxes. They are more in line with a sales tax. You would not be sustaining a loss because the taxes would be built into your cost construction -- every business pays so it is competition neutral.

[mahnmut.livejournal.com]

An interesting and well-thought-out topic on taxation in TP. My cap is off to you, sir.

I'd be interested to hear your thoughts on how to fix this problem - my own lean towards the decimation of Wall Street and businessmen hanging from lampposts, which is *a* solution but not necessarily a good solution. But then I take an extremely dim view of corruption, be it corporate, political, or personal.

I'd guess an immediate practical step would be to make sure the various regulatory agencies are properly staffed, properly funded, and not in the pockets of the industries they're supposed to regulate. But that's sounding pie-in-the-sky already...

Personally, I'd just take two approaches: first, that "too big to fail" = "too big to exist" (and that any bank which took bailout money should be broken up), and, second, put something in place that makes people pay for their shitty decisions. We're where we are because of two things: First, the bankers who recklessly loaned money to people they knew couldn't repay it (and they had to have known, given that they drew the damn contracts up), and, second, the borrowers who borrowed money they didn't need, couldn't repay, and didn't use productively.

The first group did what they did to get Big Fat Bonuses (tm), knowing that they'd have moved jobs before the consequences caught up with them, and the second did it because they'd had it drummed into their heads that it's everyone's right to own a home, when it's not, and that everyone should have two plasma-screen TVs, three cars in the driveway and a boat in the back yard, even though they couldn't afford them. I'm inclined to be harder on the first group than the second - they acted out of deliberate greed, while the second acted out of ignorance.

Btw a good litmus test to see if its too PITS is to see if Obama appoints Elizabeth Warren to the head of the CFPA. If he does, then there's some hope. If he doesn't, then you know who owns him.

[enders-shadow.livejournal.com]

and people wonder why i hate on corporations

[gunslnger.livejournal.com]

We don't wonder. We know it's out of ignorance. ;)

[rasilio.livejournal.com]

Oh I don't know

I'm pretty staunch libertarian and I hate corporations too.

[gunslnger.livejournal.com]

Hence the winky face, as I was talking about him specifically, not people in general.

[politikitty.livejournal.com]

That ignores the fact that states have increasingly been getting their revenues from businesses.

So while federal outlays might be low, combined corporate tax rates in America are actually higher than most of the rest of the world.

Frankly I disapprove because corporate taxes are an indirect tax. They fall on whoever the corporation decides. Giving up that level of control when we profess to want a progressive tax scheme seems counter-intuitive.

[debergerac.livejournal.com]

avoid the rush. form a limited partnership and avoid corporate taxes.