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back to article IBM nearly HALVES its effective tax rate in 2013 - report

IBM has managed to legally reduce its tax payouts by billions of dollars after sending its profits through a Netherlands subsidiary that acts as a holding company for more than 40 of its firms worldwide, according to Bloomberg. At the end of 2012 IBM had accumulated $44.4bn of offshore profits on which it hadn't paid US taxes, …

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Silver badge

If the big companies need to do it ...

to be able to turn a profit, what hope us small, non multinational, businesses that don't have the ability (or desire) to evade tax by shuffling money around the world?

Politicians from different countries need to get together and agree ways of stopping this sort of thing, even if it does hurt donations^Wbribes for research^Wfavours.

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Silver badge

Re: If the big companies need to do it ...

Was it the Rolling Stones who cancelled a tour because they claimed tax rule changes made it unprofitable?

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Re: If the big companies need to do it ...

This is the crux of the problem.

What the companies are doing is legal (if morally questionable) but what it does is severely distort the market where multi nationals have a huge competitive advantage over small competitors.

Personally the only real solution I can see (and I don't like it) is to scrap capital gains tax because it can so easily be circumvented and replacing it with some sort of turnover taxation.

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Flame

Re: If the big companies need to do it ...

How about finding ways to reduce the tax rate instead, so large companies don't have to resort to these tricks, and smaller companies can benefit as well? Trimming down the government by cutting programs that are a drain on the economy without adding anything of value back, like corporate bailouts, obamacare, and the NSA might be one way of doing it. Getting rid of programs that artificially tilt the playing field, like affirmative action might be another.

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Boffin

Re: If the big companies need to do it ...

Nothing wrong with EVERYONE paying a tax rate of 15%.

Throw out the tax regs and save millions by reducing IRS, Tax Preparers costs.

Only a fool doesn't take advantage of tax savings opportunities.

For get about hunting/punishing those who follow the tax code. Make a move to have the current codes tossed out and establish an across the board 15% tax for everyone in the US.

You will see a better growth in the economy this way.

Only people who lack any business knowledge/sense would dis-agree IMO.

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Silver badge

Re: If the big companies need to do it ...

"Only people who lack any business knowledge/sense would dis-agree IMO."

And the ones not paying any tax under the current system. After all they paid good money for those loopholes.

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Re: If the big companies need to do it ...

What does capital gains tax have to do with it?

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Re: If the big companies need to do it ...

In the spirit of your final sentence do I say "Only people in favor of the poor getting poorer, would agree with a flat tax." Only people who lack any sense of historical growth, progress, development, democracy over the last hundred years would dis-agree IMO.

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Re: If the big companies need to do it ...

How about finding ways to reduce the tax rate instead, so large companies don't have to resort to these tricks, and smaller companies can benefit as well?

Large companies aren't forced by tax burden to find legal ways to reduce their taxes. They're forced by competition. As long as they can realize a net savings by taking advantage of a tax maneuver, they'll make that maneuver. To do otherwise would be to hand competitors an advantage.

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Happy

Don't worry IBM ...

… and Google and Starbucks and … (enter multinational of choice recently flamed by UK for smart tax practices).

I may have a precedence setting solution for you all that may be of interest to finance, legal and (most importantly of all I think) PR departments.

Get the chequebooks ready?

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It is the duty of a profit making enterprise to minimise tax and maximise profit, any anger directed at the companies involved is misdirected.

It is the duty of Government to structure tax laws such that economic activity benefits the societies in which the companies involved operate.

This is where the ball has been dropped. It is well overdue for a complete overhaul and re-evaluation of the tax rules in Europe which mean companies can turn billions of dollars of profit (in real terms) whilst paying a tiny percentage in tax.

The current situation definitely benefits the elite 1% while penalising and exploiting the 99%.

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Gonna point me at the law which says that is their duty?

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The Bretton Woods agreement

Its also the duty of the Government NOT to make arbitrary changes to international tax treaties. If they do that then other countries are likely to retaliate.

Consider a MacDonalds Paper cup made in India, Printed in China, shipped to America under the direction of a Luxembourg HQ.

Where is the value added?? Where does the profit get booked??

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JC_

Re: The Bretton Woods agreement

Consider a MacDonalds Paper cup made in India, Printed in China, shipped to America under the direction of a Luxembourg HQ.

Where is the value added?? Where does the profit get booked??

If it cost 1¢ to manufacture and sells for $1 in the US, the 99¢ should be taxed in the US. But what really happens is that the logo on the cup is intellectual property which a McDonald's subsidiary in Switzerland 'owns' and charges McDonald's US a usurious rate for, reducing (on paper) the profit.

Substitute coffee beans, Starbucks and the UK for cups, McDonald's and the US.

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@mole5000

Much of what gets touted as an obligation to minimise taxation stems from an individuals reading of section 172 sub section 1 of the Companies Act 2006

This states:

(1)A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to—

(a)the likely consequences of any decision in the long term,

(b)the interests of the company’s employees,

(c)the need to foster the company’s business relationships with suppliers, customers and others,

(d)the impact of the company’s operations on the community and the environment,

(e)the desirability of the company maintaining a reputation for high standards of business conduct, and

(f)the need to act fairly as between members of the company.

In essence, provided the taxes are avoided legally it comes down to the companies board of directors to balance the remaining objectives. For the purposes of tax we can ignore parts c & f.

That leaves them juggling long term consequences (which they can argue means maximising profitability now to aid R&D or expansion), the interests of employees (they can argue tax efficient behaviour allows them to employ more staff), the impact on community & environment (they can argue taxes don't influence the environment, so this part is a moral judgement on whether lower tax receipts force more efficient government spending), and finally, their reputation for conduct (if everyones doing it then it can't harm your reputation).

I would argue that in so reading the act, they're missing the point. None of the above mandate tax avoidance, even if they fail to discourage it. By reading the act through the lens of tax minimisation they are justifying an unintended outcome. The underlying question is was section 172 ever intended to relate to tax at all? I would say no, simply because it never uses the word.

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Bronze badge

Duirectors fiducial duties

I don't know about the US, but in the UK director's responsibilities are covered in the 2006 Companies Act. That covers a lot of things, including a requirement to operate within the law and duties about the treatment of employees, avoidance of conflicts of interest and so on. However, one of the most important duties is "To promote the long-term success of the company (rather than the interests of, say, the majority shareholder)". That is, the interests of the shareholders at large. The point in brackets is about the protection of minority shareholders.

A perfectly reasonable interpretation of this condition is to optimise the financial performance of the company in the long term, which would include running the company in a tax-efficient manner. Of course it might be that being so aggressive in pursuing tax minimisation policies as to attract unwanted and damaging publicity or unwelcome legislative changes. So it's not an absolutely black-and-white picture. However, the requirement to promote the long-term success of the company would certainly appear to include running in a tax-efficient business as a part of being financially successful.

Another point is that the shareholders are answerable to shareholders (often moderated through non-executive directors) and, as such, if they are appointed with the aim of maximising shareholder return, that is what they have to do. Also beat in mind that these shareholders are often institutions representing the investments of ordinary people in such things as pension schemes.

One thing to note is that the 2006 act rather widened the scope of director's duties to wider interest groups. It superceded the 1985 act, where the duty to the shareholders was even stronger.

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JDX
Gold badge

Gonna point me at the law which says that is their duty?

Um, you seem to piss the point. If it was the law he would've said it was the law, not that it was their duty. It can't be the law for it to be your duty because then it's not your duty, it's the law.

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DN4

Duty

If you don't like the word duty you are free to replace it with ‚the sole purpose of their existence‘. It won't change anything...

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Boffin

False statment and lack of understanding where retirment accounts are invested.

"The current situation definitely benefits the elite 1% while penalising and exploiting the 99%."

This is a false statment and the commentor obviously lacks any business sense.

Anyone, Anyone who has a retirment account should understand that the money set aside for thier retirment is NOT sitting in a box. That money is invested in the stock market and thuse in companies such as IBM. When IBM make a profit and their stock grows/splits....that directly affects YOUR retirement savings in a possible direction.

Even state employees need to understand that their retirement funds are invested in the stock market.

Too many people fail to understand that the stock market contributes to more than just the "1%".

Over time, the stock market provides higher returns on your investment than Social Security ever does. That is why people should want to have greater involvement in how and where their SS benefits are used/invested.

Knowledge is power people. Even someone making 25,000 can create a significant retirement wealth over time. It simply takes will-power and a vision beyond next week.

Best wishes on your choices.

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Flame

Re: False statment and lack of understanding where retirment accounts are invested.

No

UK State Pension is paid out of current receipts (current tax take)

It has NEVER EVER come from investments - that is the cause of the black hole in the UK State Pension sector.

What State employees need to understand is that every penny they earn has been TAKEN from some one (or some company) in the Private sector.

If only the NI payments were invested in a Soverign fund; then the State employees may have had a case for whinging when their pensions rights were cut. The sooner they are cut to be no better than the WORST private sector pension the better (because then we'd get proper pensions again)

I must remember to add my grateful thanks to one Gordon Brown who single handledly destroyed the world's best private sector pension system by taxing it and totally cocking up the rules under which they operated. Thanks Gordon; nice to see you linning your pockets with our money after screwing up MY pension; you blithering ignorent idiot.

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Devil

"the stock market provides higher returns on your investment than Social Security"

Except where your pension is involved. As your pension sits in a big anonymous pool of money, usually administered by some financial institution with some duty to maximize their own profits, you can rest assured that returns accruing in your pensions account are quite modest.

My favourite example is the German Riester Rente, which was labeled "as valuable as stuffing money into an old sock" by a major German weekly paper. And this is after accounting for some major tax benefit and government contributions.

Want a comfortable retirement? Don't throw your money at the giant vampire squids.

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If not their duty, whose?

The whole purpose, the entire purpose, the only legitimate reason for the existence of government in a democracy is to protect the powerless from the powerful. To defend against intruders, lawlessness, to educate, build and maintain safe infrastructure, and on and on.

It certainly -is- the duty of government to establish tax systems which fairly spread the cost of these programs across the population. Isn't it?

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Anonymous Coward

Corrupt Practice !

Fiddling the tax system, now who would have thought of a big multinational doing that, to ensure the shareholders get a big, bumper payoff while the common worker gets shafted, with pay cuts/freezes, redundancies or any other way to cut costs!

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Happy with your pension?

You might not be happy with this LEGAL tax arrangement, and rail against the rich - but the vast, vast majority of shareholders for businesses like IBM are pension funds. And US corporation law forces IBM to maximize return on shareholder assets. And if you want to reduce those returns, then you are actually hurting pensioners. Well done. Plus of course you want to move those funds away from pension funds and into the bottomless pit of government - where no money is spent efficiently, if if can more easily be wasted.

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Re: Happy with your pension?

and US corporation law forces IBM to maximize return on shareholder assets.

No it doesn't. Corporate responsibility varies on a state by state basis but I know that Delaware, for example, has precedent setting case law that found in favour of the board when share holders sued the board for _not _ taking advantage of a tax avoidance scheme.

This is the exact opposite of what you are erroneously claiming.

IBM is incorporated in New York, unless you can find me NY state law or precedent that shows otherwise I am calling you misinformed.

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The Government set up the Tax Avoidance Laws - stop drinking their kool aid !

In the EU a company may choose where it is domiciled for EU tax purposes.

Under EU tax law; that company may only be taxed in the country it chose to domicile itself in.

Only paying tax in Ireland; even though you operate a subsiduary in the UK - well OF COURSE you only pay tax in Ireland

BECAUSE THAT IS EU TAX LAW

Ok add to that charging outrageous 'licence' fees and Head Office 'Services' is not mandated; but a single point of taxation is

(sorry for the USA-ian but it does describe this rather well)

please ask your MP to explain just what Starbucks/Google etc should do - BREAK THE LAW ????

And if you really feel that a company should voluntarily hand over any of its money to the Government I do trust you are leading by example ?

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Paris Hilton

Hmmm…

["To promote the long-term success of the company (rather than the interests of, say, the majority shareholder)"]

The company is its shareholders.

The company is not its employees unless those employees are also shareholders.

If the company has employees as shareholders it is usually called a co-operative no?

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Paris Hilton

Usually handing over money to individuals employed by the state with no receipt or invoices for services offered is called a bribe.

It is usually delivered in brown paper bags (or so I'm lead to believe).

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Flame

to the numpties

A 15% flat tax is regressive. If you don't understand that i recommend you do some reading. It's great for the 1% and not so great for everyone else and really sucks for the bottom of the rung who are struggling on a day to day basis.

Social security (in the US) was NEVER intended to be a retirement income. It was clearly earmarked as a SUPPLEMENT to your retirement income. After it was pillaged by congress, opened up to folks who never contributed a dime, added in more who didn't contribute (disabled children??? WTF).... there isn't enough to go around... what a surprise.

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Clerk

IBM is a dead company. Controlled by Marketing and Finance freaks, who are getting a little "long in the tooth".

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Nuts

This business about paying 1 cent for the cup to India and 99 cents for the logo to Switzerland is nuts--and true. I used to work for a global company and we railed about our costing models that a required a large corporate "tax" to be allotted. This caused our end prices to be less competitive. I'm sure it allowed our overall tax rate to be low, but it also caused our sales to be less robust than otherwise. Remote "shells" in tax havens that do nothing but "own" IP and perform other "services" should be outlawed everywhere.

How about "Local sales minus local costs equals taxable revenue?" "Local costs" must be "normal and reasonable." Huh?

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Paris Hilton

Here in the UK if I want to buy something with retail value of 1.00 I have to pay 1.20 because we have value added tax (VAT).

In order to pay 1.20 I need to earn it plus 20% income tax plus,say, 5% national insurance.

So in order to buy something with retail value 1.00 I pay 1.20 but have to earn about 1.50 with 0.50 of that going to UK Treasury at Whitehall (civil servants palace of luxury).

Something with retail value 1.00 has to have distributor costs and either import or manufacturing costs.

So you see here in the UK whatever we purchase more goes to UK Treasury than to retailer, distributor, manufacturer or importer and that is one reason why a heavy taxation based country does not do service to its citizens.

It does wonders for its civil service elite (mandarins take note) than it does for the nation.

As a PS: I'd guess that UK parliament influences no more than 20% of money going to UK Treasury.

Whatever guvmint decides Whitehall will use its influence over remaining 80% of Treasury income even if that runs contrary to wishes of the elected?

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Boffin

Fundamental Threshold Question

Leaving aside the undeniable and inescapable fact that taxation is theft, which makes this sort of tax avoidance not only NOT "morally questionable," as Hammarbtyp would have it, but perfectly legitimate and even morally OBLIGATORY once fiduciary duty to shareholders is taken into account (more on that in a moment, below), no one has yet remarked on the obvious threshold question of whether income should be taxed at the corporate level in the first place. (Taking the existence of taxes, including income taxes, as given.) It should not. "Income" should not be "recognized" -- and taxed -- until it is paid out to shareholders in the form of dividends.

(It is ironic that, in the United States at least, the people who complain that corporations do not pay enough in taxes tend to be the very same people who complain about the "legal personhood" of corporations. If a corporation is but a legal fiction and not a real person at all, how can it have income?)

Alternatively, if logic and common sense do not prevail, income MAY be taxed at the corporate level. But IF it is, then dividend payments to shareholders should not be counted as part of shareholders' income (for income tax purposes), because the income has already been taxed at the corporate level. Alternatively, if dividends ARE counted as income taxable to the shareholders, then dividend payments should (just like interest payments) be deductible from the corporation's taxable income.

One of these three expedients MUST be taken if double-counting and double-taxation (or more) of income are to be avoided. But the best expedient of the three is simply not to tax the "income" or corporations in the first place.

Why? Because without corporate income taxation, we would not have all these perverse incentives for all this silly gimmickry: investment tax credits (which are crude proxies for proper expensing of capital investment, and which inevitably misdirect capital -- subsidizing the PURCHASE of capital equipment instead of properly treating and taxing income from the EMPLOYMENT of capital equipment), accelerated depreciation and artificial inventory accounting methods (LIFO and the like), the shifting of income from one jurisdiction to another (with a lower tax rate, or none at all) via arbitrary intra-company transfer pricing, and so on. All of these economically counter-productive gimmicks exist because, and only because, governments insist on taxing income prematurely -- before it has actually been paid into the pockets of real human beings.

The urge to criticize Apple, IBM, et al. for what they are doing implicitly presupposes that, as corporations, they SHOULD be paying income tax in the first place. But the best and most economically defensible answer is that they should not. And even if the income of corporations IS taxed (which will inevitably bring with it unseemly and AESTHETICALLY objectionable practices of the sort documented in the article), fairness, logic and economics all dictate that the corporate income tax be integrated with the individual income tax as it presently is not (at least not in any jurisdiction I am aware of).

Economists have known all of this for over 50 years now -- at least since 1962, if not before. Arnold Harberger's seminal 1962 paper on the incidence of the corporate income tax gave rise to a gigantic literature on both the incidence (who actually pays it?) and the efficiency effects of the tax. Short answer: we have no friggin' clue who ACTUALLY bears the brunt or burden of the tax (customers, in the form of higher prices; employees, in the form of reduced wages and/or reduced employment and scale of the business; other suppliers, in the same way as employees; or shareholders -- who in turn may be poor workers or widows invested in pension funds as easily as they may be rich fat-cats), but we know it creates all sorts of perverse incentives for highly inefficient investments and business practices. All of this is well- and long-established, and none of it is controversial.

(There are disputes and qualifications in regard to certain ancillary or subsidiary matters of technical detail, but not in regard to any of the basic principles.)

In the face of all this, the burden is on him who would complain about corporate tax avoidance strategies -- such as the shifting of income from one jurisdiction to another via the rigged pricing of intra-company sales -- to justify the taxation of CORPORATE income in the first place. Why on Earth should Apple, IBM, or any other corporation -- **as distinct from its shareholders** -- pay an income tax rate (average or otherwise) any greater than ZERO?

. . . . .

Leaving aside the fact that taxation is theft, and therefore ALWAYS immoral, and confining ourselves to economics, I say that the shareholders should pay income tax, but the corporation itself should not.

And even those who disagree with me about abolishing the corporate income tax generally agree that we should do one or the other -- tax income that is earned through corporations at the corporate level OR at the individual level -- but not both. NO ONE defends double-taxation AS SUCH. (Although a few economists try to argue that taxing corporate income and then taxing what's left after corporate income tax a second time, when it is paid to shareholders, somehow isn't really double-taxation at all.)

. . . . .

P.S. Just in passing, for his pathbreaking analyses of the economics of taxation, and for a variety of other contributions to other subjects (including the economics of monopoly and antitrust law, and international trade theory), Arnold Harberger almost certainly deserves a Nobel Memorial Prize in Economic Sciences. He will never receive it, however, because he had the temerity to advise the government of Chile back when Pinochet was in charge.

Not that his advice on economic policy had anything to do with the policies or practices for which Pinochet is reviled, of course, but some people -- evidently including the Swedes on the Prize Committee -- just think it was too unseemly for Harberger to have anything to do with the dictator.

. . . . .

In separate posts below I shall address three issues that do not bear directly on the threshold question of whether corporate income should be taxed in the first place, but that came up in the discussion above -- in the comments before my own.

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Boffin

The Capital Gains Non Sequitur

Capital gains taxation SHOULD be scrapped, as Hammarbtyp remarked. But that fact has nothing to do with THIS discussion, as Uncle Ron pointed out in reply.

(And neither does Bretton Woods! What the Hell does any of this have to do with the gold standard or fixed exchange rates?)

Then again, in the context of the rest of his comment, it appears that Hammarbtyp PROBABLY meant corporate income taxation, not capital gains taxation, anyway.

Of course in that case, Hammarbtyp is even more correct -- because the case for abolishing the corporate income tax is even stronger than the case for abolishing the capital gains tax -- and relevant after all! Although the turnover tax with which he would replace the corporate income tax (or else the capital gains tax?) would raise problems of its own.

I'll not digress into ALL that is wrong with capital gains taxation. That is a complex topic, involving MANY important legal as well as economic considerations.

Suffice it for now to say that properly designing a capital gains tax so that "income" is not found to exist where in fact it is absent is very difficult. (Remember, a capital gains tax is ALWAYS part of an income tax. Capital gains are taxable only because, and to the extent that, they constitute a form of income.) By failing to index the taxpayer's "basis" in a capital asset for inflation (gain = sale price - "basis"), one can easily end up in a situation in which someone who actually has suffered a capital LOSS, in real terms, is deemed to have enjoyed a capital GAIN. By taxing him on an illusory, NOMINAL gain that is an ACTUAL loss, one is applying an EFFECTIVE tax rate greater than infinity! This is not good, or wise.

(As the taxpayer's real capital gain approaches zero while remaining positive, his effective tax rate approaches infinity. Once his real gain reaches zero, let alone becomes negative -- an actual capital LOSS -- his effective rate becomes undefined, and then negative. (He is being taxed on losses instead of gains, but not on purpose -- to penalize failure and unproductivity or anti-productivity -- and not in accord with a rate schedule that is knowable in advance so that decisions may be based on it.) That is why I chose the peculiar and mathematically impossible phrasing that I did.)

Granted, the objection I have presented goes more to indexing the capital gains tax for inflation than it does to taxing capital gains -- or not -- in principle. There are other arguments that apply against capital gains taxation per se, but they are subtler and more complicated, so I omit them here.

(They have to do with avoiding redundant, and therefore excessive, taxation of income, due to taxing the appreciation of an income-paying asset when the increased future income whose expectation is the basis of that appreciation will itself be subject to taxation -- provided of course that the expected increase in future income materializes.)

The problems that arise under a capital gains tax that is not indexed for inflation can become quite severe. I am not familiar with the British experience, but capital gains taxation surely was a major factor contributing to the anemic performance of the American economy throughout the 1970s. The problem I mentioned above of effective rates vastly exceeding 100 percent, or of even taxing people on nominal gains that were actual losses, actually manifested itself; it was not just a theoretical possibility. In times of low inflation it is a far less severe problem, but still real. (Especially for assets that have been held for several decades or longer.)

The problem of finding "optimal" tax rates cannot be separated from that of properly defining the tax base. And nowhere are the two tasks more intertwined than they are in regard to the taxation of capital gains.

Capital gains taxation is so economically destructive in practice that it is quite POSSIBLE, in principle, that it reduces collections from other taxes (including the rest of the individual income tax) by more than it takes in directly. In which case it would be better for the government's OVERALL collections to set the rate of the capital gains tax to ZERO!

Of course, there is no iron law that magically creates a discontinuity at zero. It is possible in principle that the globally revenue-maximizing rate of the capital gains tax is actually NEGATIVE, and that governments would collect more revenue overall if they were to SUBSIDIZE capital gains. (And tax capital losses?)

None of which am I advocating. Just pointing out the mathematical possibilities.

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Headmaster

Re: The Capital Gains Non Sequitur

When I wrote above

"Remember, a capital gains tax is ALWAYS part of an income tax,"

I meant only that whenever there is a capital gains tax, it exists only as part of a larger, more comprehensive income tax. Capital gains are taxed only because, and to the extent that, they are considered a species of income.

I did NOT mean that whenever there is an income tax, it always MUST include a capital gains tax. It is perfectly possible, in principle, to have an income tax that excludes capital gains from its definition of "income." I have not heard of anyone doing this, but it is possible in principle.

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WTF?

A Flat-Rate Income Tax (whether at a rate of 15 percent or otherwise)

A flat income tax rate of 15 percent is, BY DEFINITION, flat, not regressive. Provided of course that it is applied even to the first penny of income, with no initial amount of income exempted from taxation because it is deemed too small. Earl Grey's assertion to the contrary is innumerate -- contrary not only to the laws of economics, but of arithmetic!

(If you have a tax code in which all income above a certain level is taxed at a uniform rate of X percent, but all income below that level is exempt from taxation, then you do not have a true flat-rate tax. By definition you have a PROGRESSIVE tax code, with TWO rates instead of just one -- one of which is 0 percent, and the other X percent. Good or bad, progressive is not flat.

Keep in mind that there are other ways besides conferring an exemption to deal with the problem of people whose incomes fall below a certain level not being able to afford to pay the X percent income tax. The best and most obvious is a lump-sum rebate.)

And the contention of both Earl Grey and Uncle Ron that a flat tax is somehow bad for the poor is economically misinformed. A flat tax **set at the proper rate** (whatever that is, and however we would discover it) would in fact be better for the poor, and conducive to a HIGHER measure of progressivity OVERALL, than ANY non-flat alternative.

(I leave aside here such complexities as the choice among an income tax, a retail sales tax, a value-added tax, and other possible tax bases that might be considered in place of income.

Also, a flat tax set at a grossly excessive rate would be far more destructive than a mildly progressive income tax under which even the maximum rate remains reasonably low. But that is why I added the qualifying words "set at the proper rate." While one can imagine a progressive income tax that would be less destructive than SOME imaginable flat taxes, there will ALWAYS remain one or more possible flat taxes that would be even less destructive than ANY given progressive income tax, and consistent with even more OVERALL fiscal progressivity once government spending is taken into account.)

Concerning progressivity, it is vital to remember that one cannot judge the progressivity of each specific tax in isolation. One MUST look at the total system of taxation, with all taxes taken together. And not only that, but with government spending taken into account as well.

In practice, there is only so much progressivity -- or equalization of after-tax incomes -- that can be attained, regardless of where and how we try to obtain it. And trying to obtain it **via the TAX code** inevitably creates powerful distortions that shrink the economy -- often substantially -- and reduce tax revenue commensurately. (Thus leaving the government with less money to spend on or transfer to the poor.) FAR better to tax income at a uniform rate, and then obtain one's progressivity via the SPENDING side of the ledger. Targeted expenditures for the benefit of specific groups, and payments to desired transfer recipients, will give you as much progressivity as can possibly be attained in practice, will do so at a reduced cost to the economy, and will also do so by lifting people at the bottom up instead of by pulling people at the top down. It may be less satisfying to those whose desire is solely to hurt "the rich," for the sake of hurting the rich, but it will do FAR more good for those at the bottom, and for society as a whole.

Trying to make the system even more progressive by making the **tax collection** part of it progressive as well inherently backfires, and makes the OVERALL system of taxation and spending -- taken together -- LESS progressive rather than more.

(Not that this is an easy thing to see. Most people are oblivious to it.)

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Alien

Corporate Management's DUTY to Minimize Taxes Paid

Every corporation, and every director, has a fiduciary duty to the corporation's shareholders. That is why minimizing taxes in any way possible is not merely morally PERMISSIBLE, but morally OBLIGATORY. And LEGALLY obligatory as well -- subject to certain caveats.

One of these caveats has to do with something called the "Business Judgment Rule," a doctrine arising out of case law and applicable only within the United States.

http://en.wikipedia.org/wiki/Business_judgment_rule

In Delaware and any other US jurisdiction, a lawsuit against the directors of a corporation, or any of them, will fail so long as the directors' decisions can be defended as a valid exercise of the directors' good-faith business judgment. Thus, for example, if the directors of a company consider the matter and decide in their best business judgment that exploiting a particular tax loophole would not be in the corporation's best interest -- perhaps because of the negative publicity that might ensue, or out of fear of IRS or even Congressional retaliation, or because doing so might leave funds offshore and unavailable for the payment of dividends -- the courts will not second-guess them, and will not compel them to reimburse the company or its shareholders out of their own personal funds and assets for the excess taxes paid unnecessarily.

(Although Wikipedia does not mention this, the fact that personal financial liability of a director or directors would be the consequence of finding in favor of the suing shareholders is one reason why the bar is set so high. Individual directors could easily be bankrupted by one adverse decision.)

While I have not read the case to which Mole5000 alluded, it sounds like a textbook application of the Business Judgment Rule. What Mole5000 pointed out is true (I assume), but almost certainly does not have the meaning or significance he ascribed. It does NOT mean -- as Mole5000 suggested -- that directors do not have any legal obligation to maximize corporate profits and returns to shareholders in the first place, and therefore to minimize taxes of all kinds paid by the corporation. It only means that, in judging whether directors have satisfied their common-law duty to maximize net-of-tax financial returns to shareholders, the courts will always give the directors the benefit of the doubt.

(Naturally, if my guess is wrong and the Delaware case in question did NOT involve the Business Judgment Rule, then I welcome correction. And in case I do not come back on-line and see that correction on a timely basis, then I apologize here and now to Mole5000! But I will be VERY surprised if my guess is wrong, or more than a little off.)

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P.S. Concerning this Companies Act of 2006 that several of you mentioned: Does it displace the common law of directorial fiduciary duty to shareholders?

Fiduciary duty has remained a matter of common law in the United States, under the corporation law of each of the 50 states (well, except for Louisiana), and I am surprised to learn that it may no longer be a matter of common law in the UK.

Obviously IBM and Apple are American companies, so the Companies Act does not apply to them, but I would enjoy learning more about this anyway.

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