No matter who becomes US president, America's tech giants are going to be quids in Last night's US presidential debate may have been fierce, but no matter who wins the election next month, technology firms are going to make out like bandits. For years now US firms, and particularly the technology sector, have been hoarding cash overseas to avoid paying the 35 per cent tax rate that would apply if they …
If Hillary Clinton gets into office and becomes America's first female president, one of her priorities will be changing the tax code to a new permanently lower rate.
Obama made the same promise. So did Bush II. And Mr Clinton...
Joke icon, because that is how I feel about campaign promises.
But didn't Microsoft paid only 7%? And didn't Buffet said he pays a lower rate than his assistant? The problem are rules with too many exceptions and loopholes. So the "stupid" ones pay the whole 35%, the "smart" ones a one digit rate - creating big distortions and obstacles to new companies - which is not how a free market should work...
But didn't Microsoft paid only 7%? And didn't Buffet said he pays a lower rate than his assistant? The problem are rules with too many exceptions and loopholes. So the "stupid" ones pay the whole 35%, the "smart" ones a one digit rate - creating big distortions and obstacles to new companies - which is not how a free market should work...
The stupid aspect isn't that there are too many exceptions/loopholes, but that the US system does several things that it shouldn't for optimal taxation:
1. It uses a world-wide taxation scheme, which most countries do not. Most use a territorial scheme, where they tax based on where the income was earned. The US thinks it should tax everything everywhere. Such is the benefit burden of playing World Police, apparently.
2. The US harshly taxes corporate profits (as noted), which is the chief impetus to shelter profits earned outside the US by not repatriating those funds.
3. The US provides opportunities for business organization as a "pass-through" entity, where the business pays no taxes directly but passes all profits and losses through to the respective owners. This in itself isn't a big deal, but it in since taxing capital is very harmful economically compared to taxing wage income.
Your statement really is focused on the corporate bit, but you've confused that with the individual and pass-through taxation that also occurs. You also incorrectly have equated government regulation with free markets, hardly a valid comparison.
In the end, only people pay taxes, not corporations. It's very counterproductive to tax corporations, because those costs are borne not by the corporation itself, but by the corporation shareholders, employees, and customers.
That's only true for S corporations, for which there are certain important limitations, such as that it can only have individuals and trusts as shareholders, not corporations, partnerships or non resident aliens. The biggest one though is the limit of 100 shareholders and only one class of stock, which prevents its use for big corporations like Apple and IBM.
The downside of an S corporation as far as earning income overseas is that since it is pass thru (i.e. passes through to the income taxes of the individual shareholders) it can't park money overseas. As an individual you pay US taxes on worldwide income, and whether you leave the money overseas or not does not affect you owing taxes on that income following the year in which it was earned.
GM "...foreign entity is the owner of all of the intellectual property..."
A very well-known ploy --^ to export un-taxed profits.
Trivial to road-block. This fix could be implemented in hours...
THIS: Slap an Import Duty onto those "imported" IP "Rights". Maybe 40%.
During trade wars, duties are slapped on overnight. So I know it's possible.
The fact that they've not done this kinda indicates that they don't really want to.
Last night's US presidential debate may have been fierce, but no matter who wins the election next month, technology firms are going to make out like bandits.
I have a picture in my head of a couple of bad hombres tongue wrestling. Is this another British usage that doesn't cross the pond very well?
I have a picture in my head of a couple of bad hombres tongue wrestling. Is this another British usage that doesn't cross the pond very well?
Well, with Trump, there's that promised wall, so supposedly all the 'bad hombres' will be on the other side of it - US tech execs will need that extra cash to pay it's native citizens to manicure their expensive lawns - supposedly also they'll have to make everything on US soil too
I have a picture in my head of a couple of bad hombres tongue wrestling. Is this another British usage that doesn't cross the pond very well?
Apparently not. At least Merriam Webster lists it as a US idiom: http://www.merriam-webster.com/dictionary/make%20out%20like%20a%20bandit.
Taxes paid overseas (where there's a tax agreement) will be offset against US taxes. This is one reason why the US government were so outraged about that EU Apple ruling.
I also suspect that it's no coincidence that Tim Cook announced that Apple were going to repatriate a big chunk of cash about 3 days later. They're going to have a nice $15bn Irish tax bill to offset against it, so can pay no US tax on bringing in about $45bn.
The other thing the US could do is levy their corp tax on foreign held earnings. Except ones that have had tax paid abroad of course. And then US companies would have no incentive to hold such ludicrous amounts of overseas cash they can't profitably use. At least the cash would then either get used, or given back to shareholders who might spend some of it, or at least invest it more usefuly.
Of course if they keep tax rates at 35%, there might be an incentive for US companies to headquarter abroad - or they could keep the high corporation tax and massively reduce the tax on dividends, depending on what they think is best done with the cash.
This is probably a good thing. The US has some of the highest corporation tax rates in the world, plus I think they levy full marginal rates of tax on dividend payments. So if a US corp wants to use overseas profits to pay shareholders a dividend the pay 35% corp tax plus the shareholder pays 30-40% tax on it, so it's taxed 70-80%.
This creates all sorts of market distortions, like Apple borrowing $20 billion in the USA to pay dividends when it's got ten times that cash sitting in Ireland. Or companies not paying dividends, and so investors and company officers become obsessed with high share prices at the expense of long-term profitability. And vast hordes of overseas wealth being inefficiently and unproductively used to avoid tax - while companies fail to invest in growth as they don't want to pay tax on the cash they've got sitting around.
I think the general idea is that people pay tax, and companies aren't people. So Corporation tax is not paid by the company, but by the shareholders. So shareholders should be taxed on their divvies, but only at around the same rate as income tax - hence corp tax plus divvy tax shouldn't be too much more than the top marginal rate of income tax.
Shareholder would pay income tax on the net income paid as dividend (which may not be all the net income), which is the revenues minus the taxes. So you can simply add 35% + 35%.
But is is paying taxes twice? If I buy something I do it with money who already paid taxes - and they get taxed again when they become a net income of someone else. Dividends are nice, of course, but beware that favoring them too much vs. company investments may be also dangerous.
LDS,
There's plenty of arguments about how you balance things. But if you set taxes too ludicrously high you either stop that stuff happening, or you create massive distortions as people desperately try to avoid them.
But you can just add 35+35.
Say a company makes $2m profit.
It wants to keep $1m in cash, and pay the other $1m in dividends.
So it pays tax on it's $2m @ 35%.
It keeps $650k in the bank and pays the other $650k out - to shareholders who then get taxed at say 35% on that.
So they've paid 35% on the same money twice.
The other money that's been kept in cash has also been taxed - and the shareholders have lost on that too as the shareprice will now be lower, as the company's assets are now $350k smaller. Obviously the shareprice also drops when cash comes out as dividend (or doesn't go up as much as if the company had kept the cash), but then the shareholders are getting paid that, so non loss.
This is why so few US companies pay out dividends. And it means there's less reward for long-term share ownership - as companies that do well long term should be paying you a regular income (dividend) not forcing you to sell up in order to get paid. So it makes for more stable stock markets.
Remember that you may have to pay VAT/sales tax on what you buy (double tax), but so do the shareholders, who've now been triple-taxed.
So you might want to reward income from work better (with lower taxes) than the rewards for investing money. But you don't want to make the tax so high that it causes perverse outcomes.
This is all part of the American mindset.... If you sue a company, no one gets burned but the company... and it's customers. The customer part is conveniently get overlooked by those espousing this.
Same for taxes and goes back to the '70's anti-corporate, anti-big-anything.. make 'em pay. Well they did, and their prices went up. Then the overseas companies jumped in to sell to the US. Taxes stayed up there, so to make sales and profits, the jobs went overseas. But at no time, sayeth the proponents of high corporate taxes, did the tax affect the little people... the ones laid off, the ones who buy the products with the tax cost hidden in the selling price.
Yeah... our tax rates, deductions, etc. here in the States are mess.
I used to do "high finance". For one thing, most of that overseas (from US POV) "cash" is actually being used as collateral for loans, so in some sense, doesn't actually exist.
Further, since the economy is in the crapper (which is why we see some of the ridiculous IP suits vs innovation, in part - fighting over a shrinking pie, since they can't grow the pie anymore) - most companies use this cash (laundered via that loan) to simply buy back their own stock and push earnings/share up by taking shares off the market. There's no point building more factories when the ones you have are part-idle, and little point in building them in say, China for various other reasons.
It's most certainly not going into infrastructure, dream on. Look at how desperate the guys who sell infrastructure stuff are in the trade mags - even this one (PC sales?).
So the idea that someone is getting a windfall from this "cash on the sidelines" is now and has always been pure illusion, as has been "let's tax the rich". The actually-rich can afford the usual dodges and the laws that make those possible. Those words are really code for "let's tax anyone at the upper end of the rapidly disappearing middle class, and slide down the threshold as required".
It sometimes stinks to have become older and have seen all this before. "That's just not how it works".
While it is very nice to think of all those piles of cash sitting around in bank vaults, it is probably being loaned out by the banks to support activities in the bank's country or post-national state, earning the bank a nice income. When those profits are patriated to the US, the banks will no longer have that money available for loans, and will probably have to call some loans to enable them to do the transfers.
Coat, because you know someone's got their hand in your pocket
Why aren't taxes paid on where the money that the Corporation received that money from. For instance, if the money was from a purchase in the US of A then taxes would be paid to America at their Corporate tax rate or if the money was from England then to England at their Corporate tax rate. Then it would make no difference where the Corporation was headquartered or where the money was shipped. If said Corporation doesn't want to pay those taxes then assets should be seized and or they should disallowed from doing business where they owe money.
Because the companies use every trick possible to lower their tax bill.
CoffeeShopTaxEvader for instance, they make millions in the UK every year, but they have several companies, one is the one that sells the coffee to the consumer, another sells the coffee to the shop that sells the coffee to the consumer, both owned by CoffeeShopTaxEvader but one is in a very low tax rate area. CoffeeShopTaxEvader Shop will purchase Coffee from CoffeeShopTaxEvader Coffee, the price for that is £1, they then use that Coffee in CoffeeShopTaxEvader Shop, they sell it for £1, there is no profit on that Coffee.
CoffeeShopTaxEvader make their money by selling the coffee beans to the stores, the stores can post a loss to HMRC, corporation tax on sales of £200 trillion a day is something like £2.50 a year.
Thanks to both of you for replying to my comment. You both hit on my unstated point. Taxation, as with most things legal, are artificially to complex. There is no reason for it other than to obfuscate the reality that the incredibly wealthy do whatever they want through buying Government. Margaret Thatcher's and Ronald Reagan's Neoliberal agenda is destroying the middle and lower economic classes.
Thatcher?
Somehow I can't equate liberal with Thatcher and gods alone know what the neo prefix is meant to mean (neo from the matrix?). We had 'new' liberals during the 80's, but they were the Liberal party, the SDP, then the Liberal SDP (bit of a separation, courtship and remarriage thing).
Is the 'neoliberal agenda' something to do with UFOs reptiles and aliens?
Being a Liberal is not the same as Liberalism or Neoliberalism, which are, I would like to suggest, more closely related to modern Conservative economic ideology although the differences between Liberal and Conservative politicians are, at least in the US and Canada, very small (or artificial) differences in social programs. The Republicans and Democrats in the US and The Conservative and Liberals in Canada are very similar. Publicly, they espouse difference but at the highest levels there is almost or no differences. Here in Canada our relatively new Liberal leader Trudeau made all kinds of promises that differentiated them from the Conservatives, but it still looks like he'll sign the TPP and would have signed CETA if not for the Walloons and I'm not sure that hasn't been thoroughly scuttled, yet, and those were both Conservative trade deals.
The article below is definitely worth reading.
http://folk.uio.no/daget/neoliberalism.pdf
The Register 
Biting the hand that feeds IT
Copyright. All rights reserved © 1998–2024
