The implied but never fully-articulated point of this article is that high-tax domiciles resent it when rational actors having a choice in the matter will routinely structure their business affairs to incur tax to the maximum extent possible in low-tax as opposed to high-tax domiciles.
The issue becomes almost formulaic. Given (1) rational actors, (2) freedom to choose and to structure business affairs using a multiplicity of entities for different purposes, (3) resources with which to hire and pay for the talent needed to sort out the tax issues and their complexities, (4) a business goal of maximizing after-tax profits, (5) a multiplicity of domiciles from which to choose, and (6) a ready means by which to direct resources from one domicile to another (as with digital assets), it inevitably follows that every sophisticated company meeting these criteria will avail itself of the tax avoidance/minimization strategies. As the article notes, it is perfectly legal and every big company does it (see, e.g., this similar write-up from a couple of years ago on Google's comparable tax strategies: http://news.ycombinator.com/item?id=1815195).
Nothing, of course, stops a given company from voluntarily subjecting itself to higher tax rates by declining to follow this formula but why would it? Big companies will routinely want to avoid high taxes if they can. So too do small businesses. People may have social views that higher taxes are desirable but, as individual economic actors, they will seek to avoid them. This may be right or wrong but it is reality.
This means that high-tax domiciles will have no choice but to continue to remain frustrated that they cannot have unchecked means of taxing their citizens. As long as people have freedom, governments have to strike a balance that people can live with. And that is not a bad thing.
What's annoying to me is not that companies choose jurisdictions based on taxes, but that they get away with playing shell games to fake moving between jurisdictions entirely on paper, which also gives them an advantage over smaller companies and individuals that can't do that.
I lived in California for some years. If it were possible for me to open a P.O. box (or even rent a small office) in Reno, book all my non-California-sourced income (e.g. AdSense) to the Reno P.O. box, and avoid California taxes, maybe I would've. But that's not legal; my attempt to produce a fake domicile in Nevada for tax purposes when I clearly lived ~11 months of the year in California would be correctly judged a sham. If I wanted to claim I'd moved to Reno for tax purposes, I'd have to actually move to Reno in real life, too. Yet Apple can do effectively do that, opening a sham office where no work is done, solely to dodge taxes, because the rules for individuals when it comes to those kinds of fake domiciles are much stricter than the rules for corporations are.
If Apple actually moved its main operations and employees from Cupertino to Reno for tax reasons, that would be another matter entirely, and a more honest example of jurisdictional competition.
The maneuver you describe is equivalent to incorporating in Delaware (or Nevada, I suppose). You can compound your wealth in the low-tax environment, but you will pay taxes when you try to transfer it to yourself.
Just like Apple, in this case. Under the current legal regime, they have successfully deferred taxes, not evaded them. It's the same way I carefully evade sales taxes by saving some of my money instead of spending every paycheck.
Afaik, incorporation in Delaware isn't usually tax-related; most Delaware corporations don't actually book their income in Delaware, but are registered there because of favorable corporate law and a business-friendly civil trial system.
You're right on the deferral/transfer with regards to international income (e.g. income Apple books in Ireland and later uses to pay for something in Cupertino), but I don't believe Apple ever pays California income taxes on the income it books in Reno, even if it immediately turns around and uses that income to pay Cupertino salaries. There's no state-to-state equivalent of repatriating income.
How much of your paycheck do you save? Apple can afford to wait until the government passes a Homeland Investment Act type law to avoid paying those taxes. OTOH, most people need to pay for things like food, clothes, whatever they're using to post comments on websites, etc.
This is a bad analogy to start with, but Apple's profit is around 24% of their revenue, which would be comparable to saving 24% of your paycheque, which is not at all unreasonable.
"which also gives them an advantage over smaller companies and individuals that can't do that."
So? They also get lower rates on car rentals, hotel rooms, components, office supplies etc. and can choose from a larger pool of potential employees. And a million other things that "smaller companies and individuals" can't.
"The implied but never fully-articulated point of this article is that high-tax domiciles resent it when rational actors having a choice in the matter will routinely structure their business affairs to incur tax to the maximum extent possible in low-tax as opposed to high-tax domiciles."
No, that's the conclusion you might draw if you choose to read the article through an extremely narrow filter where you start from the premise that the laws, as they stand, are sufficient and reasonable.
If, instead, you look at the situation and wonder at the utter inefficiency of a tax system that allows some (but not all) corporations to move profits around on paper to avoid taxation -- but only if they spend money on creating fake offices and legal castles in the sky that don't contribute to productivity -- then you start to wonder if perhaps the situation can be changed. And that's an interesting discussion.
Exactly. And this extends down to the personal level. Elizabeth Warren, a millionaire Senatorial candidate who supports the Buffet Rule, nevertheless did not voluntary pay a higher tax rate:
I think a number of people reading the article have the tacit impression that if the government taxed the money from Apple, that they would somehow benefit to a greater extent. But given that the US Government spends $11.5 billion more per day[1] than it receives in taxes, even seizing all of Apple's worldwide profits would just be a drop in the bucket.
A separate question is why the New York Times has declared war on Apple. It looks like with the departure of Steve Jobs, the Times has started to treat Apple with the hostility normally reserved for Exxon, what with this article and the iEconomy series of articles. It would be interesting for a large technology company to turn the lens on many of the Times' own abusive practices, or the Times journalists' entitlement complex. It would be particularly interesting to look at the tax status of the pensions[2] which rather well-paid reporters like Charles Duhigg and David Kocienewski wish to keep receiving.
> I think a number of people reading the article have the tacit impression that if the government taxed the money from Apple, that they would somehow benefit to a greater extent. But given that the US Government spends $11.5 billion more per day[1] than it receives in taxes, even seizing all of Apple's worldwide profits would just be a drop in the bucket.
What about the net effect of the government going after every company that does this?
> Exactly. And this extends down to the personal level. Elizabeth Warren, a millionaire Senatorial candidate who supports the Buffet Rule, nevertheless did not voluntary pay a higher tax rate:
I think it is entirely consistent and rational to support a rule for higher taxation while still striving to pay the minimum required amount.
Say in the NFL a group of players started advocating for a change in rules. Say, they want a rule where a player must be evaluated and sit out of a game after taking so many hits of so many g forces to the head.
If certain teams decide to implement the rules unilaterally it would put them at a disadvantage. The rules have to change for everyone for it to make sense. It is perfectly reasonable for a team or player to advocate for a rule change without acting as if that rule is in place without a hint of hypocrisy.
In the press, it seems like Apple went from years of being unmentionable without the term "beleaguered" straight to being a manipulative, dominant monopolist. The company has certainly undergone a striking and highly unlikely reversal, and perhaps that's a reason for the tonally confused seas. "Beleaguered Apple Inc. now the most profitable company on Earth".
Monopolist. Let's look at Apple's product lines and see:
1. MP3 players. Yep, they own the largest portion of this shrinking market. But their monopoly share doesn't seem to have hurt the customer; and in fact, I still can find numerous non-Apple MP3 players without much trouble.
2. Smartphones. Nope, not even 50% of the US, much less the worldwide market for smartphones. The fact that they are much better than their competition at extracting profits is immaterial.
3. Tablet Computers. Clearly a yes, but in any market segment that explodes like this one, you'll have market shares that swing wildly. Currently Apple dominates this segment; but it's not clear that they will retain a monopoly position. And again, I still can find numerous non-Apple tablets without much trouble. And I don't see any damage to the consumer.
4. Personal Computers (i.e notebooks and desktops). Clearly not a monopolist in this segment.
5. Software. LOL
I do agree that Apple is going through a "striking and highly unlikely reversal" in terms of how it's portrayed in the media. Perhaps that's due to competitors not liking the fact that Apple is eating their lunch?
There's also the very real and reasonable question of where capital might be used more efficiently. Having seen first-hand how government agencies make spending decisions it is my opinion that a huge percentage of tax dollars is wasted. Private industry is almost always far more efficient in allocating resources out of necessity. I have seen cases where government agencies pay double --or more-- what a private entity would pay for exactly the same product or service.
I'm not really convinced that private industry is any better at avoiding waste than government. I must admit I haven't worked in government, but when I worked at large companies, I was shocked and appalled by how incredibly inefficient and wasteful their internal affairs were.
Furthermore, many of us [of course, you may disagree] would like for the government to provide more services, and that money has to come from somewhere. Even if it's ultimately private companies administering these services, they would need to at least be subsidized by the government to be accessible to the people who need them most.
Permanent – Career status as a federal employee is
achieved by fulfilling 3 years of substantially continuous
service as a career-conditional employee in the
competitive service.
The service requirement for Career Tenure is 3 years of
substantially continuous creditable service to become a
career employee, i.e. obtain career tenure...Obtaining
Career status is crucial for federal employees,
especially, during times of instability and economic
downturn like we are in today.
In short, after just three years in the federal government, you effectively cannot be fired except for gross malfeasance. This radically distorts the cost structure of the federal government.
There are many additional checks and balances on private companies. Perhaps the most important is that a poorly managed company will eventually go bankrupt, while the federal government can defer that for decades via quantitative easing.
> Perhaps the most important is that a poorly managed company will eventually go bankrupt, while the federal government can defer that for decades via quantitative easing.
This would be true in an idealized capitalist society, but many companies are one or more of the following:
- propped up by the government (automotive companies, financial institutions)
- in industries with incredibly high startup costs and difficult to obtain special knowledge (defense companies like boeing and lockheed)
- have effective monopolies or oligopolies (utilities in some places, telcos)
Of course these are all far from immune to disruption, but they operate at such a scale that even when disrupted, the competition is often available only for small projects/few customers. The result is while yes they will eventually fail if they are poorly managed, it is unlikely that will be in our lifetime. Personally, I'd rather not wait that long.
Additionally, as I mentioned before, there are some services that I would like to have made available that can't be operated for a profit without government intervention. I am willing to tolerate inefficiency to achieve those goals. (Just as we as a society are apparently willing to tolerate governments other inefficiencies.)
Regarding your point about career tenure, I've often thought that one of the most effective reforms government jobs could get would be making it easier to fire ineffective employees just like a well-run company would.
The sheer size and complexity of government in the US has reached the point of effective opacity. It's no longer possible to really assess what the government is doing, or what the costs of those activities are. The political class has every incentive to enhance this opacity. Their poor understanding of economics and management -- they are neither selected for nor disciplined on these skills -- only add to the confusion.
At this point all we really _know_ about the government's activities is that they are overpriced, under-effective, and understated in their size.
There is no rational discussion of government's role until these conditions are resolved.
I invite you to choose one government program and state what it does, what it costs, how well it works, and the specific individuals accountable for its success or failure.
Just one.
But don't forget to include the pension liabilities and regulatory impacts. Or to mention any other social or economic forces affecting the mission targets.
It's a valid point. I think that there are a few reasons why this occurs.
1. Tax payers aren't as resilient as shareholders:
2. There's a psychological tendency to think that "this is not my money" leading to excessive spending.
3. The accountability isn't there. If a politician wastes taxpayer money then he's still a politician for the time being.
But it's not always valid. Many government projects are carried out by private firms that aren't efficient. You just have to look at the NHS IT project here in the UK to see how £12 billion can be wasted by private firms.
In private industry, you promoted and seen a valuable if you make money for the company. In the government, you are promoted and seen as a power player if you spend more money. There are lots of super-competitive A-types in govt work who will spend a million dollars just to get another feather in their programs hat.
This seems like you have an idealized vision of private industry. From what I've seen, politics and being friends with the right people is the determining factor in both fields.
Private industry is ultimately disciplined by a marketplace. It can take a while, but managements seeking goals other than returns ultimately lead their companies into losses. The companies either improve or are bankrupted and their assets transferred to more capable managements.
Wasteful empire-building and waste-what's-left-of-my-budget-so-I-don't-lose-it-next-quarter is so common in private businesses it's even a recurring joke in Dilbert http://dilbert.com/fast/2012-04-07/
Your first sentence of your last paragraph shows one of the problems with globalization. We have seen in the U.S. municipalities competing with each other to see who can give the most subsidies to large corporations. The effects have not been so desirable. Now we are seeing this played out on a grand, global scale. It's potentially a race to the bottom.
I think globalization without a proper international regulating agency is a bad thing. It's great for the people who have the ability to move from one country to the next. Who can find the optimal place for them to live in. Most people don't have this luxury.
Well, you may call it inertia. But really, once you add up all these challenges, it tends to be quite substantial.
For example, say, you are a skilled plumber who owns a similar business repairing/installing plumbing in Shanghai, China. Theoretically, all these skills would actually make him/her eminently employable or set up a similar business, say in Sweden.
Unfortunately, that is really not the case.
Be as much as most of us would wish, capital has really achieved utter victory over labour. Till we have some major innovation which will neutralize the advantages of having mass amounts of capital, we are transitioning towards a new feudalism.
As I was mentioning to a colleague, the only reasons why we have a job is that software development/programming/computer systems is still sufficiently complex enough for up to 80% of the world population.
Or else we would actually be quite screwed as well. ;)
OK...skilled plumber...he might not be able to move...I studied economics in college and there are examples of industries that the professors would always cite...like hair stylists...plumbers...etc. Sure.
BUT...that plumber could create a company hiring local plumbers in 20 different countries, and sell plumbing services locally in each of those countries, and incorporate the overall business in a friendly tax country.
So your example isn't really valid. I argue that ANYONE can take advantage of globalization with a little thought. If you choose not to, and Apple chooses TO do...well its really your own fault and choice...isn't it?
That's just one simple example...that plumber could create a digital course that teaches others to become plumbers...or teaches plumbers to market their services better...he could package that digital product, incorporate a company in singapore or WHEREVER he finds the best corporate tax rate, and take advantage of the same things Apple does...
I could go on and on...it's all choice. You chose to be proactive or you choose to snipe at others who do...A thing is not unfair if everyone has the ability to take advantage of it...and some simply choose not to because it's hard.
Yes, its one choice. But personally, I find that to be rather too smug / elitist and smacks of "Oh, its HIS/HER choice - there's nothing DEFICIENT or FLAWED with the current setup" rather than recognizing that the market/world is inherently complex and difficult to navigate.
Arguing that it's one choice is just sophistry. Kinda like those just world people I meet who argue that the poor deserve their station because its their choice.
Sure there's tons of stuff flawed with the current system...but that's the system, not Apple. Change the system if you don't like it, don't penalize companies like Apple who play by the rules of that system. You can't have it both ways...
I don't think my argument is sophistry...choice is very important. It's the cornerstone of my beliefs and it's a valid philosophy.
Try emigrating from China to the USA. Its not inertia. There are many millions of people who would gladly move to another country given the opportunity.
We aren't talking about emigration...we're talking about corporate domicile creation...the red tape is substantially less...
But even emigrating...why not? My girlfriends brothers wife emigrated from China to the US...my brothers exwife emigrated from Sri Lanka to the US...I have lots of friends who's families have done this...what's the problem?
I'm pretty sure I could incorporate a business virtually anywhere I liked (within reason - there are obvious exceptions). No one is going to throw me in prison if I try to start a company in Singapore, or Chile, or Hong Kong, or any other whatever. You don't have to physically MOVE there in most cases...and even if you did...what's stopping you? And as to Visa issues...there's ways to gain residency in most countries...you can make it happen if you want.
There is a really important lesson from all of this, and it is not that Apple is wrong for rationally exploiting global tax laws to avoid paying US taxes.
The fact that California has no tax jurisdiction in Nevada, and that the US has no tax jurisdiction in Ireland, is an unassailable fact of life. Tax laws are subject to regulatory competition like many other things, and ignoring that -- insisting that this is an issue of morality or fairness -- is silly.
If the US had a globally competitive corporate tax rate (say 15%), it would make most of these tactics irrelevant. There's no need to shelter income in Ireland if they have the same tax rates. Because of the reduced sheltering, such a reform would probably raise revenue on net. But even if it didn't, it would have many ancillary benefits, such as repatriating many billions of dollars in corporate profits and increasing the degree to which they are deployed in the US, which would far exceed the costs.
Even better would be to reduce corporate income tax to 0% and increase dividend and capital gains rates to personal-income-tax levels to make up for it. The main reason dividend income is treated preferentially in the US is that corporate profits are already being taxed (in theory). Those multi-level nature of the US tax code creates unnecessary loopholes, as well as costs and confusion. Counter-intuitively, eliminating the corporate income tax would make it much easier to tax corporate income, because those profits necessarily flow back to investors either in the form of dividends or capital gains. If you are a resident of the US (and california) and you own 1 apple share, you pay taxes on your share of Apple's income. Even better, it would be progressive. Rich people pay more, poorer people pay less.
> If the US had a globally competitive corporate tax rate (say 15%), it would make most of these tactics irrelevant.
Until Ireland further lowers its taxes. Your argument leads to a race to the bottom.
The problem with only taxing dividends is that corporations only pay out a small portion of their profits in dividends. I may theoretically be a billionaire in my holdings, but I only need a million in dividends per year to live my preferred lifestyle. Thus I only pay tax on the million dollars instead of on my billions. You can try and get at the money via capital gains, but what if the bulk of the money is being held by a foreign company, with only a small amounts to pay dividends to the owners filtering into the main company?
Ireland can't lower it's taxes to the point of unprofitability, so it will lower it's taxes until revenues raised == cost of services + small margin. That's a good thing.
Don't complain that others provide the same service at lower cost, try to innovate and outcompete them.
Well Bush II lowered taxes to the point of unprofitability (I assume you are speaking from a national governmental view). Governments engage in deficit spending and some foolishly lowers taxes at the behest of its monied interests.
You appear to assign to the government of Ireland some sort of rationality and ignore things like regulatory capture and corruption. Your belief that a government will only lower until "revenues raised == cost of services + small margin" is not rooted in fact.
You are referring to all government services and all revenue collected. I'm referring solely to services provided to corporations and revenue collected from corporations.
I fully agree that the losses from the War on Iraqis/SS/medicare/etc don't outweigh the profits made by taxing Apple/etc and providing them with a few cheap services (corporate registration, enforcement of contracts, etc). That's a separate issue.
Regulatory competition helps - if the profitable people/businesses flee from corruption/inefficiency, then those wasteful programs will eventually run out of money.
The existence of corruption and regulatory capture is all the more reason to have regulatory competition. If California is captured by corrupt special interests (e.g., prison guard unions), corporations can purchase corporate registration and contract enforcement from states which offer a better value.
I fully agree that the losses from the War on Iraqis/SS/medicare/etc don't outweigh the profits made by taxing Apple/etc and providing them with a few cheap services (corporate registration, enforcement of contracts, etc). That's a separate issue.
Ironic that you mention SS and Medicare. Two programs designed to help companies out (and people too). Do the cheap services include a road system? Do they include an education system capable of producing adequate workers? Do they include protection from enemies? These things are not cheap. And it is especially helpful to be located in a country with great influence that helps smooth things in other countries.
I think you don't understand what regulatory capture is. When an industry has capture the regulators that is a good thing from the perspective of that industry. Regulatory capture is what oligopolies want. It's the good kind of corruption from their perspective. Large companies don't flee from corrupt societies. They use that corruption to their advantage. Obviously there are counterexamples to this but overall the gist is correct.
The cheap services do indeed include a road system, which tends to be paid for by property taxes in a given locality. Apple pays for CA roads in proportion to the land they own in CA. Their works also pay for roads via gas taxes, and charge Apple commensurately.
Why should Apple be taxed on profits earned in Ireland to pay for CA roads?
As for protection from enemies, we should simply stop defending Ireland. Then Ireland will be forced to defend itself (from Iraq, I suppose) and charge corporations commensurately.
The first part of the article was about Apple avoiding California taxes by having a small office in Reno. You haven't shown that Apple pays its fair share of California's road system (don't ignore the federal road system), schools, sewers, police protection, or its use of American soft power for its purposes overseas.
But supposing Apple does pay it's share of all these things. Given our current deficit and that a large portion of our deficit goes toward maintenance of both soft and hard power and that such power is used for the benefit (not solely) of large corporations its clear that business are not paying their share of the burden. And a large portion of the current deficit comes from stabilizing the economy. Without infusions of cash into the system after Lehman went bankrupt Apple would have been greatly disrupted.
Corporations in the U.S. currently sit on a great hoard of cash. I don't know another hoard of cash government can access to pay for the maintenance of the system. From you last paragraph it seems it would be advisable for you to read the Wikileaks cables. Your view about the role of military power and its relationship with soft power the use of said power for the benefit of corporate interests appears to naive.
In an environment where public policy has been co-opted by corporate interests to serve business interests to the detriment of other interests it's hardly reasonable to think that "we should simply stop defending Ireland". Why would businesses want such a thing when they benefit from our power without having to pay for it?
As for the federal road system, that's paid for by gas taxes - Apple (or fedex, or whoever delivers iPhones) pays for it whenever they fill up their gas tanks roughly in proportion to how much they use it.
It's also hardly clear that businesses are not paying their share of the burden. The services businesses require cost very little - corporate registration, police protection, roads, etc. The fact that these services are cheap is demonstrated by the fact that Nevada provides those services and charges very little for it.
Most other services are given to individuals and different individuals (usually younger ones) are charged for those services. The individuals who work for Apple raise their prices commensurately.
The federal road system is not paid for by gas taxes. The soft power wielded by the U.S. is not paid for by gas taxes or by corporate taxes. The are a lot of very large companies that pay no tax despite reaping great rewards for using the services of the U.S. government and despite (at least in some areas) having regulatory capture.
Labor has very little power in the U.S. and in an environment of 8%+ unemployment (15% U2 rate) it's hard to believe that labor can raise prices.
There is a pretty simple solution to this problem - raise user fees until the system is revenue neutral.
As for "soft power", could you define that in a less vague manner? Are you asserting that dead Iraqis somehow benefit Apple?
And again, I'll note you keep harping on a few cheap, useful items, while ignoring the fact that the vast majority of spending is merely redistribution from the young to the old which doesn't benefit Apple at all.
Taxes are at a 50 year low. The current deficit is large with most of it coming from non-recurring expenses but with long term deficit of around $500 billion. Corporations are having record profits and are sitting on over $1 trillion in cash. Solution to the problem is easy. Tax more (or spend less but in the present situation that would be more hurtful than raising taxes). It can't be said that taxes are too high unless one is a fanatic that thinks all taxation is theft or evil. A lot of the large U.S. corporations pay no corporate taxes.
Consult Wikileaks cables for how corporations benefit from U.S. soft power and hard power. Apple benefits from being in the U.S. It should pay for this benefit. I don't know the optimum rate. It should not only pay for the tangible, easily understood benefits. It and other corporations benefit from the U.S. exerting its power to their benefit. The U.S. does this quite a bit.
What you say is true. What I said is true too. Both statements are true. Bush II tax cuts are a very large portion of the current deficient that we have. Taxes are currently at a 50 year low as a percent of GDP. Bush II taxes greatly increased the deficit. Other tax cuts have too. I was just giving an example of the statement that I responded to being false.
If they repealed all the Bush era tax cuts, the deficit would still be growing at a higher rate than before. Obama has run up the deficit at a faster pace (approaching double) than Bush and those tax cuts aren't even the major part of it.
The biggest problem is the lack of a passed federal budget in over a 1,000 days. This is causing a lot of budget increasing in a time when we cannot afford it. What the media and politicians (from both sides) chose to concentrate on is emotion grabbing (good for votes and ratings), systemic issues with how the government is being run are boring and not emphasized.
Low taxes don't kill budgets (check right after WWII when they had to drop), it is runaway spending. Income from taxes of all sorts has averaged 19% GDP, spending above that is the problem.
The point I made in showing that yummyfajita's remarks to be wrong stand. I might be wrong on my belief that repealing the Bush tax cuts would greatly improve the fiscal outlook of the federal government but this does not in any way detract from my point.
Your last two paragraphs are not germane to my point and they are wrong in any case. However, let's assume your last statement is correct.
Right now taxes around 15.4% GDP [1]. You seem to believe that 19% GDP in taxes is a reasonable amount to pay for government services. The GDP of the U.S. is around $15 trillion [2]. A 3.5% GDP increase in taxes to get us to 19% GDP for taxes would mean an increase of taxes by $525 billion. Current budgetary projections have the U.S. deficit at slightly over $500 billion in 4 years [3]. A lot of the current deficit is in non-recurring expenditures that are related to the fiscal crisis that started in 2008.
I might be wrong on my belief about the Bush II tax cuts being a large portion of our long term fiscal problems but from your sentence one must conclude that you agree that raising taxes by a reasonable amount would eliminate our long term fiscal problems.
I didn't say it was reasonable, I just said it was historical. My basic thesis is that government spending needs to be decreased by a lot. Taxes need to be simplified and dropped.
I have no idea how any of the links prove my point on not having an actual budget in 1000+ days isn't increasing the problem. Heck the debt ceiling raise had parts that immediately added quite a lot of debt. Given that [3] says the deficit amounts will be going down is off base. I assume it ignores the CBO estimates[1].
It has been clearly demonstrated time and time again that in periods of depression you DO NOT dramatically cut government spending. All it does is hamper growth which results in less tax income.
I have no idea why the US debt is being touted about as being the number one priority when surely increasing growth rates and reducing unemployment are key.
You're referring to Keynes - who also said, in the good years, pay down your debt. You can't borrow your way out of debt (well, I suppose you could if you have a negative interest rate). All you can do is debase your currency. Which the US has been able to do to date, but the instant OPEC decides to trade in EUR instead, they're toast.
"It has been clearly demonstrated time and time again that in periods of depression you DO NOT dramatically cut government spending."
That is the Keynesian point of view, but it has counter examples. The difference between three points in history 1920, 1929, and 1945-46 show a different story. Herbert Hoover was a Keynesian and made the increase spending decision in 1929 as opposed to the tactic that worked while he was Sec of Commerce under Harding. Harding didn't pull the spending panic despite Hoover's recommendation. 1945-47 is even more interesting in that Congress didn't let Truman continue the massive WWII spending into civilian government programs. Taxes and spending were cut drastically which finally led to a booming economy and an end to the shortages and rationing. So, I would say the case for the Keynesians is not as clear cut. The 19th century also has some good examples.
One thing to bear in mind is that for these really big companies, the huge attraction of Ireland is not the low corporate tax rate, it's that profits can be easily and legally sent to Holland, from where they can be sent to the Caribbean. I've seen similar stories from Google and Ikea, I believe they both pay low single digit tax rates on their non-US income due to this arrangement; in Ikea's case this is nearly all of it. It's really difficult to compete with that.
To me that implies that our current tax methodology is fundamentally wrong. In a global system with value placed on intellectual property and virtual goods, rather than manufactured products, the current tax design seems irreparably broken.
I don't know nearly enough about taxes or economics to propose a solution. Would a VAT tax at a lower rate be more consistent than a higher corporate income tax that may or may not be avoided depending on the corporation? Europeans seem to hate the VAT tax but I'm not sure if that stems from a high tax rate or the concept of the tax itself.
Jeebus Chrysler, VAT is the most regressive tax ever invented, please do not even mention it as a solution to anything. It's a flat (!) tax on non-avoidable consumption that is fundamentally unrelated to real wealth; it doesn't touch capital activity or in-activity, which means that rich people (whose wealth is sheltered as business capital on paper) simply don't pay it. It was a terrible gimmick invented by European governments to raise taxes on low-income individuals without telling them.
I hate to say this, but the only solution I can see to rise of worldwide corporations is... worldwide government, exactly like the answer to the rise of "national companies" in the XIX century was the creation of national governments of similar size. We can discuss about implementation details (the current arrangements -- going through WTO, WMF, UN etc -- are ineffective, opaque and/or fundamentally corrupt), but I don't see how else we could ever get out of this mess.
Don't complain that others provide the same service at lower cost, try to innovate and outcompete them.
This is assuming that others are providing the exact same services for lesser cost. Right now on the front page of HN there is a story about a cheap iPod charger that can burn your house down or kill you because of the corner cutting done to make it so cheap.
Income tax only accounts for some of the taxes a state can take in. Property and sales tax are also forms states use to collect income, and they happen to be regressive in most cases.
If you look at the CFED chart [2], those nine states [1] with no income tax make up the top 9 slots where the bottom 20% pay many times more in taxes than the top 1% (as a percentage of income), from 3.8 times (Tennessee) to a whopping 6.7 times (Washington).
...states [1] with no income tax make up the top 9 slots where the bottom 20% pay many times more in taxes than the top 1%...
By itself, this statistic is meaningless. A state with a progressive tax system but lower rates of inequality will score poorly on this metric than a state with higher inequality but an identical tax system.
I.e., you might be showing Tennessee has a regressive tax system, or you might be showing Tennessee has low inequality. Without more details we cannot determine this.
That's great. If apple makes $1b, if the bulk of the money is held by a foreign SUBSIDIARY, my stock will go up, and I will pay capital gains. If they give it to me as a dividend, I will pay taxes on that. If they reinvest it in the company and the investment makes money, my stock will go up even more. And if they reinvest it in the company and squander it all, no taxes will be collected on the income, but they won't be able to write the loss off anything either.
The only thing that truly captures the vagaries of 'where money is held' is the stock price. Wall Street don't care if that money is in New York or Guatemala, if Apple has it it's making the stock go up.
The value of your stock is the net present value of the future dividends you should expect. If you put a billion dollars in cash on a rocket and launch it into space, the value of that billion dollars is not one billion. It's near zero, depending on the odds and cost of recovering the currency.
Unlikely. Ireland is currently in an IMF/ECB bailout programme, and will be for a few more years. Financial policy decisions cannot be made by the Irish government, and must be approved by the IMF/ECB. Recent budget changes (e.g. a change to VAT rate) were discussed in the German parliament before the Irish parliament.
Of course it is an issue of morality. I could choose to avoid paying taxes in the society that I'm a part of. It would be in my economic interest to do so.
But it is morally wrong because it is that same society that enables me to make my money in the first place.
That doesn't make any sense at all. Tax avoidance is perfectly legal. Tax evasion is not. Playing within the rules created by society is not morally wrong. Every deduction you take on your personal income taxes falls under tax avoidance which you can't possibly be describing as morally wrong.
"The legal right of an individual to decrease the amount of what would otherwise be his taxes or altogether avoid them, by means which the law permits, cannot be doubted." - US Supreme Court
Legal and Moral are two, at best, loosely coupled concepts. Just because something is perfectly legal doesn't make it moral. Or for that matter just because something is illegal doesn't necessarily make it immoral.
> Playing within the rules created by society is not morally wrong.
There are people who honestly believe that? It’s not that simple, it really isn’t.
I, for example, think there are many immoral but legal things and I want it to stay that way. The law is not supposed to perfectly mirror our morality, that would be a clusterfuck, tyranny, and otherwise a really bad idea. (For example: I think not tipping in the restaurant is immoral. I, however, never ever want that to become a law. Just one example.)
In short: Just because it’s legal, doesn’t mean it’s right. Just because it’s not right, doesn’t mean it should be illegal.
Taxes are purely a construct of law though. The only reason it's immoral not to pay taxes is because it's immoral to break the law, at least if the law is just. But we're not talking about people breaking the law, we're talking about people obeying the law.
Think of it this way: if you can get an effective tax rate of x% by doing this and y% by doing that, and x < y, what's the moral difference between doing what you need to do to pay x% and the government changing the tax rate so you pay x% either way? It's not a question of what's the most moral percentage to pay in tax, it's a question of whether or not you're defying the law, which you aren't in either case. If the government lowered the tax rate to x% and you decided to cut out the middleman and just pay it, no one would howl at you to voluntarily pay more. So why do people howl at you for obeying other laws that allow you to effectively lower your effective tax rate to the same amount?
The reason it is immoral to pay taxes is that you are still benefiting from the existence of the government but putting the burden of supporting it on others.
You personally may agree or disagree with this, but that's what someone probably means when they say it is immoral to avoid paying taxes, even if it is perfectly legal. Taxes are part of the general social contract of our society, and aggressively finding ways to avoid paying them tends to a tragedy of the commons type situation.
You're thinking at country level. If you expand the thought to global level, the supposed immorality disappears - in this case, the taxes are just paid in another country, at a lower rate, but it still helps a part of society...
> The only reason it's immoral not to pay taxes is because it's immoral to break the law, at least if the law is just
Surely it's also immoral because it's moral to contribute to the society you benefit from, particularly when the laws are constructed to attempt to make you do so, even when there are loopholes?
If it had to do with contributing to the society around you, surely it would be the same obligation regardless of the tax laws, wouldn't it? Yet no one voluntarily pays more than the tax rate, and nearly everyone takes all the deductions and tax credits they can.
Right - the difference between the two is that deductions and tax credits are explicitly entered into the law to define what someone should be paying. The corporate tax rates that Apple pays in California are instead a reflection of the law's inability to effectively extract the money that society wants to - loopholes are involuntarily, while tax deductions are intended.
Of course it's often intended for a tax deduction to be okay. I'm not quite sure what the thrust of your argument is - are you trying to imply that loopholes as a concept are invalid?
The best way I can visualize it is like playing a game of poker.
Bluffing is misrepresenting what you have to fool your opponent into something you don't, or more commonly, something better than you actually have. There are a variety of ways to bluff, with either betting patterns or by outright lying verbally. There are different rules in different casinos that determine whether or not you're allowed to talk about your hand, so exactly how you perform your bluffs may be limited.
Regardless, you should bluff, at least occasionally. The person who never bluffs is likely limited in the amount of money they can make as everyone will fold to the always truthful player.
Ignoring the societal questionability of poker on the whole, some poker players consider bluffing to be immoral. Generally, and certainly the people who recently fell for a bluff might feel so more strongly than those who just successfully bluffed but, and this is important, bluffing is within the rules of the game.
So long as you're not breaking the rules, there is no penalty for being clever.
I agree with the SCOTUS sentiment, but in other related areas, strict adherence to the law with the underlying intent to remain legal but avoid the spirit of the law has been cracked down upon.
In the case of cash transactions, with the 10k reporting limits, people are now routinely prosecuted for "structuring" their >10k transactions into a series of <10k transactions, even when it is clearly demonstrated that there is no underlying criminal activity. There have been cases where it is just cantankerous believers in privacy being prosecuted.
For my part, I'm on the side of the tax avoiders & believers in privacy, but it wouldn't surprise me to see the government's views/regulations on tax avoidance come around to their current policies on currency controls.
It's simple, but there are a lot of people who do not understand this. They don't realize the taxes from the system that funded childhood educations and college tuitions to result in an employable, knowledgeable, creative mass of first-world dwellers should be paid back into through taxes on the profits of the companies in their sphere.
There is a singular lack of realization about the societies in which we live, possibly because it does feel like every man for himself most days. The societal web that makes us interdependent and upon which we rely without knowing it isn't as apparent.
Addendum: there's a lot of confusion about the differences between something being legal and something being moral/ethical in the responses to this post. Legal too often simply means exploiting loopholes.
I'm not sure it's that simple. I live in the US. The vast majority of the US Federal budget goes to the military, income redistribution (welfare) and insurance programs (social security, medicare). I do not believe most of those expenditures enable me to make money, and I think a significant segment is actively harmful. I also feel that I don't have a meaningful say in how that money is used because the political system is broken.
Given those conditions, I don't feel there's anything immoral about doing everything legal to pay less in taxes. I suspect things are different where you live.
Exactly.. lets first talk about the morality and ethics behind the govt. spending MY hard-earned dollars to go bomb brown people in the middle of the desert for 20 STRAIGHT YEARS.
I'm not saying I agree with all of it in practice, but there's a strong argument against your thoughts here, especially in principle.
The military keeps foreigners from invading/suicide bombing and thus creates stability which lets you make money. Social safety nets including welfare, social security, etc, create the same sort of stability since there's less of a likelihood a starving person or angry elderly woman will rob you, etc, etc.
Right, but they may not be the most effective means to do so. If I mow your lawn, then break into your house to steal $20, I might justify that on the grounds that your mowed lawn is worth $20. But in most sensible economic relationships, we do things in the opposite order: figure out if the service is worth the cost, and then perform it in exchange for payment.
I'm not saying having a military isn't valuable. I'm saying the US spends more on its military than the next ten countries put together and maintains a foreign policy of intervening in affairs of other countries and regions. I do not believe these things are necessary to defend the country, and may actually endanger us by creating new enemies.
I'm not saying social safety nets aren't valuable. I'm saying that the current implementation does little to encourage or help people who use them to move on to something productive. I'm also saying that social security is an unsustainable pyramid scheme and that medicare is both inefficient and a poor allocation of resources.
I don't necessarily have solutions in mind for the latter problems; they're hard problems and not in a field with which I have experience. What I am saying is that I don't feel obligated to pay any more in taxes than I have to when on the order of 90% of the money will go toward things that I believe aren't constructive.
Thoreau came to the same conclusion. "I don't support war, so I'm not going to pay taxes." This, however, isn't a tenable practice for society as a whole.
If I live off of my savings, and generate no taxable income, am I also immoral for driving on roads? What if I work part-time, but pay less in taxes than the average person? Once you have a theory that it's morally wrong for people not to pay taxes given that they benefit from the government, you run into the problem that the most effective tax avoidance scheme, by far, is to not have anything taxable.
Oddly enough, New York has implemented an effective Henry George-esque tax system: to merely exist in the city, you have to live in fairly pricey real estate, and the taxes your landlord pays are effectively passed through to you by market rents. Other places have much cheaper real estate, so they don't have the same dynamic.
Short-term capital gains are already taxed at income rates. Long-term capital gains are lower in part because they are not inflation protected, which can substantially discount the real returns. Having a lower tax rate is simpler than computing inflation-adjusted returns for every long-term transaction. For example, if you buy an asset for $500k and sell it for $600k ten years later, you actually lost money after adjusting for inflation but you still have to pay taxes on the $100k capital gain.
Another factor is that long-term capital gains taxes are much less efficient than income taxes in terms of adverse impact on the economy. If you need to raise additional revenue, it is better for economic growth to take it from income (or sales) than capital gains.
That's silly. The government does lots of inflation adjustments andbracketing and phaseouts in financial programs already. And "long term" starts at two years, where inflation is just barely relevant.
That is factually incorrect. In US dollars, investments lose 2-3% of their value annually due to inflation, compounded for multi-year investments. In most cases, there are no adjustments for that in the US tax code. For long term investments this has a large, material impact on the expected return on investment. Any accountant worth a damn can figure this out for you and anyone investing takes it into consideration. This includes investors in startups.
Investing in startups returns a couple points over investing in boring things like corporate debt and startups have higher risk. Unless you think more social good comes from investment in corporate debt than startups, it would be foolish to incentivize everyone to ignore startups because the risk adjusted returns are better elsewhere. I accept that some people think investing in startups is a waste of money but I would prefer that our tax code does not force that to be the case.
That's really not the reason short term and long term are taxed differently. It's based on a perceived notion that we want to reward long term investment as a preferable activity over shorter term speculation.
I agree, this is partly the case. There are a number of incentives in the capital gains tax code beyond the well-known ones that are structured very much for the benefit of long-term investments in smaller companies. There is no rational tax basis for this benefit except to benefit small companies.
The argument about inflation adjusted returns is really the baseline case. Most investors account for it. However, they also adjust for risk as well. I would prefer investments in tech startups to be attractive, net, after accounting for the tax code relative to boring investments like debt instruments.
Capital gains in retirement accounts are tax-sheltered (in a Roth IRA, completely tax-exempt). And it's a serious exaggeration to say that "most" Americans are going to use capital-gains for retirement. For the vast majority of Americans, capital gains are a negligible proportion of their total income. Raising capital gains rates and using the proceeds to lower regular income tax rates (to bring the two tax rates closer together) would lower many more people's taxes than the reverse would.
The actual appreciation of their investments would be higher if you eliminated corporate income tax. And you would still get to defer payment until you sell the actual investment.
The problem is "defer payment until you sell the actual investment." which is when I have no other income coming in. This isn't going to be a rich person's problem, it effects pretty much everyone under 50.
I take your meaning, but I am not looking for a interest group tax deduction. I am really wondering about what all of us need out of a tax system. It is more about when is it ok to tax and when is it just moving money around (SS and Unemployment are two I can think of off the top of my head).
I admit to being in the flat-rate tax camp with exclusions for one time capital gains (selling stock not dividends) and estate tax. I also wish they just gave a large basic deduction ($15K or $20K) and had everyone file as individuals.
No matter the tax rate or how diligently one tries to fix loopholes, in a global world big corporations are going to dodge taxes (not always a bad thing). It's just that this is much harder for small companies who don't have armies of lawyers at their disposal, so it essentially creates an unfair advantage for bigger corporations (leverage) over startups and skews the economy towards the BigCo. This is why big corporations are often fine with regulations, higher taxes and raised minimum wages, because they know it will cement their market share. Just putting it out there, I find that it's often overlooked when discussing regulations, tax rates and so on.
What the "regulation fans" don't realize is that the bigger the company the more lawyers/accountants it can hire and work the cracks in the system.
This is also valid in the case of Starbucks. Regulation is increased for a reason, and the only company that has the resources to comply with it is Starbucks.
Regulation has to be simple, and in the case of transnational corporations, were country borders are mere a detail, increasing regulation will mean essentially nothing to the company and a loss of revenue to the country.
This is true. It's also why some regulatory legistlation, such as Sarbox for example, applies differently to companies beneath and above a certain size.
The more complex offshore structures take a lot of expert human effort and other capital costs to setup. To make them worthwhile requires a certain level of revenue, so it is usually only suited to medium-to-large sized businesses.
Apple and the other large companies can afford to keep the profit offshore. They are still paying full rates of tax on the revenue and profits they need to keep their businesses running.
When Apple pays a dividend, they will do it by paying full US tax rates on the dividend. Thus these tax structures are biased towards big companies only because they can afford to defer payments.
That said, all the knowledge that you need to setup a similar structure for a small business is available online and has become a lot cheaper. If you are accepting credit card payments you can setup in an offshore nation with a business registration, a bank account and a merchant account for a few thousand dollars.
This kind of thing (on a smaller scale, admittedly) is what I do in my day job.
In the same way we hear "The internet interprets censorship as damage and routes around it" we can say "Money interprets taxation as damage and routes around it."
Someone imposing censorship upon the internet might have all of the morality and justification in the world behind his/her argument. Irrelevant. So too with taxation. You can talk about moral imperatives all you want -- one should support the country you're in by paying taxes. Irrelevant.
You make tangible objects float in mid-air by altering the law of gravity, or by using magnificent quantities of effort (e.g., fly tons of metal through the sky by burning vast quantities of fuel).
You (as a government) make money change course and come to rest elsewhere by altering the law of taxation or by using magnificent quantities of rhetoric (look for "should" and "ought" and "them" in sentences). Or you use magnificent quantities of enforcement (tax audits, put people in jail, etc. I live in this universe, too.)
Ultimately, the point by @yummyfajitas is correct. Countries have sovereignty and can do as they damn well please.
The U.S. has the bullying power of the U.S. dollar and a lot of guns to convince other countries to behave in ways that the U.S. wants them to behave. This will work until it doesn't work anymore.
The way this will cease working for the U.S. government is that the bullying will become unacceptable for other governments. They will rightly see this as ceding national sovereignty to the U.S. government. This will not happen until the U.S. dollar weakens and a plausible reserve currency appears. China's slow moves to relaxing currency controls tells you where the next likely reserve currency will be.
The other way this will cease working is visible in the cited article. Large economic organizations -- like Apple -- are starting to develop their own anti-gravitation fields and can float above tax laws of any particular country.
It's fun to watch. Put your moral imperatives in your pocket for a while and just observe. What is Congress doing, and why? Why, for instance, is a lot of the anti-international tax legislation in Congress coming from Senator Levin (D-Mich)? What are companies doing? After you see something happen, don't ask "Why?" Better to ask, "And then what will happen?"
You might surprise yourself. The unintended consequences are sitting there, in plain sight.
My personal feeling on this is that the moment the tax system becomes so complicated that you've got to employ lots of people to figure it out then you've turned taxes into a business expense which is as susceptible to optimisation as any other part of your business.
Regarding how Ireland is mentioned in the article- Apple has had a significant presence in Ireland since the year 1980, has a workforce nearing 3000 and is expanding, announcing 500 jobs just this month [1]. Hardly "little more than a letterbox or an anonymous office " as could be misinterpreted rather easily from this article.
To put it in perspective, the 80s in Ireland were very bad economically, very few jobs, lots of emigration. Apple also have their office in Cork (not Dublin) which would have fewer native industries and employment, so they probably qualify chore all kinds of 'kindness' grants.
I don't think the relationship between what the tax laws induce businesses to do, and what we as a society intended to them to do, is particularly straightforward. A lot of tax strategies seem more like emergent effects of multiple laws, often passed by several different jurisdictions, and often in different circumstances than the present ones.
So innovating the double Irish with a Dutch sandwich is "following" the law? It's more akin to hacking or circumventing them while still staying legal. Just because something is legal does not mean that it was the spirit of the law or the intention of society. That's why you see laws being changed to frequently to adapt to new scenarios and "innovations".
Not to mention that society hasn't much of a say these days, Congressmen need campaign money from corporate firms. As they re-invest some of that saved money into politicians to further gain more money, what chance does an individual voter have? Voting people out doesn't matter much when the alternatives are almost the same and need money for their re-election too.
And yet, we are the ones who have voted for these people who have created this system. It's not like the voters are without agency; I can still vote for the nominee with $100 in her bank account even if her opponent has $1 trillion in his.
Well I'll just say it as I do not think anyone else has: I find this disgusting and it seems like capitalism gone too far. California is struggling and would benefit from the contributions of the worlds largest contributions that reside within its borders.
California is "struggling" because of atrociously bad management. It's not like the state lacks in physical or human capital. I mean, Jeebus, the Golden State is home to the capitals of two of the world's greatest industries (entertainment and technology). It takes world-class incompetence to squander such riches.
Don't blame the state government, though. The problems are structural, not personal. If we replaced the current slate of corrupt, incompetent politicians, new ones would take their place. The internal incentives of the system would see to that. In modern politics, corruption is a winning strategy.
On the other hand, if the state government of California were run more like, say, Apple, they wouldn't be in such a bind. But that would mean running California more like a for-profit business. This suggests a possibility: the problem may not be that capitalism has gone too far—it could be that it simply hasn't gone far enough.
What if pushing capitalism far enough results in California being run like an Enron, a Blockbuster, a Lehman, or any number of tech bubble 1.0 darling businesses instead of like Apple? Apple is pretty lean and is winning the market cap game right now, but the largest companies haven't always been as good.
Such disasters could happen, and minimizing their frequency is an important engineering problem. But you have a long road to hoe if you want to argue that the average quality of private management isn't much better than the average quality of public governance.
I have not seen much evidence that private management is superior to any given civil service. I have seen absurd waste in the private sector in my time. I think that there is little empirical evidence to support either position. The civil service generally is handicapped by the fact that any waste exposed is made very public because they are accountable to, well, everyone. For example, journalists generally do not chase stories about waste or incompetence in private companies but publish such stories about government. Even audits that reveal waste in any private company are generally kept under wraps.
It's not the disasters we should really be concerned about, it's the normal bigcorp experience. People are promoted based on office politics and taking credit for others' work. Big useless projects to raise a manager's profile happen all the time. Consultants are hired to produce reports that say exactly what the company, or part of the company, wants them to say to cover people's asses. Market leads and shareholder value are squandered by corporations unable to adjust to changing business or consumer climates.
Plenty of people on this site quit their bigcorp jobs because they couldn't stand the wastefulness and the politics. Every time HR is brought up, HN seethes hate at their uselessness. Middle management, that most corporate of jobs, is almost universally derided.
Much better? I'd doubt it, but neither of us has data and personally I'm not sure how that would even be quantified.
It's not the disasters we should really be concerned about, it's the normal government experience. People are promoted based on office politics and taking credit for others' work. Big useless projects to raise a manager's profile happen all the time. Consultants are hired to produce reports that say exactly what the department, or politician, wants them to say to cover people's asses. Taxpayer funds and freedoms are squandered by politicians unable to adjust to changing business or consumer climates.
Plenty of people on this site quit their government jobs because they couldn't stand the wastefulness and the politics. Every time HR is brought up, HN seethes hate at their uselessness. Middle management, that most corporate of jobs, is almost universally derided.
Much better? I'd doubt it, but neither of us has data and personally I'm not sure how that would even be quantified.
Yeah. Sounds fairly similar. You forgot to update the sentence about middle management, further strengthening my point about indistinguishability. Thanks for underlining that private sector isn't "much" better. :)
There really should be some sort of movement to shame apple (and hopefully other California companies) for doing this. They've benefitted immensely from the infrastructure we've provided and are doing nothing to invest back into it now that they're on top. At the very least they should help with the rising tuition costs at public schools (UCs, Cal States, etc.)
I guess I feel that there'll always be loopholes and ways to exploit the system if you try hard enough, so having that be something that can tarnish a company's public image is a much bigger deterrent than the law can be. Also, realistically, it's a lot easier to have a bunch of students refuse to buy the iPhone 5 until apple pays its fair share of taxes, than to have legislators change the tax code.
Using loopholes when you know they are loopholes seems pretty immoral to me. You don’t have to agree with me on that, but that would for example be a prime reason for shaming them. Morals are not equal to the law. Immoral things stay immoral even if they are legal. And there is nothing wrong with calling out immoral behavior.
It feels that California was a random choice for Jobs family, not a calculated decision, like Microsoft's move from New Mexico to Washington. On tuition, feels like these guys should start a fund
http://www.sfgate.com/webdb/ucpay/
Apple, as a corporation, should pay ZERO taxes. The resources invested in Apple were taxed before invested, and will be taxed again when investors realize their capital or income gains. Corporate taxes are double taxation.
It is Apple's moral duty to legally pay the minimal amount of taxes possible. Every dollar Washington or Sacramento takes from Apple and gives away as some political handout is one less dollar available for perhaps the most innovative tech company in the world. Taxes on Apple, and other tech leaders, literally undermine American competitiveness...
The magic phrase to me in the article is "Apple serves as a window on how technology giants have taken advantage of tax codes written for an industrial age and ill suited to today’s digital economy." So true.
Our laws, and not just tax laws, were not created for a digital environment. Throw in multinational corporations spanning the globe and many laws fall apart. I honestly have no idea how that can be fixed nor have I read a realistic proposal to do so. Everyone says "close the loopholes" but I've never seen a list of proposed loophole changes that was viable.
Taxing money when it is earned instead of when it is spent will result in the money being shuffled around the globe in complex ways. I always get blasted for saying this, but the only way to get taxes from these profits is by shifting to a sales tax model instead of an income tax model.
It's somewhat interesting (or just entertaining) that things large corporations have been doing for ages are gaining new attention because we can throw Apple's name into the mix.
Not really. Companies of every size have been taking advantage of stuff like this for decades. Stuff like Delaware's corporation laws [1] are pretty well known. It's common sense, really. Why would anybody pay more taxes than they had to?
Unless I'm grossly mistaken, there's no tax benefit to incorporating in Delaware. Their franchise tax is actually pretty high. The reason to incorporate there has to do with reducing legal costs, AFAIK, which is a separate matter.
So when the state takes 50% of the salary, it's bad but it's life. It's what the state needs to survive and enhance.
When companies pay 0% tax rate, quick, defend them.
If they did pay the tax, the CA state certainly wouldn't have any money problem. But no, that's not important, right? Shares etc are!
I'm surprised everyone finds it ok. I'd almost dare to say it's an issue that is especially present in the US (that people think it's fine and to "blame the game not the player" kind of crap)
There is no state in the US that takes anywhere near 50% of your salary (assuming by state you don't mean country).
Companies should pay lower taxes because the buck doesn't stop there. Owners / equity holders are the benefactors of the company's profits and should be the ones to pay taxes, assuming you agree with having income taxes.
If a person's legal action means he has to pay 50% of his income, it's life.
If a company's legal action means it has to pay 0% of its income, it's life.
or how about the fact that many people think that monopolies are bad, yet are fine with the government completely taking over things like health care, which would create a monopoly. The same rules will also apply (IE: no competition=no innovation).
I actually think that some government monopolies are not bad. The problem is that they can't be implemented properly if there's corruption (and there is, always).
For example in France the state owned the electrical company and the telecom company for a long while.
Result?
- Single electrical network
- Single, full fiber, telecom network.
- Health care, even if not perfect, is way better than in the US.
Those work very well and are among the best in the world.
When mobile phones came to the game, they did not interfere in any way. Result?
- Each operator has a set of frequencies, successful operators have no bandwidth left (I'm sure you know of that issue in NYC, SF, and all big US cities if you're on AT&T. Same issue.)
- Deployment and coverage takes forever (again in the US it's the same, so many areas don't even have 3G or any cellular network at all) since not all zones are as profitable
- Same issue every time a new tech comes up (good luck til all the country is covered by LTE)
This concludes into: the state has to organize and regulate things for the good of the people (which actually also leads to faster innovation, see the fiber example again. France's full fiber network is in place since many decades!)
The problem is that no country really does even a little bit of that anymore. Every party is backed by corporations and sustain only their interests. The scheme is well oiled with several steps, and we aren't very different from the people in Europe from the 1700's (regardless of the country)
Yep, given a set of rules and the means, people and companies will use them to reduce their bills.
The biggest problem with our tax laws is that they have moved from a way to raise income to being used to control behavior which results in "rule lawyering" to get the best deal. Simple rules mean actual income, complex rules means a lot of employment for accounts and lawyers to get a lower bill.
I'd like to see Apple or any company to do as they threaten and move their headquarters. Try asking all of your top talent to move from their nice property values and school districts to some tax haven.
Similarly IKEA pays zero tax by channeling all it's profits through a very complicated setup to an Irish non-profit. GE not only pays zero tax, but also manages to extract tax refunds from the US government.
The big question if an evasive tax setup makes sense at lower profit levels, or if the costs of setting up and maintaining it are prohibitive. Does anyone know?
This seems like an appropriate place to mention that the FairTax proposal makes tax evasion very difficult. If you haven't read about it, you really should -- I think it's pretty well thought out.
I think it is pretty simple. Apple and any other company is required AND expected by its shareholders to minimize taxes paid and keep all expenses under control. Saying "well gee we should pay more tax, it's really the right thing to do, lets change around a bunch of stuff so we pay a higher rate of tax" would never fly.
California should call Apple's (and others') bluff. Let companies decide if saving 8% in tax is worth leaving the Silicon Valley ecosystem and infrastructure.
This indirectly brings up the point that it's hard to make the case for directly taxing corporations at all, aside from the fact that it's convenient. Ultimately, all corporations are owned by tax-paying people (or nonprofits). So why not tax their distributions as income? If I forgo working, and instead develop some skill that I could use to raise my income, nobody taxes me on the increase in notional wealth I have from being more skilled; I get taxed when I get paid in a form that I could use for consumption.
Meanwhile, corporations:
a) Get taxed on their profits
b) May pay lower notional levels, but only by paying people to game the rules
c) Get taxed on their dividends (essentially a 15% surtax on the 35% tax on their profits)
d) Also get taxed through capital gains--which is a change in the (un-inflation-adjusted) net present value of future dividends (which, remember, are taxed when they're earned, then taxed when they're paid).
If you give our tax code enough credit, the 35% tax rate is a lower bound. If the government is willing to let you pay $X less in taxes for doing Y, they're saying that the benefit of Y exceeds the forgone tax income of $X. So if I get a $5K tax credit for installing solar panels, the amount of tax-equivalent benefit the government has derived from my behavior is at least $5K.
You could argue that the tax code is imperfect, and that action Y is not always worth $X. But then you're suggesting that we transfer money from a competent rule-follower to an incompetent rule-writer. If governing skill is constant across tax collection and other government behaviors, then exploiting tax loopholes is just in proportion to how exploitable they are--a government so screwed up that it can't manage to legally tax you for anything is a government that definitely shouldn't have its hands on your money.
Obviously, the government has other core competencies besides taxation. But corporate taxes are worth reconsidering. I'd much rather have dividends taxed as regular income--turning corporations into a pure savings vehicle. Taxing corporation-generated wealth four times--when it's generated, when it's calculated, when it's distributed, and when ownership is transferred--is at least three times too many.
But if the money is never distributed, how does it benefit the shareholders? My thought experiment from earlier in the thread: what is the net present value of a billion dollars in cash, if I put it on a rocket and launch it into space? If you can't get the money, you can't spend the money, and you can't enjoy the money.
You could theoretically borrow against those assets, but only if your lender expected you to be paid. That's the beauty of the plan: it means that the only taxable event is the one that materially benefits you.
Owner of the share/company is going to want to use that profits before they die, so the transfer of money from company to individual will happen one day.
But certainly not all of it. As another commenter upthread put it, I might have a company that makes $5 billion/year and a $100 million/year lifestyle. I will never spend all of that money.
"As of September 24, 2011 and September 25, 2010, $54.3 billion and $30.8 billion, respectively, of the Company’s cash, cash equivalents and marketable securities were held by foreign subsidiaries and are generally based in U.S. dollar-denominated holdings. Amounts held by foreign subsidiaries are generally subject to U.S. income taxation on repatriation to the U.S."
These tactics don't exempt corporations from US federal taxation, they just serve to delay when the taxes are payable. Apple owes US federal income taxes on the earnings of its foreign subsidiaries that is payable upon repatriation of the cash to the US. Accordingly, Apple and has booked an $8.9 billion liability for the taxes it owes on the unremitted earnings of foreign subsidiaries. Unless Congress moves forward with a "repatriation holiday," that liability will remain until Apple brings back the cash to the US to fund domestic investment or to return to shareholders and pays the US taxes it owes.
These structures only defer taxes. They will eventually be paid somewhere. Surprised there was no mention of the recent large Apple dividend, which will require that cash to be repatriated to the USA.
What is unfair is that an international shareholder in Apple stock only gets their dividend after US taxes are paid and is then hit again with their local taxes.
You know, it's not as if this money has escaped being taxed. At most, it's escaped one layer. It'll be taxed if they use it to pay someone. It'll be taxed when that someone uses it to pay for something else. If they move any of it somewhere else, it'll be taxed, if it becomes someone's capital gains it'll be taxed. If they use it to buy something, that purchase will be taxed, as will the thing they purchased at pretty much every layer. If it does pretty much anything other than sit there, it'll be taxed, and the next people to get it will have their use of the money taxed too. It isn't money that has magically been freed of taxation, it's just money that isn't being taxed this exact second.
Every time I read about these tax schemes, I think, "I want to do that, too." Is there any company out there that will help the little guys making all of their money online complete a double Irish Dutch sandwich?
Define little. It's only worthwhile when you reach a certain level of profit. There are quite a few lawyers and accountants that specialize in offshoring.
Little, as in, a few hundred thousand per year. I was thinking that if the money of several small companies were pooled together, something beneficial could be done.
If I were an aapl shareholder, I would hope they were exploiting every opportunity to avoid paying unnecessary taxes. Adjusting tax rates are used by many jurisdictions to lure (and control) businesses.
One reason corporations are so diligent about avoiding taxes is scale. If you can save, say $1 million, byt paying lawyers & accountants $500,000, the decision is a no-brainer. I'm sure this is exactly how Apple's outside counsel sells it.
I think the best approach is just to eliminate corporate taxes. If instead you just tax the dividends, that same $1,000,000 in liability will be distributed among thousands of shareholders, who will not have nearly as strong an incentive to hire $400/hour lawyers.
No easy answer to this. All the tech companies do it, and if you start legislating the loopholes closed, they'll go to another state and maybe even another country. And you can't expect the companies to change on their own. They'd be sued if they didn't exploit all legal means of increasing shareholder profits.
I think it will take smart legislation added in increments over the course of years and years. good luck with that, Congress.
I don't feel any ill will for Apple. Companies are always going to try and do what is best for them and that makes sense. What is crazy is why the idea of a flat tax has never gained more traction. I understand that there are some potential issues with a flat tax, but at the very least it simplifies things and levels the playing field.
So- if there is anything unfair about this, it is that small companies that can't choose to relocate from Cali bear the tax burden. But it is ridiculous to make it look like Apple is avoiding paying its bills. Instead why don't we see this as a perfect case in point for why we should privatize government? If we paid government directly for its services rather than requiring it to parasitically suck cash as it is set up to now, then Apple would have to pay its fair share of the services rendered in Cali and elsewhere. But, it won't be billions, because "billions" is not a fair price to pay for what it gets from the government- at least, unless there is something it is getting that I don't know about.
The article mentioning Ireland touched home for me. That's where the bulk of RIM's developer payments come from. Until now I thought my dj app was just REALLY popular with the Irish.
Would a corporate "buffet rule" solve this? Let companies do whatever shenanigans they want, but if they operate in the US and earn > $1 billion they can't owe less than 15%?
It would pretty much hand overseas corporations the US market given the fun of "licensing fees" paid to a parent company overseas. See Monster Cable for a great example. I also believe the Japanese and German car makers pull this one.
The "Buffet Rule" is a pretty good acknowledgement that our tax system is way too complicated, will end up like the problems the AMT is causing, and shows how broken the the discussion is on the news of "amount" and "rate".
The Kerry packer (Australian media baron) quote is always appropriate:
During the inquiry he repeatedly berated the politicians conducting it, and the government. When asked about his company's tax minimisation schemes, he replied: "Of course I am minimising my tax. And if anybody in this country doesn't minimise their tax, they want their heads read, because as a government, I can tell you you're not spending it that well that we should be donating extra!"
California rips companies off and begs for this kind of behavior.
Ask anyone who has started a small business in California. For example, your business can make zero dollars (or even lose money), and you will still owe California $800. EVERY YEAR.
The issue becomes almost formulaic. Given (1) rational actors, (2) freedom to choose and to structure business affairs using a multiplicity of entities for different purposes, (3) resources with which to hire and pay for the talent needed to sort out the tax issues and their complexities, (4) a business goal of maximizing after-tax profits, (5) a multiplicity of domiciles from which to choose, and (6) a ready means by which to direct resources from one domicile to another (as with digital assets), it inevitably follows that every sophisticated company meeting these criteria will avail itself of the tax avoidance/minimization strategies. As the article notes, it is perfectly legal and every big company does it (see, e.g., this similar write-up from a couple of years ago on Google's comparable tax strategies: http://news.ycombinator.com/item?id=1815195).
Nothing, of course, stops a given company from voluntarily subjecting itself to higher tax rates by declining to follow this formula but why would it? Big companies will routinely want to avoid high taxes if they can. So too do small businesses. People may have social views that higher taxes are desirable but, as individual economic actors, they will seek to avoid them. This may be right or wrong but it is reality.
This means that high-tax domiciles will have no choice but to continue to remain frustrated that they cannot have unchecked means of taxing their citizens. As long as people have freedom, governments have to strike a balance that people can live with. And that is not a bad thing.