(05-04-2015 09:35 AM)Redwingtom Wrote: 1. On the tax rate. Yes, I realize they do actually MEAN something. My only point was that you can't just look at the rate being 35% and act like that's what every profitable corporation pays on their income. What does the average corporation pay in their effective rate is a better indicator of tax issues in the US.
Maybe it is, maybe it isn't. Because the effective rate is driven far more by tax issues outside the US than by tax issues inside. The biggest component in reducing the effective tax rate is choosing to earn income overseas where it is taxed at lower rates. The second biggest impact is having focused and specific loopholes to benefit specific industries (or even specific companies) to make their taxes competitive with overseas competition.
Quote:2. I sort of misread your initial comment and I noticed that right away, but I was walking out the door last week and I don't pay much attention to this place when I'm home. So, I was originaly reading your comment as "corporations themselves pay twice on their taxable income", and I wasn't quite sure what you meant by that. Yes, corporations pay on their income and individuals pay on their income derived from that corporation. I don't see a big issue with that...but I do support some reform in that area to make things more fair.
Fair enough, I accept your explanation. But I don't agree that it's not a big deal. It's a huge issue when you look at the tax efficiency of getting earnings out of investments over there versus here. You can bet your bottom dollar that the truly "rich" are well aware and it affects their investment decisions significantly. Hambone and I (and maybe others on here) have consulted those "rich" people and corporations in making those decisions, and yes it does matter. A lot.
Quote:3. Corporations paying no taxes. I'm referring to things like this:
Quote:26 companies, including Boeing, General Electric, Priceline.com and Verizon, enjoyed negative income tax rates over the entire five-year period, despite combined pre-tax profits of $170 billion.
The Sorry State of Corporate Taxes
Except that isn't what happened. The linked article is playing semantic games, and dishonestly so. The article dishonestly compares US taxes paid to worldwide income, neglecting to count the foreign taxes paid on that income. Corporations shift vast hunks of their operations and related income overseas to take advantage of lower rates there. What's left in the US is a small enough part of the total that it can swing violently.
Boeing paid worldwide taxes at an effective rate of around 23% throughout the period. Its US tax bill was so low because it took advantage of the R&D tax credit (one of those focused loopholes that a lot of high tech companies use) to offset almost all its corporate income. Interestingly, one other factor is that Boeing was audited by the IRS on two occasions relating to the period, and its effective taxes were lower substantially because the results of those audits were refunds of overpaid taxes to the tune of about $300 million on one occasion and about $30 million on the other. Kind of shoots holes in the idea that Boeing is doing anything wrong. The authors of the article, of course, neglect to mention this. Instead they focus a lot on stock options which are generally a much smaller factor.
GE paid an effective rate of about 10-15% throughout the period. They have R&D credits as well, but the big factor is that they save almost 20% by having operations taxed overseas rather than here.
Priceline (and other web-based companies) are a special case. Their big asset is their technology. They develop it in the US (offset by the R&D credit so they pay virtually no tax) and when the technology is ready to go they sell it to an Irish subsidiary at development cost (a fair price at the time, because it has not yet produced any income). Then they run income through a structure known as the "double Irish" involving two Irish companies and one Caymans Islands "excluded corporation," which lets them reduce their effective tax rate to 2.5%. There is a huge loophole there, but we would have to change Irish law and Caymans law to eliminate it. Send in the Marines?
What companies do is keep here what can be sheltered by things like the R&D credit (explaining why the domestic net rate is lower) and move the rest overseas to be taxed at higher rates. The goal is to minimize worldwide taxes.
The article proposes that the US impose tax on worldwide earnings of US companies which it claims would sift activity back to the US. In fact it would have the opposite effect. It would cause companies to abandon the US entirely. If I stay in the US the I will pay 39.4% on worldwide income. If I move to virtually any other country in the world, I can pay 20-25%. That's not going to cause me to decide to stay here.
What we need is four things:
1) lower rates to worldwide levels
2) eliminate special-interest loopholes, which are no longer needed because of 1
3) replace our worldwide tax system with a territorial tax system, like every other developed country
4) implement a consumption tax, like every other developed country
Bowles-Simpson recommended three of those things (except the consumption tax) and Domenici-Rivlin recommended all four as the best way to increase tax revenues.
