This is a new kind of imperialism.
The G7 makes up the rules, under the guise of fighting tax evasion or financing of terrorist activities.
Then they make all the less powerful countries comply to those rules.
If they do not, they get greylisted or blacklisted by some "international" watchdog, making it much harder for those countries to participate in the global economy.
Of course only the poorer less influential countries will suffer under such arbitrary rules dictated by the G7.
Nobody is going to greylist the US or Germany.
It is effectively a new mechanism for the G7 to encroach on the sovereignty of other countries.
And if you tell me, taxing international corporations is a good thing, I agree, but it is just a pretense. Just a setup. The G7 can also just tell those international corporations to fess up the money. They have enough influence to do just that. There is no reason to include Poland, Sri Lanka or Botwana or Bolivia in this agreement. The reason those countries are included is so that later on, the same agreement can be used to blackmail those countries.
It does seem like e.g. the US could impose this unilaterally. You, a company, have to make two tax returns: one on all the money you made here, and one on all the money you and/or your relevant "parent" corporation made elsewhere. Same rules to calculate taxes in both cases. On the latter return, you can subtract the sum of the taxes you paid elsewhere from the tax owed. The rest belongs to the US government.
At that point there'd be no point in a country offering cut-rate taxes to any corporation that does substantial business in the US, because taxes on any profit realized internationally will still be collected. It's just that the US is taking them rather than the country that's offering the cut-rate tax deal. So that country (Ireland or whoever) no longer benefits from having low corporate taxes, and they might as well have taxes at least as high as those in the US.
It seems like any sufficiently important country or union could impose a rule like this if they wanted to. There must be some facet of international law that prevents it, or some other complexity to the idea that I'm missing.
> they pay the maximum of the US income taxes and the residence country income taxes.
The IRS collects on income over $108k/year, and income over that amount is taxed at that bracket and higher. Foreign Tax Credit also prevents double dipping by the IRS.
I’m neither a lawyer nor an accountant but I’d expect it to run counter to all existing double taxation agreements. All those agreement would have to be cancelled or renegotiated - that’s a lot of work.
Double taxation agreements describe rules to assign the taxation of an activity to a jurisdiction. The other jurisdiction can then no longer tax that activity.
With your proposal you do end up taxing it twice, just at a reduced rate. As I understand it, that would require changes to double taxation agreements.
It is not bad as long as you own stocks, which you can exchange into material goods.
Like some of my friends can afford a decent house, but prefer renting because it gives greater flexibility (they can rent a small flat in the center of the city in a walking distance to the office and meet with friends often while they don't have children instead of investing into big house in the suburbs with empty rooms they wouldn't use).
But if you own nothing and don't save, this is bad.
The UK did a great thing last year, they increased to minimum payment to private pension (equivalent of US 401k) to 8% of salary, so even irresponsible people will have some savings at retirement age. And I think the UK should continue gradually increasing these contributions.
> even irresponsible people will have some savings at retirement age
Ah, there are enough loopholes that a lot of people still won't end up with any savings at retirement age.
There are a lot of self-employed people in the UK, at the low end of pay (gig workers, freelance cleaners, graphic designers, etc) and high end (consultants, IT contractors etc), and bootstrapping entrepreneurs (pay all over the place). The pension 8% doesn't apply to any of them.
Also interesting (secret TPP) bit: "The deal also reportedly includes a framework to eliminate digital services taxes, which targeted the biggest American tech companies."
In other words, if you sell to us, we'll call it dumping, but in areas we monopolize, sovereign governments must have no role in the free market.
Up next, countries in the system must respect human rights as defined by Radio Free Europe.
Is the whole concept of international agreements offensive to you? I don't see how this one is special. Bigger countries always have more influence, such is life.
Sovereignty goes both ways. No country is obligated to deal (allow trade or capital flows) with any other country they don't want to. If this agreement will even have such enforcement.
Apparently it's also possible to address the issue of shifting corporate profits to tax-havens even without a large scale international agreement.
Basically, corporations have one place money comes in and two places it comes out, like so:
sales = expenses + profits
If you tax the sales, then deduct the expenses, that leaves the incidence of the tax on the profits. But importantly, unlike profits, it's usually clear to which country a sale belongs to.
Where this gets complicated is international borders, the solution there is to only deduct domestic expenses. At first this seems protectionist, but according to economists changes to the currency exchange rates eventually balance out the effect and it ends up trade neutral.
This idea was actually seriously proposed as part of US tax reform a few years ago (and I saw some praise from both left/right leaning economists), but it got killed because some big companies were against it. It's called a border adjustment tax. [1]
Even though the above is an interesting idea this recent attempt to come to an international agreement is probably also reasonable, since it should accomplish some of the same things and getting countries to agree to a headline number is probably more realistically achievable than in-depth reform (so it's likely solutions like this or nothing at least in the medium term).
An agreed upon international base tax rate is the wrong solution. This becomes a minimum wage for nations and removes the incentive to compete to be the home of corporate headquarters. Border adjustment tax removes the tax shelter loophole and strengthens the incentive to be a good place to headquarter a corporation.
Nations can still compete. Stability, rule of law, infrastructure investment, etc. Everything except letting companies use the country as a pirate's cave
But there are limits to how much of those are beneficial to companies. It's not like doubling the amount of them will double the number of companies you have, there are limits to ROI there. As long as their employees can get to work in the morning, aren't feeling unsafe, the courts aren't corrupt and so on, the corporate need for rule of law is rather limited, and too much rule of law can easily turn into abusive lawsuits or stifling regulation that nails down whatever the status quo happens to be at the time.
As for generic infrastructure, most companies need roads, but other infrastructure is often handled by the private sector e.g. airports, ports, telecoms.
Realistically lots of countries can meet this minimum bar and it doesn't require high tax rates to do so. The countries that have lower corporate tax rates than this new attempt at a minimum standard do have working rule of law, stability and infrastructure. They aren't Somalia. So it's unclear how much scope countries have to compete in this area. On the other hand, efficiency provides scope for more or less unlimited competition. Minimum global tax rates are pretty directly an attempt to end competition on the axis that is both very important and also has most scope for improvement.
All these are a given in most developed countries. Corporations and funds aren't headquartered in Ireland for the great Irish infrastructure or because there is better rule of law there than in France.
What many seem to be forgetting is the entire economical aspect of it. Economies are not all the same, some are stronger and some are weaker. Some are naturally attractive because of the talent pool, location, other businesses settled there, etc. Others aren't and might need to lower the tax rate to be able to compete. Adjusting the rate is an important economic tool for governments, losing this will cause some countries problems, the same way some countries in the Eurozone are now suffering serious consequences for giving up sovereignty over their currency and losing the ability to devalue it. A border adjustment tax theoretically avoids these problems and might be a much better choice for the smaller countries that aren't the US and don't dictate the rules.
Right, that would continue to be true. However, now, a corporation can be headquartered in one country to have access to labor and shunt all profit through a subsidiary in a low tax country. They get the benefit of a skilled labor force without paying tax on the profits created by that labor. Fix the tax shelter problem and the incentive for countries becomes "make a labor force worth the tax rate or lower the tax rate".
> removes the incentive to compete to be the home of corporate headquarters
No, it shifts the means of incentives. It's no longer a race to the bottom tax rate.
As I understand it, the problem with a border adjustment tax is implementation overhead; it would be expensive to audit. Noting that the IRS in the U.S. is not funded enough to investigate tax fraud as it is, this seems to be a major problem. You would also likely need foreign cooperation. There's no reason to believe a corporation headquartered in the U.S. needs to be truthful about their foreign revenue, and how would you know if they were without a foreign government's assistance.
The problem with implementing a world-wide minimum tax rate is organization, getting all countries to agree and stand by it. This is something the world has been engaged in doing for around 100 years now. We've had failures (League of Nations) and successes. There's no guarantee of success, but importantly, tax havens can be isolated if 130+ countries agree to do so, until they follow suit.
Basically, even if global minimum tax is not the optimal solution (which remains to be shown), it's better to have a sub-optimal solution that can be implemented than an optimal solution that's impossible.
Governments should earn their taxes the same as a person should earn their income. Governments "earn" their taxes by making the benefits of operating in a nation worth the tax. Price fixing and collusion is illegal for companies to practice. Being a government doesn't remove the deleterious effects of price fixing and collusion. An international base corporate tax rate makes nations not care if the tax rate is even worth it to businesses. If the tax rate isn't worth it then a business will close or just never start.
Lets say that a corporation choosing a home nation is akin to you shopping for a good refrigerator. The refrigerator manufacturers don't like that one manufacturer is selling their equal quality fridges at 50% less than everyone else. There are two choices for manufacturers. Collude and fix the price of refrigerators or figure out what the 50% cut rate company is doing and try to compete. If the manufacturers choose collusion they can continue with business as usual without making improvements to cut cost or improve quality. But, they will cut cost, possibly sacrificing quality, as that is now the only way to increase revenue. The incentive to improve is removed and the risk of a refrigerator cabal outsider pricing at 50% increases. If the competitors instead choose to work on reducing cost or improving quality you as the consumer get cheaper higher quality fridges. Under the price fixing regime, when an outsider starts selling a fridge at 50% the fixed price the cabal either has to destroy them, bring them in the fold, or remove the price fixing.
With price fixing an outsider will always arise. Competition is the only solution that doesn't destroy itself.
> Governments should earn their taxes the same as a person should earn their income
So you're coming from the perspective that individual minimum wage is wrong, and applying that assumption everywhere. Thanks, but I absolutely disagree. I don't see a reason to discuss further when we're so far apart on our base assumptions of reality.
Yes, that is where I am coming from. In both situations the incentives are the same. Do the hard work to improve and get more or do the bare minimum and get what is required by threat of force.
> You would also likely need foreign cooperation. There's no reason to believe a corporation headquartered in the U.S. needs to be truthful about their foreign revenue
If I understand it right, you actually wouldn't need this much. Foreign revenue would be the other countries' responsibility. So the implementation would look something like a domestic VAT coupled with deductions for domestic expenses. It's true that the US doesn't have a VAT but that's been well-tested in many other places.
Agree with your conclusion though, they've got to prioritize how much time / political capital they invest into each issue and putting a huge amount of effort into this sort of thing (when it went nowhere recently and would likely go nowhere again) probably would be a mistake.
This is an interesting concept, and worthy of including in the discussion, but you are presenting Border Adjustment Tax as if the results are a certainty.
The Wikipedia article describes this as theoretical with quite a bit of uncertainty, and economists are far from concensus on what the outcomes would be.
There are also definitely winners and losers in this system, so it's not so simple to say it the proposal was killed just because some big companies were against it.
Do you have any resources for how in-dispute the (eventual) currency adjustment part is? As you probably know, there is never 100% agreement among economists on anything, and no matter how narrow the opposition is you can often count on politically-motivated groups to find and promote it relentlessly.
The main data I have is both Mankiw and Krugman (both highly eminent economists from different sides of the aisle) seemed to think it checked out (and the idea is over 20 years old at this point, so it's not that new). Krugman in particular got his Nobel on trade and, uh, is not normally inclined to say nice things about Republicans (this was proposed in the US as part of a Republican tax reform initiative).
So that's enough for me to presume that the math is probably OK, although I admit I'm not capable of checking it myself, and it would be nice if a more comprehensive survey was available.
If the currency adjustment does balance out I'm not sure who the (eventual) losers would be aside from internationals that profit-shift to low tax jurisdictions (which was the whole point).
Of course if the currency adjustment wasn't immediate you could see winners/losers for some period. I'm sure there would be other transition costs, the tax system is already pretty complex and thinking about all the edge cases while switching between two completely different tax regimes seemed rather headache-inducing.
My comment was not arguing one way or another. Instead I was pointing out that the original wording of your top level comment might mislead people as it sounded like there was little doubt to the effectiveness of a Border Adjustment Tax, when in truth it has never been tried.
Rereading your original post it now seems more reasonable. I don't know if that is because it has been edited, or because I am reading it in a new light.
To be clear, I welcome the suggestion of trying new solutions. The current system is clearly broken.
NP, FWIW I didn't make any edits that should change the tone (although I think I did make one trivial change in the first 60 seconds or so before any replies).
You mean theoretical and uncertain like the experiment they're doing on a global scale now? When did we ever have 130 nations all agree on the same corporate tax rate?
Not that I think it's necessarily bad, it's probably better than the current system which is very broken. But can you explain how and why that is actually a better idea than introducing a BAT system? Again, both are theoretical and have never been tried, so you should have very good research to back up a claim that the global flat rate tax is the better idea.
> But can you explain how and why that is actually a better idea...
> ...so you should have very good research to back up a claim that the global flat rate tax is the better idea.
Should I presume the "you" in these sentences is me? Or is it some hypothetical future person making such claims? If you did mean me, I don't understand what part of what I wrote was me making any claims of superiority of one system over the other?
My comment was pointing out that the grandparents comments should not be written so definitively, where much doubt exists.
Yes, I understand your comment perfectly and just tried to explain it's not a rational argument in this case. BAT has never been tried, same as the global minimum tax.
The situation is we have a tax system that's broken. Apart from the multinational corporations practically everyone agrees on this part. Now we have to find a way to fix it in an ever more globalized world, a situation which we never had to deal with and for which there is no proven solution for that reason. Whatever we do will be untested. The question is which is the better idea and why?
> I understand your comment perfectly and just tried to explain it's not a rational argument in this case.
I don't know how you can say you understand my comment perfectly when you then tell me my "argument" is not rational. I am not making any "argument" about different tax systems.
My original comment was a metacomment about the original comment being too strongly worded.
I agree with you that the current situation is broken, and a fresh look is required to solve it.
The idea that politicians and bureaucracies can defer to external international conventions to be the bad-cop for wildly unpopular policy decisions - and then claim to be powerless to stop them - is anathema to democratic principles like national representation, consent of the governed, and other concepts of human rights.
This proposal seems like a global group of government affiliated people colluding to fleece each others' citizens instead of serving them. This is literally what conspiracy theorists have been predicting for decades, it's a terrible shame to make them right.
Raising corporate taxes is generally popular, not "wildly unpopular." For example, in a recent poll 65% of Americans support raising corporate taxes [1]. This number has been fairly steady over time. It's even higher when you ask about closing loopholes that allow international tax havens, as this 15% minimum tax agreement is trying to do--70-85% support [2].
The only terrible shame here is you laundering your opinion on corporate taxes by making false claims about them being wildly unpopular.
65% of Americans have no clue what it takes to run a business of any scale. They can barely calculate a tip at the restaurant, yet they think they are qualified to make decisions on taxation.
The flavor of democracy we practice has been good. However, we must be honest enough to admit it can degenerate into mob rule, which generally means decisions are made by the most gullible and ignorant among us on any specific topic.
Simple example: There is no way my vote on a whole range of medical issues should have the same value as that of a medical professional, such as my wife. While I have a reasonable understanding of biology, the difference in knowledge and understanding in this area of knowledge is massive.
In other words, I am as ignorant about medical matters as she is about engineering. It isn’t an insult to classify me as ignorant in this category. It’s the truth. Why do our votes have the same value?
So, yes, 65% of Americans want to raise business taxes. They are ignorant fools being led by the nose by politicians using this ignorance to gain votes at their expense.
The most important reality to understand us that politicians are never negatively affected by some of the nonsense they push. They don’t lose their jobs, careers or level of pay. On the other hand, the fools who buy their nonsense very often end-up with the short end of the stick.
Raise business taxes? No problem. More businesses will go to China if they are able to. If they can’t, they’ll reduce costs through automation. Some will do both.
In a globalized economy we need lower taxes. Zero would be an even better number. Anyone who thinks otherwise suffers from a serious deficiency in perspective.
> There is no way my vote on a whole range of medical issues should have the same value as that of a medical professional, such as my wife.
Strongly disagree. Your wife should educate the voters around her on issues that she cares enough about to invest the time (or treasure) doing so. Those better-informed votes should all count equally.
It's a slippery slope to suggest that being well-versed in an area should grant extra power. Who determines who is well-informed? Hell of a conflict of interest.
Also, consider how wildly primitive (and often wrong) medicine was two centuries ago but how respected the practioners were at the time. Things are better today but the medical profession is not infallible.
Lastly, should business people get extra votes on economic policy and taxation?
I am not proposing we have classes of voters. I am simply highlighting that votes are equal despite the massive range of understanding from voters, from ignorant to expert.
This is very real problem. Yes, experienced business people are far better at understanding the range of issues pertaining to economic and taxation policy. That is self evident. Most people have zero experience and very little understanding of this, once again, particularly as it pertains to a connected global economy.
Here's a simple example of this:
Today politicians in the US are pushing for a truly massive-beyond-description infrastructure spending plan. Removing political intent (buying votes with our tax dollars by throwing money at large groups through these programs), one of the most typical targets of this infrastructure spending are roads, bridges and government buildings.
Simple question for anyone:
Name just ten companies who, in the last, say, 50 years, decided NOT to base their operations in the US because our roads and bridges are deficient. Just ten. Fifty years is a long time. If this is a real problem it should be very easy to rattle-off ten, if not twenty or more companies.
Any?
Nope. Not one.
In other words, this "infrastructure" thing is a solution looking for a problem. Or, put a different way, it is a waste of time and money at a massive scale.
OK, that's a tough question. Fine.
Same question. Only this time, within the US. Name ten companies who, in the last fifty years, chose to move to another US state because of the condition of the roads and bridges in their original state.
No?
It's a fantasy, isn't it?
Spending money like that is irresponsible. It will waste a decade or more. You can't recover the opportunity cost.
You see, lay people buy this crap without perspective and analysis. Our roads and bridges are just fine. Sure, maybe some here and there. And yet this should not be the focus of our spending. I just watched our local transit agency tear-up and re-pave a one mile stretch of road near our home. There was absolutely nothing wrong with the road. In fact, you could argue what they have done is actually worse. The prior road was gray-colored. The current topping is black tar-based. In other words, they created a mile-long super-heating surface in an already hot summer area.
Anyhow, the obvious question then, might be:
If not roads and bridges, where should we invest?
Where it matters. Ask companies what it would take to have them come back. Ask business people what they need. You are likely to compile a list that looks something like this (not complete):
- Lower taxes, federal, state and local
- Lower regulatory burden
- Faster (light-speed fast) building permits and process
- Sensible, fair and fast legal immigration policy
- 10 to 25 year manufacturing subsidies aimed at in-shoring the supply chain
- Invest whatever it takes to bring in not-trivial capacity
in semiconductor and other essential manufacturing
- Stop the minimum wage madness that is killing competitiveness
- Cancel the treaty that allows Chinese companies to ship for free within the US
- Tort reform
- Stop funding and guaranteeing student loans (this raises costs)
- Create an intense pro-business entrepreneurial culture
- Stop throwing money at military crap and use it to fund an industrial revival
This list could be hundreds of lines long. And, yes, some of the items would be controversial and might not make sense. That does not mean they should not be discussed.
As someone in manufacturing, one of the things I want the most is a short and relatively local supply chain. If you are manufacturing microwave ovens in China your supply chain is insanely short. Almost everything you need is within a truck drive from your plant. In the US your supply chain stretches all over the world. Long supply chains cost a lot of money, hence the decision by many to migrate their manufacturing to China. If the glass, screws, wires, chips, displays, plastic you buy is made in China...well, it's hard to justify making your microwave oven in the US when all you can source here might be the box and instruction manual.
An investment in a localized, efficient, low cost supply chain spanning a range of products --from low tech to high tech-- is the single most important decision the US could make. Investing in roads and bridges is going to bring NOTHING to the US. An efficient local supply chain would change the game in ways one can hardly imagine.
Can this be done? Well, it's hard to say until we start focusing on it and getting the right people around the table. We have been focusing on the wrong things for years. Others, like China, have not. This comes with consequences. The uninformed don't have a wide enough view and deep enough expertise to understand where we are and what we need to do to avert disaster.
Perhaps this is the point: When things are good it is OK to make bad decisions here and there because you have a buffer zone. You can make mistakes, survive them and go on. However, when you find yourself in the emergency room, what you need is deep and wide expertise and the right knowledge for someone to be able to make the right decisions. No more amateur night or well-intended-but-dangerous decisions rooted in ignorance.
The US and Europe are in the same place with regards to China. They have intelligently sucked in every industry of any value from both regions. It is hard to create a list of the massive segments of industry that have migrated operations from the US and Europe to China. You have to be in awe of what they have accomplished in about fifty years. If the US and Europe don't change their approach to business we will both suffer further erosion of whatever job-generation we have left. This is no longer a hypothetical. This is very real. And, yes, people with expertise need to be making decisions, not politicians or ignorant voters.
I appreciate the thought that went into your response. Also, I like your list of concerns and public priorities. Go run for office so that I can vote for you.
> And, yes, people with expertise need to be making decisions, not politicians or ignorant voters.
I agree with the sentiment but there's no universal definition of ignorant voter in the political sphere. There's only, subjectively, useful to someone or not useful to someone.
Many decades ago I actually worked with Frank Zappa for a few months on one of his projects. Long story. We had dinner together almost every night, just a few of us, sometimes just he and I.
Frank was very active politically. One night, as we were discussing various ideas, he said something like:
"Martin, the reason people like you and I don't go into politics is that you have to be a member of a very specific human subspecies to be able to survive the brutality you will encounter. Most intelligent people don't want to touch politics because they know it is a meat grinder. The sad part is we end-up with people who know nothing about anything and would likely be ambulance chasers or criminals if they had not figure out how to scam their way into politics. We are hopeless."
The epic climax of this reality was when, out of all the amazing people in the US, we ended-up with Trump and Clinton as the only two choices we could make. I can't see how anyone could argue either of those clowns is an example of the best the US can offer.
I still agree with Zappa. I can't imagine ever getting into politics. Particularly these days. I have zero interest in having my life and my family's life violently ripped to shreds by the unscrupulous actors who permeate that world and protect their turf at all costs. One day we might just come up with a way to govern ourselves without these mutants, until then, it's the best we got.
Looking at monetary policy since 2008, I sometimes wonder if taxes are even necessary.
It's increasingly clear that central banks can print and fund ~20% of their host governments' budget without any risk of lasting inflation. Why not try ratcheting that up?
> In a globalized economy we need lower taxes. Zero would be an even better number.
Isn’t that point precisely addressed by the Biden administrations of setting a global minimum tax rate? If every country, or at least every country without signify the trade barriers (who cares what happens in North Korea) has the same tax rate than there’s no incentive for companies to move their profits - or the entire company - abroad to save on taxes.
I don't really see the point to all of this. There will always be loopholes that allow multi-national companies to avoid tax to some extent.
Wouldn't it be simpler to just set corporate tax rates to zero, and instead raise taxes on income and -- especially -- capital gains? And the US already has a personal tax system where it doesn't matter where you earn income: if you're a US citizen, you have to consider US income taxes, period. So the problem where people try to push their personal income out of the country to avoid tax just doesn't crop up as much.
> Wouldn't it be simpler to just set corporate tax rates to zero, and instead raise taxes on income
Do you mean income as in profit (= revenue minus expenses), or income as in revenue (not subtracting costs)? If you mean profit... that's what corporation tax is already. So I'll assume you mean revenue.
No it wouldn't. It would kill many businesses overnight, and incentivise the worst behaviour in the rest.
Consider a company that buys components for $100 and assembles them into a widget they sell for $105 to shops. (Who sell it for $110.) Let's ignore other costs.
Corporation tax at 20% would charge the company $1 per widget.
Income (as revenue) tax at 20% would charge the company $20 per widget, and the company would immediately have to stop producing widgets altogether, or substantially raise the price of widgets. It wouldn't have a choice. You as the end user would see the prices of everything in shops shoot up, and many things would disappear from the shelves.
If you used a lower tax rate, say 1% so that companies like this can continue, it will be far too low for companies that pay $50 for components and sell their widget for $100. Those would be charged only $1 on their profit of $50, keeping $49.
You want to incentivise (and indeed help) the former type of company. It's selling widgets at close to the cost of making them, and if it is so minded, it may use the highest quality materials it can afford.
But you have designed a tax that strongly incentivises, even requires, the latter type of company: Only pursuing opportunities that use the cheapest possible materials while selling at high prices. Never doing anything that brings in just a small profit.
I was hoping the pandemic taught people something about business. I guess it didn't.
Society does not benefit from businesses operating on vapor-thin profits. When (not if) anything goes wrong these businesses trigger a job-loss chain reaction that is impossible to avoid.
What you want are businesses who make enough in profits to build a solid safety net, evolve, compete, provide security and upward mobility to employees, suppliers and the entire food chain that surrounds them.
Profits are not bad. They are an absolute necessity for growth and stability.
I didn't say profit was bad. The discussion point was not about razor-thin margins.
The 5% was just notional for discussion. The same problems occur with fat margins.
Building on your point that profits are necessary for growth, stability and job security, presumably you have in mind that the company gets to keep the profit, to use for those things as needed.
The GP proposal I replied to is a tax system which sets a legally required minimum profit margin, and then takes 100% of that required minimum as tax, though I expect the poster didn't think of it that way.
As the proposal is to force the company to make some profit percentage and take that directly from the company, the remaining profit the company can reinvest in growth, stability and job security is reduced. Aside from reducing the amount available to plow back, this also acts to amplify variance in profit from period to period, increasing instability in the company's finances. Reducing profit that can be used by the company and amplifying instability both reduce growth, job security, upward mobility etc. So much for understanding business.
It's also ridiculously harmful to the "food chain" because it would tend to destroy independent supply chain companies, and prevent new ones from being competitve.
The GP proposal takes the legally required minimum profit margin from every individual company in a supply chain, so the total tax taken is the required margin multiplied by the number of companies in the chain. I.e. more companies in a supply chain == proportionally more tax. This creates an extreme pressure to merge small supply chain companies into a giant conglomerates that pay less tax for the same task. I say extreme because it is: Merging brings a benefit of 10-100x tax saving.
If you like giant conglomerates that's fine, but if you want a food chain of independent companies, it's a disastrous policy.
The tax level in that proposal could be set low enough to allow small supply chain companies to survive without succumbing to tax pressure to merge, but if that was done, giant conglomerates would pay a tiny amount of tax, compared with small companies. There would still be a 10-100x tax advantage available to giant conglomerates. Since this entire discussion is a complaint about giant companies paying too little tax, presumably that is not the intended effect.
Some accounting could obviously be done to ensure giant companies pay a similar share to small companies in a chain doing the same thing, to remove the tax pressure to merge. But that's what we have already, that's corporation tax.
There's a huge difference between "the heavily profitable company wins in competition" (which isn't true in all domains anyway) and "we have banned all companies except heavily profitable ones".
> Its competition that reduces profits
The revenue tax scheme sets a minimum profit level that every company is required to make. Competition can't reduce it below that level.
It's also set things up so where many companies build things in a chain of specialised companies, for example manufacturing components, assembling devices then selling those, and shipping them, the minimum profit percentage is legally required at each step, compounding.
Currently, supply chains consist of hundreds of companies working together. That won't be possible any more, as the new system forces every supply chain to merge into a self-contained conglomerate that does everything in one company.
Companies in that system will be forced to merge into giants or die, and in the end most will be giants. It's probably not the intended consquence of the policy.
If you think China and others will abide by this nonsense you might need to review how business is supported by government in China.
Did you know they can export products at cost and still make up to 15% on their international sales? The world is not a level playing field.
Did you know it costs them darn near zero dollars to ship products within the US, while US companies have to pay full fare?
The ONLY way the US and Europe could rebuild a solid industrial base lost to China is to be so pro-business it would make most of the uninformed projectile vomit. If we can do that and maintain it for 25 to 50 years we might have a shot at it. Nothing else will work.
Either we are a nation of pro-business entrepreneurs to the core or we resign ourselves to living in outsourced utopia. That’s how bad it has gotten.
Pick any product and try to source all of its components and manufacturing in the US or Europe. You won’t get far. In most cases it is simply impossible.
If we want a solid future we need to stop vilifying business. The 65% who don’t have a clue will learn this only when it is too late to do anything about it.
Perspective: We couldn’t make PPE, the materials they require and the machines we would need to make them.
It seems to me China would generally be in favour of this. They're a large country with large internal consumption, and they would rather some of this money goes into their coffers than somewhere else.
Generally, fiscal paradise are small countries which have little to lose by lowering taxes (to local business), and a lot to gain by attracting revenues from bigger countries.
China's corporate taxes are much higher than 15%, so it's not like they would be directly affected by this. They might oppose the plan (I have no idea), but it's unlikely to be on an economical aspect of that's the case.
You need to understand the business equation of a Chinese export company in order to understand what I am talking about. Books have been written on the subject. I can't do it justice here. Let's just say things don't run like they do in the US and Europe. Not even close.
>The ONLY way the US and Europe could rebuild a solid industrial base lost to China is to be so pro-business it would make most of the uninformed projectile vomit. If we can do that and maintain it for 25 to 50 years we might have a shot at it. Nothing else will work.
Or you just introduce CO2 tariffs and use them to wreck China in the process of building a CO2 neutral economy.
The idea of a CO2 neutral economy is another utopia fantasy sold to the ignorant voters by politicians. Easy to sell. Easy to form voting groups around it. Who doesn't want to be for "saving the planet".
And yet, we know, without a shadow of a doubt, that we cannot do a thing about atmospheric CO2 accumulation and the climate effects surrounding it. Not a thing. This is what we know --scientifically, not guessing here: If humanity left the planet today and all of our technology simply shut down, it would take somewhere around 50,000 and 100,000 years for atmospheric CO2 to come down 100 ppm. This leads to a very simple conclusion: If such an extreme measure produces a rate of change of 100 ppm / 100K years, a partial measure will not improve on that rate at all.
So, no, a carbon neutral economy will do nothing. Neither will switching to electric cars, full solar and wind power, etc. All fantasies. Sorry. We are being lied to and we are deceiving ourselves.
Businesses don't go to China because they want to. They do so because they have no other choice. When the combination of regulatory, tax and labor regulations makes it so it is impossible to compete you are left with two choices: Embrace China or close the doors.
While "other business would fill up that place" might sound like a nice heart-warming idea, it is a fantasy. The only businesses that will fill that place are Chinese businesses selling directly in the US and Europe (an ever-increasing category, just search Amazon) or US and European businesses who have outsourced enough of their operation to China to be competitive.
> There is no way my vote on a whole range of medical issues should have the same value as that of a medical professional, such as my wife.
In June last year, the medical crème de la crème were proclaiming that COVID antibodies last 3 months. I (an engineer with no formal biology training past high school) read some obscure studies that past Sars-Cov-1 infection seems to still provide protection against severe Sars-Cov-2 infection, and it was also what my understanding about the mechanics of the immune system suggested (why would antibodies only last 3 months? how could the human race survive?!)
Lo and behold, I was right, the "medical professionals" were wrong. TL;DR: common sense is worth at least as much as a medical degree. Also, never trust people whose incentives aren't aligned with yours.
> common sense is worth at least as much as a medical degree
I had to read that twice.
The only way someone can have that thought is if they have no clue --at all-- about what a medical degree entails. Sorry my friend, you don't know what you are talking about.
Try this: Next time you need serious medical care...don't go to the ER or any doctor for that matter...just use common sense. Let's see how far that takes you.
Doctors are human beings. They are not gods. They are not perfect. And yet a medical degree --the knowledge and perspective that comes with it-- DWARFS even the most informed common sense.
Raising corporate taxes is popular, but I suspect the end result of this proposal would be to lower corporate taxes.
First, countries would reduce their taxes to the minimum 15% based on the same dynamics we had until today (note that US's tax is higher). Later, countries would find ways to return the tax (not difficult when one could simply 'fail' to collect, or give 'investment aid' etc.).
IMHO, the importance of the treaty is with regards to establishing common standards. Raising corporate rates would require an additional vehicle.
I don't see this resulting in lower taxes. Countries with higher corporate tax rates have their current corporate tax rates for a reason, and this makes them more competitive (by setting a higher floor) which means less incentive to lower the rate.
65% is not enough to justify a loss of sovereignty. Once many countries agree to a treaty like this one, some country wont and becomes a tax haven and suddenly the target of sanctions and political pressure.
This is the case with the OCDE literally calling countries with favorable taxation "tax paradises".
>The idea that politicians and bureaucracies can defer to external international conventions to be the bad-cop for wildly unpopular policy decisions
It's as though so many people saw Brexit and completely refused to learn anything from it. In the UK prior to Brexit the EU was often the scapegoat for things that politicians wanted but knew they couldn't get popular support for, the classic example is how the unpopular (and ultimately abortive) attempt to switch the UK fully to the metric system was very much seen as "petty-minded EU bureaucrats getting one over on the British public" in the tabloids when the reality was that almost all of the effort was Westminster's doing, mostly because business interests had been calling for it as a way to ease international trade.
The problem is that while falsely blaming an external outgroup for your problems isn't immediately dangerous, it can quickly spiral out of control. Around 2013 blaming the EU for bad policy-making on a wide range of things like immigration, the refugee crisis, a percieved decline in law and order, a creeping sense of political control over public discussion, and a whole list of other things reached its peak and the referendum was basically wrenched out of Cameron's hand. Eventually if you subvert a democracy by blaming your own unpopular choices on an outgroup, the inevitable question people start asking is "why don't we just get rid of $outgroup then? As you say, $outgroup cause all our problems so let's get rid of them and solve all our problems at once" which many billions of pounds and geopolitical bridges burned later is exactly what happened.
If nations as you put it "defer to external international conventions to be the bad-cop for wildly unpopular policy decisions" then things like Brexit are the inevitable result. Not only is it inherently wrong to sidestep democracy like that in my opinion, if supranational organisations are blamed for things that are unpopular then their influence will eventually be damaged by this. Organisations like the EU, the UN, and others aren't just limitless negativity sinks for domestic politics - all that political negativity has to go somewhere and eventually it just spills out.
I think you're misunderstanding the concept here, this has nothing to do with dodging responsibility for unpopular policies. If you think countries shouldn't tax corporate profits at all, great, but that's a separate discussion; this is predicated on the assumption that all countries desire a non-zero corporate tax, and just need a way to get there.
The point of this measure is to avoid a coordination trap that leads to corp tax rates converging on zero even though each country does not want that. Such scenarios are well studied, and a mutually agreed upon enforcement mechanism is the optimal solution. If that resembles a conspiracy theory to someone, well, hopefully they can read the wikipedia page on the Prisoners' Dilemma and learn something new.
Is it a 'coordination trap' or are we just inventing new terminology for a cartel? When OPEC coordinates effectively, we are not under any illusions about how their collusion is cartel behavior that inhibits competition and distorts markets. But when powerful nations do so and use their immense power (soft influence via diplomacy, economic policy, etc.) to bring a large number of other countries onto their plan, suddenly we're not using the same terminology to describe the same behavior. Ultimately taxes going to zero is a good thing because it is a sign of competitiveness between tax structures favoring more efficient governments. This artificial agreement prevents that, just as a cartel of conglomerates colluding to set price floors would be eroding competition.
> are we just inventing new terminology for a cartel?
Sure, you can call it what you like; what matters is, does it deserve the same negative connotation as "cartel"? The answer to that depends on your position on:
> Ultimately taxes going to zero is a good thing because it is a sign of competitiveness between tax structures favoring more efficient governments.
...which is incorrect, because "efficiency" is not tax rate alone, it's tax rate compared to services offered. We're not talking about countries cutting their tax rate because they're more efficient; Ireland doesn't know how to build roads cheaper than England does. We're talking about countries that decide to cut their tax rate and cut services proportionally in order to entice immigrants. They aren't any more efficient the day after they do that than the day before, they're just selling a shoddier product at a lower price point.
And it's worth pointing out, if you think of government as a product and tax rates as the price, the reason we have this problem in the first place is that the market is broken by allowing corporations to "buy" one product but "use" another. For a company to primarily operate in the USA but pay corporate taxes to Bermuda is roughly equivalent to a man who drives off the lot in a new Benz but is making payments on a used Buick. If the market were functional - if the "price" a corporation chooses to pay in deciding where to be patriated were aligned with the "value" they receive in access to infrastructure and markets - we wouldn't be here discussing this agreement because it wouldn't be needed.
"trap" in this context means "coordination trap" which is a scenario in which competition forces individual actors to adopt policies they don't want, but can't avoid.
Imagine you and I are neighboring farmers who irrigate our fields from the same river. Our farms grow, as does our water use, until we're each using half the water. I buy a bigger water pump and start sucking up most of the water, leaving you with dying crops. So you go out and buy an even bigger pump; now you're getting most of the water, and some of my crops are dying.
What's the result? There are only two outcomes here: either we agree to split the water, or we spend more and more money on larger and larger pumps until neither of us has any profit left over. The latter outcome is the "trap" - neither of us wants to spend every spare dollar on pumps, but unless we come up with some agreement, that's what will happen.
No, this is another kind of US enforcement regime. It starts with setting a global minimum tax rate, and ends with the US pursuing and punishing developing nations to its advantage.
Also once the US can manage to get 130 countries to agree to its tax regime in one area, guaranteed it won't stop there.
I mean, sure, and this could describe almost any resource-sharing situation ever.
I'd say that this however is not a resource sharing situation. It's a competition for the magical money tree of corporation taxes. And that's a good thing, because "setting up an environment in which businesses cannot thrive" is often a vote winner, but is a terrible idea.
The key ingredient in a "race to the bottom" is not resource sharing, it's competition combined with a feedback mechanism. Resource sharing figures in a lot of examples, because "consume most of the resources" is a common way to win a competition, but it's not necessary; for example there's no resource being shared in the classic prisoner's dilemma.
Anyway, you're right that this a competition for corp tax money, and that it could be bad in theory if there was no competition for it, since e.g. we could all collectively agree to set the corp tax rate too high, which I agree would be bad. But there's no ratchet effect. All we have to do to avoid the "taxes too high" problem is be aware of it and decide not to do that, whereas we cannot avoid the "race to the bottom" problem by being aware of it, we need an agreement like the one described in the article.
Yeah, it won't cure baldness either. What it will do is solve a specific problem (countries undercutting each other and driving the tax rate to zero) which AFAIK has no other solution. The fact that it doesn't also solve a different problem we don't yet have is not a good reason to abandon it.
Joseph Stiglitz has written some interesting books on corporate behaviour in developing countries, such as "Globalization and its Discontents".
The argument is, is that poorer countries, especially those with natural resources, would do better nurturing their own corporations, rather than creating policies to attract foreign corporations.
The end result of preferring foreign corporations is a race-to-the-bottom where the end result is that corporations become a law unto themselves, operating as if they miniature states within the host state.
How does turning the poorest people in a country into wage slaves "benefit" those poor countries? Those poor people would be better off just being self sufficient farmers at that point. Workers at foxconn were literally killing themselves because of how bad the conditions were. When do we as a society decide that industrialization makes life worse for a huge percentage of the population? These multinationals go into poor countries with no worker protection laws specifically to exploit people. That only benefits those multinationals and their owners.
Would the workers at Foxconn be better off if we took away their option to work at Foxconn? In general, if they thought that was their best option, it's hard for me to accept at that step an argument that providing them that option is making their life worse [than it would otherwise be]. Maybe there are a few more steps in the argument that make that position stronger?
Pretty much every country had or will have an exploitation phase before they get wealthy. The only difference is that some countries still have their exploitation phase ahead of them.
While it may be a cowardly way to divert responsibility I don't agree that this is so bad. This problem can only be solved by cooperating, otherwise companies can just shop around for the cheapest taxation rate.
In what sense is it good that a company can make profit through a business activity in some country, but instead of paying the tax there, it pays it somewhere else?
Competition in economics is the incentive that has brought the majority of westerners from <$1/day to what we are today - with washing machines, cars, and water toilets no king could previously dream of.
Companies compete for shareholders by satisfying as many customers as possible. If states can compete for the best deal for international business, companies can better serve people, and those states can house centres of international trade.
It’s not just abstract talk, but incentives that drive us to live different everyday lives than people in guild-economy medieval times, or past slave economies, or how people lived in the GDR or other eastern bloc countries.
The corporation that uses the roads and operates under the safety of the police and military of a country should not be paying some other country, it barely has anything to do with, a lower tax due to some accounting shenanigans.
this is a benefit only international corporations get to enjoy, which gives them an unfair advantage in the market.
if your goal is to have a few conglomerates rule the world, then this is a good way to do it. Not sure how that is much different from a powerful "state" though
Not sure why you’re getting downvoted. Not only are you right, you’re right even without speaking hypothetically because we can actively see this happening with companies moving to Ireland, Switzerland, and others.
That’s what taxing corporate income (or more targeted, corporate assets) attempts to do: tax the wealthy. Because by-and-large, wealthy people don’t accomplish the things they want to do by drawing an income and then spending it; but rather by setting up corporate vehicles that have their goal as the corporate mission statement, and then getting other corporations to fund its treasury (as negotiated compensation in deals) rather than funding them personally.
Think about it like this: when I want to buy a house, I buy a house. When a billionaire wants to buy a house, they create a property management company (as a subsidiary of their existing business interests) that buys and rents out the house, negotiate for their existing business interests to fund it, and then they rent the house from that PMC.
Excess liquid assets sitting in a large corporation’s treasury, are essentially sitting in the wallets of its directors. They’re left there only because the tax implications are better if they’re moved toward their purpose-build vehicles at the last moment possible.
> That’s what taxing corporate income does: tax the wealthy.
No it doesn't. It equally affects both large shareholders and small shareholders. E. g. pension funds will get lower gains, and regular dudes 401k (or whatever they are called in your country) will get smaller yields.
I don't have numbers, but I suspect the richest people get only small percent of large corporations income.
They'll pay tax on that realized income. And if they build up all that wealth in stock value, then if we don't tax it while they are alive we'll take it when they die, so we'd take away the incentive to hoard all the wealth with those schemes.
"That’s what taxing corporate income (or more targeted, corporate assets)"
Incorrect. Targeting corporate assets hurts heavy industry. Targeting income hurts low-margin business like grocery. And we already have a tax on corporate profits: capital gains tax on dividends and stock appreciation! It mostly affects people who are doing well and less so people and companies doing poorly. It automatically compensates for market changes (sector doing great paid more, a whole sector slumping pays less).
> They'll pay tax on that realized income. And if they build up all that wealth in stock value, then if we don't tax it while they are alive we'll take it when they die, so we'd take away the incentive to hoard all the wealth with those schemes.
I don't think you quite understood the scheme here: they never own the PMC. They don't gain the appreciation value of the house or anything like that. It's not an investment to them. They just got someone else to set up the PMC and buy the house, for the positive side-benefits that come from having arranged to assume (at least partial) directorship over that PMC.
Maybe it's easier to picture it at larger scale, with an explicit example: say you're a famous property developer who has built a bunch of hotels with your name on them. In one sense, those are businesses for their own sake. But in another sense, those are your vacation homes. You can stay in them, for free, any time you like, which the hotel will likely book as a business expense (hosting one of its directors for an official evaluation of operations on behalf of shareholders.)
That business expense will also extend to any perks the hotel offers its ultra-premium clients (often a class only set up in the first place as a way to justify giving directors these perks) — e.g. hotel-employed drivers assigned to pick the billionaire up from the airport, and then attached to them to fetch whatever they need as long as they're there.
If you build a bunch of hotels that provide you a free place to stay anywhere you go, then you don't need vacation homes. You never need to buy them, rent them, own them in any sense. They're never realized as income, any more than a "company car" or "company-supplied laptop" that you need to give back when you quit is income.
By itself, this would be ridiculous; it'd be like starting a car rental agency just to have a "company car."
But, because these are also profitable businesses for their own sake, you can get investors (incl. your own investment businesses) to put money into them, such that you never need to put any of your own (post-tax) money into them. You don't actually even need to personally be a shareholder in the hotel chain, "only" a director of it, to reap these benefits! And, if you're also a person with a lot of connections — someone with a rolodex of reliable CEOs and executives to staff these businesses with — then you never need to worry about actually building or running the business, either.
This is how billionaires — or at least, capitalist billionaires — get away with never realizing much income (or even having very many estate-tax-able assets as part of their net worth!) at all. They just cause corporations to invest money in other corporations, never actually touching any of the money or the resulting assets themselves, but rather ending up in arrangements where business expenses of the invested-in corporations are being spent directly on their own happiness, mostly by having temporary use of the business's assets whenever they like, as some non-transactional, pure-expense part of the business's operation. The vast majority of their assets are soft power — social influence — realized/"invested" by putting people into power in roles in businesses, where those people in power in those roles can then give them perks in return.
(And, if they ever need real liquid assets for some reason, then they just make arrangements with other billionaires to 1. start non-profits; 2. get some underemployed accomplices [e.g. relatives] employed at their non-profits in high-paying [but not to the point of being individually highly taxed] roles; and 3. get corporations that owe each billionaire favors, to direct charitable donations to one-another's nonprofits. Then, since this income is entirely the result of cronyism, the accomplices will listen when the billionaire directs them on how to spend their income — and thus the billionaire can spend it as if it were their own income, as they please; usually not on assets, mind you, but rather usually for expenses that personally benefit the billionaire, e.g. things like huge parties or political lobbying. This is the classic "high-society wife" setup, but it can be extended to hundreds of accomplices.)
I don't think you grasp the level of wealth we are talking about. $100B == $3.5M/day over 80 years. Using company property for personal use is a taxable fringe benefit. [0] Maybe you can get a free hotel room under the table but good luck laundering $3.5M/day.
>make arrangements with other billionaires to 1. start non-profits
Which is why they (and corporations) should not get tax deductions for donating money!
The “average” person who follows these strategies does not have $100B. $5M makes you a Very High Net Worth Individual, and $30M makes you an Ultra High Net Worth Individual, and there are no further categories, because those two points ($5M and $30M) are the points where most — and then all — of these strategies start to make sense.
Sure, if you’re one of the fifty people in the world who personally have hundreds of billions in liquid assets, you’ve “escaped” needing to do this sort of thing. But much of the reason that there are so few people who’ve “escaped” this, is that most millionaires don’t aim to just keep getting more liquid assets until they enter this category, because they feel like all the taxation they’d be hit with in the process is “leaving power on the table.” They rather aim to “control” or “leverage” as much money/power as possible at a remove, by minimizing the amount of that that ever personally becomes part of their portfolio. This usually mostly caps their personal net worth (as they’re directing deals to pay into companies they control, rather than ever profiting personally from said deals) but their “social multiplier” on their net worth continues to grow over time.
If you’ve ever seen the net-worth curve for some very-obviously-capitalist entrepreneur/VC/investor, and noticed that it plateaus over time — this is what they’re doing. They haven’t quit making money (unless they’ve declared an intent to “switch modes” and spend all their time on spending their money on improving things they care about, like John D. Rockefeller, or Bill Gates.) People who’ve managed to make huge sums of money, tend to love making money; making money is in their blood. They just find, eventually, that making that money personally is no longer a very efficient way of gaining control over ever-larger sums of wealth.
> Using company property for personal use is a taxable fringe benefit.
Again, the point is to make all “personal use” into business use, by setting up your life so that everything you do is claimable as a business expense by the business, rather than an asset transfer. Sleeping? Managing your hotel. Eating? Managing your restaurant. Getting driven around in a limo? It’s a mobile meeting room where you’re having business meetings!
But, to be clear, on the levels that UHNWI people spend money on, these sort of personal expenses aren’t really what I mean by “arranging to control company resources to personal ends.” They’re cute tricks, but they’re not the “big stuff.”
The “big stuff” is more like: directing where a corporation will spend its lobbying dollars (business expense), to get petty municipal-planning bills you want passed, so you can have the house you want in the place you want, with the NIMBY rules you want in place (personal end). Or directing a property development company to work with a city to get a certain nascent greenfield area zoned and infrastructure put in (business expense), so that you can then build a house in that area (personal end).
Note that in those cases, you don’t gain any asset from the business expense in any legible way. You’re just leveraging your corporate soft power to enable you to do the things you want to do with your own money — to make purchases that would have been impossible, possible.
If you’re Jeff Bezos, you can do this out of your own pocket. But most people would find it a lot more efficient to just have those lobbying / property development dollars never go through their bank account.
Please don't tax the wealthy. I have a couple friends who are in top 0.1%. They have enough money for the rest of their lives. If you start taking money from them, they will simply stop working and start spending more time with friends and family.
The correct goal is not to take money from the rich (which can be achieved by taxing them; this is what Bolsheviks did and it resulted in millions of deaths from starvation), but to get rid of poverty.
Taxing the rich won't help with poverty. Because if even if top 1% will be paying 100% taxes and still continue to work, total government tax income will be increased by 20% or so (that's from richest 1% get 30% of income). That's not a lot, and these money will be spent inefficiently by the government (as government always does).
The government already has more than enough money, but it spends it inefficiently, and this issue need to be addressed (by fixing the system), for example:
* fix gerrymandering
* replace FPTP voting with some variant of ranked choice voting
* increase the limits of the candidate money collection (currently they are very limited for the candidates, but unlimited for parties)
So when more independent or less dependent on parties candidates are elected, more issues can be fixed, for example:
* fix many regulations which drives hospital prices up
* fix regulations which makes lives of ISP monopolies too easy
> If you start taking money from them, they will simply stop working and start spending more time with friends and family.
This model of the world assumes that "rich person" means someone with high income and "raise taxes on the rich" means raising the top marginal income tax rate. I don't think either is true and I struggle to imagine how you could be familiar with the financial details of the .1% and think otherwise. This model cannot survive much contact with actual rich people.
People rich enough to be included in "tax the rich" mostly get their money from capital gains, and I don't believe that any rich person anywhere would ever decide not to invest their capital because the capital gains rate is too high. Even if capital gains were taxed at 90%, what else would you do with capital? Dollars sitting in a checking account cannot "spend more time with friends and family".
> People rich enough to be included in "tax the rich" mostly get their money from capital gains
OK, so we are talking now not about income tax, but about capital gains tax? That's quite a different topic.
But, also, no, capital gains tax should not be increased.
Because you cannot become rich by investing into index.
You become rich by founding a company while working 16 hours a day and getting a large share of it. And after many years of that work with lots of failures and a lot of personal losses, you become rich.
Some people try this path, many fail. If you tell them you can continue doing that, but in the end you will get slightly more than a regular dude working 8/5, they will think, why bother.
Alternatively, you can become more rich by investing your personal money into something risky (like buy a share of your friend garage startup). Again, if cap gains tax will eat your gains, you won't do it next time. Why bother, better buy a condo and wait for it to grow.
Increase cap gains tax, and you won't have new trillion cap companies in the US.
This is kind of all over the place and riddled with non-sequiters; by way of response I will simply point out that we could raise the capital gains rate 5% tomorrow, and it would still be lower than it was when Amazon and Google were founded.
>This is kind of all over the place and riddled with non-sequiters;
Blanket dismissals aren't helpful. As the guidelines state:
"Please don't post shallow dismissals, especially of other people's work. A good critical comment teaches us something."
>I will simply point out that we could raise the capital gains rate 5% tomorrow, and it would still be lower than it was when Amazon and Google were founded.
Well Google was founded in 1998. In 1998 the long term capital gains rates were 20% for those in the highest bracket and if held for over 5 years went down to 18%. Today's long term rates are 23.8% for those in the highest bracket. Where are you getting your numbers?
I was under the impression that the Google founders started in January of '96, when the rate was 28%, and '98 was when they legally incorporated. Perhaps they originally intended Google to be a non-profit, and only changed their minds in reaction to the rate cut in 1997?
> A good critical comment teaches us something.
Interesting complaint. What was yours intended to teach me? Other than your nitpick, you forgot to include the part where you actually disagree with my point (that asteroidbelt's dire prediction that entrepreneurs would have no desire to launch ambitious commercial ventures if we raise the capital gains rate is not supported by recent history).
If you're rich enough to be in the 0.1%, it's not your work that's making you wealthy, it's other people's. More likely, you've inherited that wealth from somebody who's not working anymore.
All the same, if they're still working when they don't have to, they're doing it for something other than money, so I'd bet that they would stay on anyways
Eventually you must realize the assets, either you spend them or you die with them. We let the ultra-wealthy "spend" them in ways they don't have to pay tax, and we let them pass then on untaxed after death through tax-sheltered trusts.
Tell your 0.1 friends to focus on all those points you made, and quick, because they will be the scapegoat for the mob.
Things are getting bad enough to where "cutting ones nose to spite the face" starts to make sense, redistributing the misery the rich have insulated themselves from.
> Tell your 0.1 friends to focus on all those points you made
They know it already, most of my friends are classical liberals/conservatives.
> they will be the scapegoat for the mob
You are probably in the top 10% (as most people here on HN), so a lot of people here might become the same scapegoat.
> Things are getting bad enough to where "cutting ones nose to spite the face"
I'm not sure things are getting bad. Poorest people now are more rich than poorest people 30 years ago.
Like in the US now average electrician makes 70K a year. That's a lot of money. And anyone can be electrician.
They say income inequality raises, which is bad, but it might be not that bad, because common inequality measures do not includes the costs of free stuff given to poorest people from the government, like better free hospitals which they can use in case of emergency.
> starts to make sense redistributing the misery the rich have insulated themselves from.
As I said, taxing the wealthiest (especially with extremely high taxes like proposed by certain "liberal" activists) will not make poor people more rich. It will make poor people even more poor because of economic recession.
I'm in the bottom 50% of the population money wise, but you're right, HN is definitely full of people in the top 10%, and so literally shortwire in their brains when I say something like "it's bad enough to where cutting ones nose to spite the face is starting to make sense"
Because from your position it seems absurd.
From mine it seems like the only move left to make.
The graph defines what it charts very well at the bottom. You can read it, and then if I am somehow still very wrong about the fact that income in the bottom 50% has gone down, or hasn't kept up if you'd prefer, then you can really stick it to me on this public forum about how I am wrong, and you are right, the only thing that matters on the internet.
That graph is showing share of income (thus the y-axis is labeled in percentage [of total income]).
That graph makes no statement whatsoever about whether real income in the bottom 50% has gone down, stayed flat, or risen over the 30-year period under discussion. For that, you’d look at a real income chart over the 30 year period, which would show that real income has increased over that span.
If incomes at the bottom rise by 20% vs 10% inflation and incomes at the top rise by by 100%, the income at the bottom went up in real terms, though the share of income at the bottom will have gone down.
sigh. I feel so much more financially secure these days now that my pay is $1 more than 5 years ago, shame my cost of housing doubled.
this is why I think it will be hilarious when the kids start revolting, and burning shit down folks like you will be looking at graphs and going "how can they be upset, look at this graph! these gig economy renters should be jumping up and down with joy according to my statistics...ungrateful bunch!"
If you need high education, you just take credit, and pay for it with your salary which is much higher than it was 30 years ago.
And if you think that you won't be able to pay for credit because it's not possible to find a decent job with liberal arts degree, then probably you don't need that education.
> Cost of housing went up
I suspect that's because construction workers are paid well now. So instead of studying classical literature in high school, maybe study bricklaying.
> Cost of healthcare went up
This is the issue, but "taxing the rich" won't solve it. It need to be properly regulated. The fact that insulin costs $100 has nothing to do with taxes for the rich people.
> Income went down
Seems like it is not true. There's a chart: inflation adjusted median household income.
> perception of paying 80% of my income to rent that's the problem
Man, I don't know your situation.
Sometimes people pay for something they shouldn't.
Like buying a shiny new car while old car only need occasional repairs, or buying top new iphones while cheapest android is 1/10 of that.
When I was young I rented a flat which costed me about 70% of income, while I could rent a room for 30% of my income, or a flat for 30% of income and two hours commute. But it didn't matter because I was young, and I would not do that now. If that's your case, you may need to reconsider your worldview. If it's not, than I don't really know your situation to comment on that.
...I'm providing a counter point to your claim that income hasn't gone down.
Why is that a problem?
well it's a problem because I am in that group.
it's clearly not a problem for you or your friends, hence why I believe that cutting the nose to spite the face is the only way to make you and your friends care. Otherwise you'll spend the rest of time saying everything is perfectly fine, when me and a bunch of people keep telling you THAT WE ARE NOT OKAY.
> I'm not sure things are getting bad. Poorest people now are more rich than poorest people 30 years ago.
> Like in the US now average electrician makes 70K a year. That's a lot of money. And anyone can be electrician.
I would not consider electricians as an example of poor people. And no, not anyone can be an electrician. It takes training and licensing, and many people can't jump those hurdles. (Not to mention the fact that if everyone became an electrician, very few of them would get any work.)
> I would not consider electricians as an example of poor people
Exactly.
> not anyone can be an electrician
Who can't?
> It takes training and licensing
So?
By the way, just googled, entry level electrician apprentice with zero experience (you are required to do that for some time to get your license) gets about $30K. That's not a lot, but that you can do with almost zero training, and it in several years it is significantly more.
> and many people can't jump those hurdles.
Maybe they can be paintworkers then. 38K of income is not as lavish as the life of electrician, but that's should be good enough who cannot get an electrician license.
> Not to mention the fact that if everyone became an electrician, very few of them would get any work
Truck driver, nurse, carpenter, crane operator, plumber, car mechanic, firefighter and so on. There's a lot of thing you can do with little or no investment.
"The correct goal is not to take money from the rich ... but to get rid of poverty."
I mostly agree with you on this point. However, we can't do that without reforming the tax system. For example, Seattle is one of the most regressive places to live in the country, people in the lowest brackets pay 30%+ in local taxes but people over six figures pay 2.8%. People in single-family zones (wealthy) are slowing the supply increase in apartments which is allowing prices to rise. You can't get rid of poverty without going through the wealthy.
>The correct goal is not to take money from the rich (which can be achieved by taxing them; this is what Bolsheviks did and it resulted in millions of deaths from starvation), but to get rid of poverty.
Getting rid of poverty requires taxing money (and taxing nothing else). This doesn't have anything to do with redistribution schemes. Rather, the act of hoarding money in a 0% interest environment is regressive and makes it harder for all other participants to do the same. When everyone saves their money, it gets harder to save money because deflation will reduce your income and thus ability to save money. New money must be created to catch up with savings demand but all the demand for loans and mortgages has been saturated at this point.
The only entity that can take on further debt is the US government but it refuses all the time, forcing unconventional monetary policy at the last remaining institution that actually cares about the economy. Remember why the Fed was founded? To prevent irresponsible government spending and fight the resulting inflation. It was not created to create inflation, that's the governments job.
Just think about a simplified real economy that produces housing and food but nothing else. At some point you have more housing and food than you know what to do with and people stop building and making food leading people to quit their job but also losing their ability to buy food and housing. The village chief (the government) then decides to just build a luxurious house for himself with the help of the surplus workers because he doesn't want to see them starve.
This is an allocation problem. We expect everyone to pay for their own living expenses but we do not guarantee that they can do so. We cannot send them welfare and be done with it because the busy people building the few housing that is actually needed feel like they should also get rewarded for simply existing (more likely they get angry at the welfare recipients). Because we want everyone to work to earn money, we must create bullshit government jobs that ensure full employment.
Only when we run into scarcity of materials and full employment do we need to cut back on spending and an institution forcing the government to cut spending already exists, it's called the Federal Reserve. Wouldn't it be better if we didn't have to rely on our politicians to do the right thing and instead we have a mechanism that kicks the private sector in the balls when it is asleep? Absolutely but it would require the above mentioned "wealth tax" on bank accounts with large amounts of money. I don't care what they do with the money, heck, I don't even want them to pay the wealth tax because then the government has to come up with a way to spend the money, defeating the purpose of the wealth tax. They can buy stocks and pass the hot potato to someone else until they find somebody who actually wants to spend the money.
>Tax the wealthy. Don't let them take "charitable" deductions or use tax-exempt IRAs. 100% inheritance tax above $4 million.
Agree. especially about inheritance[1]. However, as I've said before corporate taxes are double taxation, corporation are paying their dues as every person involved with the corporation is freed from the liability of the business's actions by way of the state allowing liability limiting corporate entities to exist. When the business assumes liability from the owners, it also assumes tax responsibility.
>has caused massive distortions everywhere:
yeah, like in the global level of CO2, or the amount of plastic in the ocean, or the amount of mercury in fish, or....
I think you’ve just described all trade treaties. Typically Congress still has to ratify. There’s no anathema to democratic principles in my view. You’ve elected these leaders to represent the interests of the USA. Something you disagree with at some level will always be accomplished because that’s the nature of democracy. In a dictatorship, you have perfect agreement provided that you are in the small group that holds meaningful power.
Is a minimum corporate tax “a wildly unpopular policy decision”? I worked on international inversions in the early 2010s and they fell out of favor pretty quickly but I don’t think it was the end of the world. No one needed to do an inversion in order to keep the business afloat, it was purely a play to pad the bottom line. A nice to have but not a must have.
I thought their whole schtick was "one world government," which is precisely what colluding to destroy tax competition is, as is banning capital flight which results from abusive policy.
It is not tax competition. It's tax fleecing. The issue is that companies are paying the rates of low-tax countries while operating by and large in "high"-tax countries and reaping all the benefits from their expensive infrastructure, law enforcement, healthcare, education, welfare (to top up absurdly low employee wages)... all of which gets paid for by "someone else" (you and me).
It might be tax competition if a company that decided to pay Bermudan tax rates also had to draw all its talent from Bermudan universities, had to build their massive shipping hubs in Bermuda using Bermudan transport, had to perform their complex legal cases through Bermudan courts, had to have their entire workforce cared for by the Bermudan healthcare system (or pay them enough to go private)...
(Nothing against Bermuda, picked totally at random)
No - you don't get to go to a supermarket and choose to pay the price listed for the cheapest bottle of wine and walk out with the most expensive bottle of wine.
colluding: to act together secretly or illegally in order to deceive or cheat someone.
And please: capital flight being the results of abusive policy? Corporations and wealthy individuals will always try to avoid giving the fair share to the society that enabled their wealth in the first place: the case where wealth moves because of abusive policies is so marginal in the ocean of pure greed. Some countries are fiscal parasites and benefit from the theft of other societies, and this is how we deal with parasites. Should we just watch wealth evaporate away to offshore stashes, wealth that actually belongs to the people?
> wealthy individuals will always try to avoid giving the fair share to the society
Given that the median US household pays about $10k in taxes per year, and has a net worth of about $120k, perhaps we also need a global minimum wealth tax of say 8% per year, with a tax free allowance on the first $100m of net worth.
Rich people are the only ones paying anything at all. If that's not paying their fair share, how are the 50% of people who don't pay any income taxes at all paying their fair share?
How much of your time should you be forced to devote to others - the majority of government spending is on social programs. 1 day a week, 2 days a week?
What's the fair share? I'd say it's actually far lower than current tax rates.
As a normal guy, it is hard to understand the extremes to which a company will avoid taxes, basically getting all the profit to it's stakeholders, and none to the ones who made it possible for them to succeed (the workers, the ones who built the roads, the ones who provides the education to their kids...)
Higher corporation tax ignores the presence of that instinct. If there's more tax on profits, then businesses need to reduce costs (e.g. salaries for workers such as road builders) to compensate.
> This is literally what conspiracy theorists have been predicting for decades, it's a terrible shame to make them right.
When conspiracy theorists start being right, you need to question whether they're crazier for believing their theories no matter what, or if it's crazier to believe that they're wrong no matter what. Things like this are why I've never fallen for the promise that globalization and open borders are good for anybody but the ultra-rich, maybe.
I don't think this is a very good characterisation at all.
Nations don't have a lot of control over what goes on outside their borders. They can try, but it's hard.
So you end up with weird 'race to the bottom' scenarios where everyone is trying to out-do one another with lower rates i.e. a giant prisoner's dilemma.
Something needs to be done collectively to sort out the problem and this kind of activity is how it's done.
This effort is not about 'fleecing' it's more or less trying to but a lower bound on corporations ability to avoid paying taxes.
It's the opposite of 'not serving their citizens' - it's making sure that taxation is applied to international corps in some consistent way.
I don't think 'conspiracy theorists' have been talking about this one.
The complexity of this agreement and its execution are incredible. Not only getting alignment from 130 members, but a system by which companies report their revenue _and the cost of the revenue_ for every country! Future tax avoidance schemes will most likely try to "divert" their costs towards high-revenue countries like the US. After all, what is the profit margin of an iPhone sold in Romania?
For some context, corporate tax makes up around 7% of the US's federal revenue. While this legislation is important, it's a fraction of the overall revenue pie.
A lot. Changes in policy cut the effective corporate tax rate down from ~40% around 1950 to where it is today. Lyn Alden covered this in an excellent post: https://www.lynalden.com/tax-shift/.
Imposing taxes on a legal entity always seemed fishy to me.
Politically, it sounds great to say, "Make the corporations pay their share!", but who exactly are we targeting with these taxes? Is it the rich executives? Why not just raise taxes on the rich directly?
I suspect in most cases the tax burden is just shifted onto the lower-income workers or the customers somehow.
Yes, I agree. I myself have always wondered about the opposite strategy: literally zero corporation tax, compensated by an overarching income-agnostic personal income tax which would go up to stupidly high percents in the stupidly high income brackets, say for the sake of the argument 80% above 1 million €/$/£, 90% above 10 million, 95% above 100 million etc. I don't necessarily mean these specific values, but you get the idea.
This income tax wouldn't care if the individual's income is salaried, or dividends, or stocks, or real estate, or whathaveyou. Any transfer of wealth from an un-taxed business to a taxable individual would count equally. Of course, the zero corporation tax would be conditional on all of a corporation's profits being distributed to individuals in states subject to the zero-corporate-hardcore-income tax agreement. I'm sure it would be extremely difficult to implement correctly, and to avoid tax avoidance schemes it would also require strong levels of capital controls with non-participant nations.
I may be a bit naïve, but intuitively I feel that erasing corporation tax altogether but highly taxing all individuals' personal profits may encourage innovation and reinvestment, and perhaps even make UBI a feasible option.
If we did that, rich people would keep a corp as a piggy bank and only pay taxes on whatever they took out. Most of the money would stay in the corp and be use on various investments.
To a degree this is already what people do (eg contractors), except they have to pay some corp tax each year on what they made.
How is that any different from having money invested in stocks/real estate/etc today? Unrealized capital gains aren't taxed regardless of whether the asset is held by a corp or individual. In any case it's when the person realizes the gains that a taxable event is triggered.
Ok, but corp owner still can't benefit from the gain without generating a taxable event. Either they pull the money out directly or receive a benefit in kind. In either case it gets taxed as regular income so in that sense the person would actually be in a worse tax situation assuming capital gains is taxed at a reduced rate.
Most things that wealthy people want that has to be purchased with after tax dollars, like I don't know a flight to visit a family member, they can pay for just fine out of the pittance they pay themselves in salary.
The real trick they pull is making everything a company. A man building a model rocket at home? That's with after taxed dollars. A man building a rocket to the moon? That's a business. Goes for all sorts of things. At some point you have to say, no, corporations please pay tax as you make it.
It's much easier to force a corp to pay dividends or do a share buyback than it is to chase them around the world with some horrible tax policy. A 0% corporate tax with law to prevent excessive hoarding of cash in the corporation is the only sane solution.
How much cash a corporation holds should be a matter for the corporation's CEO, board, and shareholders to decide.
If the shareholders are comfortable with the company sitting a on large amount of cash as a rainy day fund, or a reserve that can be used for large acquisitions, significant new research efforts (maybe Apple wants to build cars, and self-driving ones) etc., then who's complaining?
With $195 billion in cash reserves, Apple couldn't e.g. buy a semiconductor company like TSMC outright (market cap $623B), but one could imagine that there are plenty of companies that Apple might like to have the ability to buy that are in the several-to-ten billion dollar range.
If a substantial number of shareholders are unhappy with Apple's cash hoard then a large enough coalition could force a vote to distribute a portion of the cash as dividends, or use it for a stock buyback; or pressure management changes at the company, etc.
So far, the fact that Apple investors appear to be comfortable with its cash reserves suggests that Apple investors believe that Apple will either (1) lobby for policy changes that enable it to bring the cash back to the US without paying considerable taxes, at which point it will distribute them as dividends or stock buybacks; or (2) they believe Apple will use that cash for investments/acquisitions that will generate more returns than the investors themselves would generate if the same cash were distributed immediately to shareholders.
> Politically, it sounds great to say, "Make the corporations pay their share!", but who exactly are we targeting with these taxes? Is it the rich executives? Why not just raise taxes on the rich directly?
Pretty basic megarich person accounting: You realize zero income, you just hold a lot of valuable assets, and you pay no taxes.
"But surely they must have some income to live on!" you argue.
Nope, you get a $10 million loan backed by your assets. You spend that loan, which is not income, tax free. When the time comes to pay back that loan, obviously the next move is to get a $20 million loan. You can keep rolling these loans tax-free until you die. "Aha, now the estate pays the taxes!" except there are a multitude of other loopholes for evading inheritance taxes.
On paper and at first glance it seems like everything is fair (which is the goal, to seem fair), but only the most incompetent ultra-wealthy person is pulling anything close to their own weight when it comes to taxes.
Bezos is playing it pretty straight, but then again 973 million is basically pocket change for him, also let's not forget about the year he paid zero taxes and got a refund:
> Bezos filed a tax return in 2011 reporting he lost money because of bad investments, allowing him to claim and receive a $4,000 tax credit for his children, according to ProPublica.
Anway Bezos is far from the only mega-rich person, for example from that article you cite:
> Another wealthy person whose tax data ProPublica obtained was Carl Icahn, the activist investor who built his wealth through corporate takeovers. He paid zero income taxes in 2016 and 2017, partly because he was able to deduct interest expenses on loans from his “adjusted gross income,” ProPublica said.
When looking at a single year for people who have losses and expenses it can paint quite a misleading picture. Over 10 years how much did they pay, is a much better question.
Honestly I get it, and I can argue both sides of this debate. However, for the regular working person who pays taxes year in and year out to hear that people who live in stratospheric luxury aren't paying taxes: it looks like a duck, walks like a duck, quacks like a duck, and by duck I mean rigged system.
Trump is a notoriously bad business man who loses money. If you're living if savings which is what happens when you lose money, then there is no tax bill. I'm not discounting fraud, but there is active disinformation on this - propublica mixing wealth totals and income tax just one of many intentional misleading arguments.
Again, I understand the argument you're making, but it still on its face looks like a rigged system. Trump isn't living in poverty and his generational tax fraud scheme was pretty well documented a few years ago[1].
> it sounds great to say, "Make the corporations pay their share!"
the Global minimum tax rate is only tangentially related to the 'make corporations pay their share' problem. The real problem is a 'race to the bottom' where corporations will shop around and put tax headquarters in the country with the smallest tax rate (i.e., Ireland).
> I suspect in most cases the tax burden is just shifted
The big question for me is: is it really a significant tax burden? or do the companies choose nations with the lowest tax rate because they are seeking a competitive advantage, and thereby inducing all their competitors to make a similiar choice?
the minimum tax rate is trying to level the playing field in this regard.
One of the even bigger issues with this bill is the lack of accountability in government spending. This does nothing to tackle military spending or riders tacked on to bills that have nothing to do with the proposed spending bill.
If politicians really wanted to make people happy and get things under control, it would be transparency in spending and no riders on spending bills. This is just another way to wring more money out of a populace with a better sales pitch by saying, "Make the corporations pay their share!", knowing full well that people don't consider the down stream effects on middle and lower class economic systems.
Well that's a very US specific thing with its current rather 18th century set up. I agree from a parliamentary perspective its horrific.
Its a bit similar to the way the tiny NI parties hold UK governments feet to the fire in return for support they get nice bungs or optouts on human rights laws.
I mean, I don't disagree that governments can spend their money in undesirable ways, but in general increasing government revenue is a good thing.
Maybe this bill doesn't stop oversized military spending, but it at least puts a damper on the race to the bottom of countries offering low taxes to gigantic corporations.
It's basically the shareholders that pay this tax - the corporate tax being described here only on applies to the profits, so salaries for example would be counted as an expense and not included in that.
There's also not a lot of reason for this to be passed on to the consumer - if raising prices would let the company make more profit, it would make sense for them to do that anyway regardless of the specific tax rate they pay on those profits.
As for taxing the shareholders directly, they of course do do that in addition to the corporate tax. One way the corporate tax is a little bit different is that it's paid before income is distributed to the shareholders, so if a company accumulates a huge cash balance but doesn't do any share buybacks / dividends, it will still pay the corporate tax even though the shareholders won't pay any tax (unless the company starts distributing the profits).
No one ever wants to argue the opposite -- "but if you tax consumers, they won't spend as much, and corporations won't make as much money!" Although personally if I had to bet on one way or the other, I would say this reversal is easier to prove.
> Politically, it sounds great to say, "Make the corporations pay their share!", but who exactly are we targeting with these taxes?
I just think of it as forced public ownership of a fraction of the shares of companies chartered & granted special privileges by the public's government, but with extra steps.
What stops a person from creating a legal entity to funnel your activities through to personally avoid taxes? If the corporate tax rate is 0% and the individual tax rate tops out at 40%, the incentives to practice this kind of avoidance are strong.
Existing tax law already covers this. If you use a corp to fund personal activities that is a benefit-in-kind and subject to income tax same as if you received the money directly.
> who exactly are we targeting with these taxes? Is it the rich executives?
Lot of times the money were not handed to the employee, executives included. They just stay at the company or paid to the financial company that owned the companies.
At least from my eyes, recent trends are exact opposite. Stock buyback returns the money to investors (by raising stock price). Huge bonuses to executives. The company itself is managed on a very thin buffer so that
a) When things go south, they can always ask the government for bail-out. Too big to fail & all that.
b) Anything affecting the company, in terms of regulations, can be shown to directly affect the employees and their job.
This may be a cynical take, but this is what I see.
But investors keep their money in honding companies and trusts, sometimes registered in panama. The billions never actually have a physical person as their official owner
I think you’ll find hints of the answer in the fact that most countries are pretty bad at collecting taxes from the rich already. It is fairly easy if you are rich to hide your wealth and evade taxes. I suspect it might be a little more difficult for a publicly traded company to hide its wealth the same way.
Anyone got a list of the countries? I tried googling around a bit to try to find it. At least other articles[1] mention all G20 countries are on board. That would include India, Russia and most importantly China.
Low corpate tax countries not on the list: Ireland 12.5%, Kuwait 0%, Hungary 9%, Kosovo 10%, kyrgystan 10%, Lichtenstein 12.5%, Moldova12%, Sark 0%(UK related but only had 1 active bank so perhaps they did not need it on the list )
I am surprised that they managed to get most of the typical island states on the list to convert. And it will be super interesting if Kuwait and Sark can stay strong or if new companies will take the opportunity to address this market.
I worry about a place like Russia. I could easily see them signing on to this. 15% of profit, just like everywhere else. But the reality might turn out to be that, for 1% of profit, under the table to the right person, they'd only take 5% of profit, but supply you with the paperwork saying that they took 15%.
You know that someone will do that. If not Russia, someone else. There's too much money for it not to happen.
When the benefits of creating a new country outweigh the costs (to shareholders), does it fall within the fiduciary duty of corporate leaders to form a new country?
I wouldn't be surprised if you only needed one country to do it and then could funnel all your taxes through that complicit country. If that happened we would be back at the double Irish with an extra step. Forcing all participants to recognize the same countries could have all kinds of good or bad side effects especially when you consider China and Taiwan.
Plenty of tiny nations already solved this problem by contracting other nations instead of building their own defense infrastructure. Granted it's not free either but much cheaper than building your own.
It's not my plan, nor am I advocating for it. I just think it's a potential in the logical progression of events.
To your point though, what if a few or even all Fortune n companies formed countries (or one country together). Who would the sanctions really hurt/benefit? I doubt it would hurt the corporate nation states as much as the others.
I doubt all fortune 500 companies would just accept losing access to the markets of 130 countries, so I'm guessing you're talking about tariffs rather than sanctions (which imply a total ban). In that case it would depend on how punitive the tariffs are. If they're not punitive enough then you're right, companies might just deal with the tariffs in which case the corporate tax gets turned into a tax (assuming mot of the countries are in on it. If it's punitive enough (ie. it's better to pay the local corporate tax than to pay the tariffs) then you'd expect competitors to break ranks to gain a competitive advantage.
“For decades, the United States has participated in a self-defeating international tax competition, lowering our corporate tax rates only to watch other nations lower theirs in response. The result was a global race to the bottom: Who could lower their corporate rate further and faster? No nation has won this race,”
Translation, "We want to have these corporations in our country so badly that we keep paying more and more for them in order to compete with the other countries that also want them. We now want to collude with these other countries to keep our costs lower."
Sounds an awful lot like price or salary fixing. Who is actually going to pay for this in the end?
Isn't it a consensus position among economists that corporate taxation is inefficient and badly targeted? That taxes on individuals (wages, goods&services, capital gains) and on land are easier to collect and better at providing desired incentives?
Really, isn't a "race to the bottom" a virtuous cycle here?
Kinda weird to see Yellen -- Treasury Secretary and former Fed Chair -- making this kind of statement.
Actually a common reason given for having corporate taxes is they're easier to collect since you collect from fewer payers.
The biggest problem is they obscure tax burden. All tax burden is ultimately born by individuals. If you levy on the corporation instead of the individual directly, then the burden just gets divided between clients, suppliers, owners, and employees, and how it get divides ends up depending upon the relative price elasticity of demand for each of their services. When taxes are levied on individuals directly, how the burden gets distributed can instead be codified in law.
At least in that sense, corporate taxes are somewhat anti-democratic. Politicians and voters are out for blood on this, but what they really want is for the owners to pay more tax. That can be better accomplished by just taxing capital gains and carried interest.
There is, of course, also tremendous deadweight loss in that business decisions are often dictated by what results in the best tax treatment rather than what is economically optimal. The fact that it actually makes financial sense to entirely relocate operations to other countries is itself a pretty big indictment of taxes like this. That's a huge amount of resources being allocated in a way that does not result in any improvement to the goods and services.
But, to the point of this treaty, if they're not going to eliminate corporate taxes and tax owners directly instead, the next best thing is at least make the taxes the same everywhere so the relative change in rates will stop dictating business decisions.
The corporate profits that are being taxed normally would get distributed to shareholders via share buybacks or dividends (so will appear to them as capital gains or income).
Taxing this is basically taxing money earned from owning things vs money earned from working.
I'm not aware of a consensus that one is always better than the other. I would imagine it would depend on the circumstances of the economy and what the current tax rates are. If you tax income from owning things too much, that would probably discourage saving and investing money, but of course taxing wages discourages working (and lowers the after-tax income of workers).
I would say that in the current environment, the cost of money (interest rate) for companies that want to make investments (building housing, factories, etc), is already pretty low by historical standards.
One of the common problems with the corporate tax is that it's hard to say which country the profits belong to (global companies can shift the profits around very easily by changing the prices their international subsidiaries charge each other). The article is an attempt to address the profit-shifting issue. There are also other ways to address that, but they might be harder to implement since they would involve more substantial changes to the tax code.
Her point is that no country can survive with zero tax. Everyone knows that. In order to have roads, schools, hospitals, parks, police, you need everyone to chip in, specially huge corporations who know how to subvert the system for their own benefit (meaning their shareholders)
> Who is actually going to pay for this in the end?
The companies them selfs I presume. If tax evasion is a necessary requirement for the existence of multinational companies, or—in other words—if multinational companies need government subsidies to stay afloat, perhaps they can just die in bankruptcy.
More realistically, the companies will do just fine paying their fare share of their profits back to the states that provide them with infrastructure and skilled workers. I mean it is not like a multi-million dollar yacht for your CEO is necessary for the company to continue its operation.
Ireland is a big hole. Many corps have huge nexus there simply to avoid corporate tax. Would the Dutch-Irish double-sandwich still work - maybe with another country?
That made me wonder, what's to stop a country from having a high rate but also offering a tax credit? Or some sort of disguised give-back?
If you Google the Malta Corp tax rate, you find 35%. You need to dig a big more to read that actually you can get 30% refunded. Haven't tried it myself.
>>The deal also reportedly includes a framework to eliminate digital services taxes, which targeted the biggest American tech companies.
>>In their place, officials agreed to a new tax plan that would be linked to the places where multinationals are actually doing business, rather than where they are headquartered.
Was enough to address this concern:
>>If widely enacted, the GMT would effectively end the practice of global corporations seeking out low-tax jurisdictions like Ireland and the British Virgin Islands to move their headquarters to, even though their customers, operations and executives are located elsewhere.
Not only can the concerns that are being used to justify a global minimum tax be addressed through other means, the tax agreement itself is a terrible policy, because it freezes the evolution of tax policy for the whole world, presupposing that an income tax, and specifically a corporate income tax, is ideal.
There are structural problems with the corporate income tax, and many economists argue for eliminating it altogether, and replacing it with other types of taxes (e.g. a transaction tax, a carbon tax, a land tax, etc). But this locks it in place as a constant for all countries.
It's exactly this kind of homogenization of governance that Europe had to get past to prosper:
As if "locking it in" weren't bad enough, the billionaires also propose to lock in the USA system that they have already completely reconstructed to their own benefit.
Surprised to see the negative comments, despite HN comments' usual bent. As someone that moved around multiple countries, I was impressed by the US' tax by citizenship on global income. About time we apply the same to corporations as we do to individuals, given how much easier it is for corporations to move their income around.
This is really just price fixing, which is generally considered anti-competitive and typically illegal. Governments should be subject to the same competitive pressures they impose on everyone else.
Actually Pillar 2, which makes corporations pay taxes where they actually make money, is more interesting. Because if you sell my data to say swiss corporations, why would you pay taxes in switzerland and not in my country? In other words why not pay taxes where you extract resources ?
Next year the US will spend $715 billion on military budget alone, a $10 billion increase from last year. Shouldn't the government try to cut spending before thinking of how it could increase tax revenue?
It's like an obese person wanting to lose weight while eating more each year and thinking of increasing time spent at the gym to make up for it, shouldn't they try eating less if they want to lose weight?
> Spending 1% of it to insure its safety seems about right. How much would you spend ?
Are you unironically saying the US isn't spending much on military?
Most wars conducted by the US are not defending its safety. If you still believe you went to Iraq or Vietnam to protect freedom at home, then you're just too indoctrinated and there's no point debating.
> USA has about a 100 trillion in wealth.
This is not how it works, it's not spending any of the $100 trillion in wealth, it's printing money against it which arguably lowers its value. That being said, let's see what makes up the 100 trillion in wealth [1]:
"In 2018, the Fed estimates that Americans owned $114 trillion of assets, including $26 trillion of housing and real estate, $26 trillion of pensions (such as 401(k) accounts), $22 trillion of corporate stocks and mutual funds, and $6 trillion of durable goods (vehicles, appliances, furniture). Liabilities — mostly mortgages and consumer credit — totaled about $15 trillion, leaving net worth at nearly $100 trillion."
Housing and stocks is paper money, it's just valuations that could go to 0 if people actually started "spending" it as you say, ie selling it. Then there is 15% of it that is liabilities.
So how much would you spend ?
How much would Mexico or Congo need to spend to become as safe as the us ?
Obviously the government doesn’t own the 100 trillion in wealth itself. On paper it’s net worth is negative. But us gdp is 20 trillion and tax revenue is 25% of that or about 5 trillion.
This is not about increasing tax revenue it is about preventing multinationals from evading taxes. It's similar in concept to the Alternative Minimum Tax, which was designed to prevent an ever-increasing web of exemptions and loopholes from allowing some people to pay little-to-no taxes.
Taxes aren't a virtue - they're a necessary evil. They're coercion, only paid on the threat of violence. We should be aiming to minimize taxes and fund programs through other voluntary means. So where the money is being spent should be considered when talking about how much should be raised, since it the cause.
Voluntary mechanisms only fill the needs of the wealthy, who also operate largely on coercive means(all that private property only exists by force of the government). At least taxes are by consensus, both in the amount, and what they find.
The military budget is a red herring. If the budget was reduced to zero it would barely effect the deficit, yet over the long term it would probably cost more, since a weak nation invites war.
130 != 195 - new tax havens will crop up quickly in the remaining 65 countries. Even if unstable and not trustworthy today, trust will arrive there with money and people who deal in the tax haven services.
Apologies for being cynical, but this agreement is just slight change of music in the 0% corporate tax dance.
I've always considered the current system to be unfair. Most tax revenue comes from employees, while the super wealthy hire the best of the best accountants. They pay these accountants big commissions and bonuses, then they pay next to nothing in tax.
I'd like everyone yo know that in the United States, such a scheme is clratly a delegstion of authority. illegal and unconstitutional, and a clear case of Treason ny all the elected and appointed people who support this garbage idea
That's what conservatives always say (but not always do): decrease taxes, make the governments smaller, give money back to people, so people will spend money more efficiently than the government.
I did not read full list of comments, but before celebrating victory of “they gonna pay”. Let me guess, many countries will change tax code that corporate tax being paid only on witholding.
Instead of trying to change the behavior of other countries, why not implement an alternative minimum tax for companies that do business in the United States?
In the limit of free flowing capital and goods this minimum is likely to also be the maximum. This will lead to a more homogenous and uniform financial situation across all countries.
A much better idea would be tarrifs. A country can tax each corporation as they see fit and what is in line with their values. They can also then have corporate or other taxes in line with their values. This would lead to a diverse menagerie of various governments and various kinds of financing. I would argue this is healthier than every country becoming the USA.
Why would this put downward pressure on the maximum corporate tax? The current minimum is 0%. Why isn't 0% also the de facto maximum, right now? Why would raising the minimum force it to (tend to) equal the maximum?
~0% is what many pay right now because various mechanisms are used to pay the tax of the lowest country tax rate. So if you enforce a minimum then likely they will pay ~min%.
This is a game theory problem not an economic or political one.
Ah, so you'd propose that 0% is the current de facto minimum and maximum, and that raising the minimum is bad per se? I took your original post to mean that states would not, practically speaking, have the liberty to impose even higher rates if a de jure minimum were imposed, while currently they do, but... rather you seem to disagree with the direct point of the move itself, which is to prevent under-cutting some minimum above 0%? Or am I misunderstanding you?
If the point is for every country to have the same tax rate then yes this solves that problem.
Each country cannot impose a higher rate de jure for the same reason why now the effective rate is 0%.
... but they all have (effectively) the same rate either way, no? The point isn't for them all to have the same rate, it's for that existing same rate to be higher, right? That it would be, in effect, the same, isn't an outcome of this move. That that same rate would be non-zero is the outcome.
Well no they dont need to have the same rate they just need to implement tariffs.
With tariffs one could choose to tax with prejudice. You could tax specific corporations higher or lower or specific industries (gas/coal). Or even give tax breaks to specific industries.
This move is a move towards uniformity and specifically uniformity with the USA. I dont think the USA is the model of fiscal governance that much of the world wants to emulate.
If one really cared to one could probably find the various loopholes of the powerful in this new minimum as well. However this is just investing time and effort into thinking about a bad idea.
The comment is correct: printing the money is actually taxing the poorest: because government spends money inefficiently, and printed money end up in the richest (and worse than that, corrupt and counterproductive) people pockets.
Like if you tax a next Bezos, you will have no next Amazon.
But if you stop printing money, you will take money from some government contractor, who is a friend of a senator.
Two-thirds of humanity, which makes sense because one wouldn't expect much overlap with the third of humanity who suffer USA economic sanctions. Different methods for accomplishing the same goals...
Does anyone know at what point the tax is paid? I ask because publicly traded companies avoid it by doing share buy backs. So Apple technically makes no profit. 1% or 15% or 100% of technically nothing is nothing...
>The deal also reportedly includes a framework to eliminate digital services taxes, which targeted the biggest American tech companies.
The classic offshore approach is that Apple USA doesn't make any profit because they find a way to make the accounting work such that Apple Ireland actually made the profit. It only becomes income or dividends when it gets transferred back to the USA.
An example might be to assign the patent ownership for the new M1 chips to the Ireland subsidiary. Sell them for $1. Then charge the USA based firm $1 billion in licensing costs. Make $1 billion in income selling the chips. Boom $0 profit. Except now there is massive profit in the Ireland subsidiary, which can pay very low taxes. The problem is that the money is stuck there. If they give it back the parent company as a dividend, then that is income to the parent.
Apple might make no profit, but wouldn't the shareholders selling their stock back to Apple have to report the sale as capital gains? So (at least some) taxes would be paid on that money, just not by Apple directly.
So, if they paid a dividend apple would pay Corp tax AND the share holder would pay cap gains. A buy back avoids the Corp tax and let's the shareholder delay paying (until they sell) and also pay a lower rate if they're careful (long term holdings I think get a lower rate, 10% I think?).
There is another reply here saying Corp tax is still due. I didn't think it was but I'll check after dinner.
Honest question: what is the reason for there to be a corporate tax at all? When corporations distribute profit to their owners/shareholders, those people must pay income tax on it. Why not have the government get its share from income tax?
Corporate tax seems like double taxation, and its existence seemingly means that all companies have a lower margin than they would otherwise, meaning that they need to charge higher prices to be equally profitable. For companies that sell products to consumers, one would presume this would result in higher prices for everyday items.
In other words, isn't a corporate tax ultimately regressive because it causes companies that sell products to consumers to have higher prices? Companies that sell everyday items like food and essentials will pass on that corporate tax through higher prices to consumers. Meanwhile, any business owners/shareholders who receive substantial income pay income tax in the highest tax bracket for any income received from the company.
Corporate taxes just seem to hurt margins, resulting in a regressive effect on the economy through higher prices, and discourage companies from conducting research and development, by again hurting their margins. Why not eliminate corporate tax and rely on income tax, or better yet a model like sales tax/VAT?
There will be exceptions like business owners who start a business from nothing, see the net value of their shares rise into a billion dollar valuation, yet pay little in taxes -- however they haven't necessarily sold those shares to receive income yet, and when they do they'll be taxed at the capital gains rate.
You could argue that the capital gains tax (or qualified dividend tax) should be higher, which is an entirely separate matter from the corporate tax, but if you raise that rate then you discourage prospective business owners from starting businesses, and you discourage investors from investing and holding shares in companies for the long term.
The top 1% of people by income already pay 40% of all taxes. Meanwhile, the top 2-5% pay the next 20% of all taxes; so the top 5% of earners collectively pay 60% of income tax. Given this fact it surprises me that people say that the rich need to pay their "fair share". https://www.heritage.org/taxes/commentary/1-chart-how-much-t... (Note that this is considering income, not wealth. We don't tax wealth, and I don't personally think we should while people live, beyond generally taxing real estate to pay for the services provided near that real estate, such as roads, police, schools, etc. I have mixed feelings about the estate tax i.e. taxes paid on inheritances at death).
> The top 1% of people by income already pay 40% of all taxes.
I believe that this famous misleading statistic is only true if you specifically limit it to federal income tax, not "all taxes".[0]
Less misleading is to compare total taxes against total income, which is shown in a chart[1] included in the linked article. It shows that the top 1% earn 21% of the income, and pay 24% of all taxes.
The real question is, why are the top 1% only paying 24% of the taxes when they own 39% of the wealth?[2]
> Corporate tax seems like double taxation, and its existence seemingly means that all companies have a lower margin than they would otherwise, meaning that they need to charge higher prices to be equally profitable. For companies that sell products to consumers, one would presume this would result in higher prices for everyday items.
Isn’t this a good thing? The core reason for incorporation is to have limited liability, leading owners to have a limited potential downside, and unlimited potential upsides.
But the downside is still there, it’s just externalised.
Corporate tax seems to be a fairly reasonable approach to paying for this liability insurance.
Also Africa and countries with low enforcement (either willing low enforcement or caused by scarce public sector resources) will have capital flowing in. Once the law is there the next race to the bottom will happen on odds of enforcement of such law.
The usual suspects will continue to dominate the transfer pricing business, only they'd house foundations and 501c3 type vehicles, as well as private companies which are normally not in the authority watchlist. Such as the Trump Organization before he decided to run for President
What corporation wants to do all the paperwork to spend all the money to establish all the shells to reside in a country where they technically legally owe the same tax but the government is just lax in collecting it?
The government can change its mind any time and start enforcing and you will owe tax and have no way out of it. Moving again won't erase history if they claim back taxes.
That’s a common misunderstanding, restaurants are low margin due to competition. As long as the industry moves in lockstep with cost increases the margins stay the same.
Sales taxes for example vary widely yet have minimal impact on low margin business. Lower them and customers save money but restaurants margins stay the same.
For the same reason though, complementary goods don't necessarily have the same tax burden or margins. So the distribution of purchases might shift. Restaurant-goers might just eat at home more, or maybe even just go out to more expensive places that can operate with lower margins.
The important bit is the number of restaurants may change, but their margins don’t. The classic Starbucks at all four corners of an intersection is predicted on the total number of customers in that area. Cut them by 25% and 1 of those 4 locations but close 1 location and the the three remaining have identical numbers of customers as before the change. Cut by 75% and your down to one location, but again it ends up seeing the same number of customers before and after the transition.
Why? If it were applied across the board, then every business would just treat it like any other business expense and price accordingly. On a theoretical zero-margin business it would translate dollar-for-dollar right to the customer, yes?
The problem is that you're incentivizing the creation of vertical monopolies. A small restaurant is forced to rely on suppliers who would pass the revenue tax onto the restaurant. Meanwhile, McDonald's can afford to buy their own suppliers. McDonald's suppliers would technically not make any revenue, so they get to pay less in tax.
I would say that most of the problems with wealthy people not paying their "fair" share (what ever that might be) is the fact that people are taxed on income and corporations are taxed on profit. Many wealthy people do what they want to do with companies (taxed only on profits) or non-profits (not taxed at all!), while the average Joe is taxed on their income. It would be a good idea to have both people and companies taxed the same way.
Personally I think it would be good to get rid of income and corporate taxes all together and replace it with a land value tax. So much more freedom, less regulation, and crazy tax loopholes.
Why not just consider every person a corporation? If it make 100K and it costs you 90K to run your family (yes there will be special rules) you pay tax on the 10K.
If you make 1M and it costs you 400K to run your family, you pay on the 600K.
If you spend more than you earn, you carry forward the loss.
Land value tax makes sense on paper, but implementation is a huge question. Who decides the price, how often is it revised, how do you make it transparent? Maybe "solve" that issue with a trick: everyone decides their own value and thus their own tax, but whatever value they decide is a an offer to the market: if you think the person is underpricing their land, you can buy it from them at that price.
Most places in the US have had property taxes for centuries, so these implementation problems have already been solved (not always very well, but money is collected). Disentangling the land value from any improvements is a bit tricky, but not much more than determining the value of the total property.
I have thought that valuating your own land could possibly work, but people would have to have a more detached sense of land/home ownership for that to work. People get emotionally attached to where they live, but maybe encouraging people to be less attached would help many current problems in society cause by NIMBY issues.
The answer seems to be that we should tax capital gains and income at the same level. This would disincentive investment on the margin, but it seems like it might be the better tradeoff. Alternatively you can go the other rough and tax consumption (progressively) which would benefit accumulation.
Would the land tax work well with, say, tech companies though? To me it seems those take advantage of completely different resources. Internet infrastructure, data, attention, you name it.
Right, it is crazy to treat the revenue of 2% margin grocery stores the same as 50% margin SaaS products. I don't know what kind of economy these people are trying to build.
If yo are a legit company you need to file your accounts with the government. Maybe some small funds and companies can be on a paper in Seychelles (no accounts needed) and have their Monero induced cocaine parties, but this law aims at Amazon (effectice tax rate 0%), Apple, Google, Microsoft, Netflix and sucy.
> If yo are a legit company you need to file your accounts with the government.
You don't have , you do because you are afraid of repercussions.
With a totally private coin and transaction happening off the chain....well it's not like they have any means to see what you are doing and present repercussions.
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It is effectively a new mechanism for the G7 to encroach on the sovereignty of other countries.
And if you tell me, taxing international corporations is a good thing, I agree, but it is just a pretense. Just a setup. The G7 can also just tell those international corporations to fess up the money. They have enough influence to do just that. There is no reason to include Poland, Sri Lanka or Botwana or Bolivia in this agreement. The reason those countries are included is so that later on, the same agreement can be used to blackmail those countries.