Here's something interesting: The US has the second highest corporate tax rates of all OECD countries, whereas most EU countries have much higher personal income taxes.
Now this might be misleading. My roommate is a corporate/tax law student and he was dumbfounded by this. He pointed out that the effective tax rate might be quite different.
That's the whole point. One metric to measure how much the government takes. Otherwise it's quite difficult to pick through the various methods of taxation.
Denmark also has a less regulated financial system than the US. The idea of the US, when compared to Europe as representing extreme laissez-faire capitalism, is not an accurate reflection of reality. They're all variants of state-regulated semi-free markets.
Tax rates are pretty meaningless to compare because of differences in credits, deductions, and methods of calculating tax base. And, for that matter, different sets of taxes affecting the same entity with different names.
In the US especially (and also a large extent in Europe) companies bribe/lobby themselves to favorable laws, so in many cases the effective tax-rate is much lower.
For example, Apple pays an effective tax-rate around 15% (US 'official' corporate tax is at 35%).
Apart from tax-payers loosing out on revenue it also distorts competition, since smaller firms cannot lobby and evade taxes to the extent larger firms can, leading to lower ROE and thus less investment.
While your points are true, the third does not follow from the first two. Favored industries do get tax breaks, though more for garnering targeted votes than lobbying. That's why Exxon pays 15% and WalMart pays 30%.
The tech industry, including Apple, largely does not benefit from targeted tax breaks. They lay low taxes because they deal in IP and have international operations, which allows them to easily shift taxes to lower-tax jurisdictions. It's easy to look at Wal-Mart's supply chain, which involves widgets, and see where costs were incurred and profits made. Much less so with Apple.
And those tax rules tech companies take advantage of are not loopholes or tax breaks. They're reasonable and sometimes intrinsically necessary tax rules that can be arbitraged in an international system (often with the explicit aid of legislatures in countries like Ireland).
Another one is to use the money parked abroad (i.e. not yet taxed) to buy expensive things and then write down most of the asset a year or two later.
---
"[they] are not loopholes or tax breaks. They're reasonable and sometimes
intrinsically necessary tax rules that can be arbitraged in an
international system"
Sounds exactly like tax-evasion to me! :)
---
Also, to be clear, I love capitalism and happen to think that 35% corporate tax is a bit too high (~25 feels reasonable).
What I don't like is larger firms having lower rates (unfair) and many countries loosing out on tax revenue with a few 'tax havens' getting loads of tax-revenue while producing nothing of value -- Luxembourg, Lichtenstein, British Virgin Islands, Ireland (to some extent) etc.
No. That's tax avoidance. Evasion is when you actually don't pay taxes that you legally owe, e.g. by hiding your income.
There is some idea that people and companies have a moral duty not to organise their affairs in a tax efficient way. But the laws they lobby for are just what create the distortions.
I think it's besides the point to discuss the specific definition of avoidance/evasion/planning/etc.
Also, many countries has a law that basically says that anything a company does to reduce their amount of taxes without serving a business purpose is illegal. In other words, if don't have a very good reason for why your taxes are paid in the Bahamas when 99% of your sales is outside the Bahamas, it won't fly in court.
I think the responsibility is with governments (though I do think many companies act immorally) to provide a fair, simple tax-system and to prohibit and persecute tax evasion/avoidance/etc.
> And those tax rules tech companies take advantage of are not loopholes or tax breaks.
"The regulations, however, had significant unintended consequences and opened the door to a host of tax avoidance schemes. Under Subpart F, passive income paid from one separate legal entity to another separate legal entity – even if they were both within the same corporate structure – was immediately taxable. However, with the implementation of the check-the-box regulations a U.S. MNC could set up a CFC subsidiary in a tax haven and direct it to receive passive income such as interest, dividend, or royalty payments from a lower tiered related CFC without incurring Subpart F income. [...] On March 26, 1998, Treasury and IRS then proposed regulations to close the loophole opened by the check-the-box rule."
That's true, but the bigger issue with corporate taxes in the US is that large multinationals funnel their income to low tax countries. And that's [partially driven by the very high rate.
I didn't know that. I always thought it very unfair that individuals have a much higher tax percentage to pay than corporations, and somehow I tought the US wasn't like that.
Why is that unfair? Perhaps the fairest system would
remove corporate taxes entirely and recoup it from income tax increases. That way rich shareholders will pay at the maximum tax rate, while ordinary savers who's mutual fund happens to invest in a corportation pay at a lower rate.
There could be practical reasons against such a scheme, Maybe it would be easier to game than the current system. But the point is, fairness consists in distributing the tax burden among people -- abstractions like "corporation" are neither here nor there.
Now this might be misleading. My roommate is a corporate/tax law student and he was dumbfounded by this. He pointed out that the effective tax rate might be quite different.
In any case it's not what you expect.
>https://en.wikipedia.org/wiki/List_of_countries_by_tax_rates