This is a good case why the US should lower corporate taxes to a rate that is competitive with other jurisdictions, or just get rid of them all-together. Corporations don't actually pay taxes even when they do; it's the consumers who pay for them in the form of increased prices (tax is just passed on as an expense). Better to collect the tax at time of sale (VAT) - perhaps on a sliding scale.
Corporations don't actually pay taxes even when they do; it's the consumers who pay for them in the form of increased prices.
This assumes that prices are directly linked to cost of goods sold, and that firms have no pricing power whatsoever. Now, if every firm sold commodities, perhaps that would be true..
But firms do have some pricing power through vendor lock-in, the degree to which their product is differentiated from competitors, etc.
In Microsoft's case (for Windows, Office, and other products) there are no alternatives consumers are willing to switch to, and the price is not based on COGS, so a decrease in corporate taxes would only pad Microsoft's bank accounts.
It's an alternative, but they're not commodities. MacOS and Windows are highly differentiated and even have their own ecosystems. The situation is very different than that of two manufacturers of baking soda, for example.
Turns out twenty-somethings in the City are an extreme minority. Huge amounts of mfst lock-in comes from the enterprise world. To move work between work and home virtually requires Office. I fought it for years until my IRB got delayed because the tables "didn't look right". At some point, $100 is worth less than just getting the damn research started.
Talking exclusively about PCs worldwide, in the last five years OSX has grown more than 100% from 3% to over 6%. However, also note that the dip in the Windows market share has been a mere 3-4%. In other words the parent's point is valid.
If tax laws are changed such that economic activity transacted within the US, among those present in the US, are taxed as being within the US, rather than using Double-Dutch, and Irish loopholes, to avoid taxation, then there's no need at all to reduce corporate tax rates. Rather, they can be raised to levels more consonant with where they were in the 1950s.
Taxes are a transaction fee. The benefits of corporate profits accrue most decidedly to those who own or participate in that profit stream: stockholders and banks, principally. Among whom you'll find an income and wealth distribution skewed remarkably upward from that of the population at large.
Consumption taxes are inherently regressive: the poor spend far more of their money on purchases. Without an offsetting credit, VAT only exacerbates the underlying inequity problem.
This is why it should be a progressive VAT. Essential goods have no to little tax (the same goods that say, food stamps would cover), consumer goods a higher tax and luxury goods the highest tax. Second-hand goods would have no VAT tax at at all, which is what low income earners should be purchasing in many cases.
Also, no tax system will solve inequality; the cause stems from other places (culture, education, government structure).
We should, indeed, eliminate taxes on foreign corporate earnings. Most of that money would wind up back here, in the relative safety of US banks & investments. A substantial portion of that money would go to paying dividends, which would directly generate capital gains taxes, and much of the rest would wind up being invested here in the US.
We would be doing what we should be as a center of innovation: importing cash from the rest of the world and using it to improve the US economy. Considering that today this money not only generates $0 in taxes, but does not benefit our economy in any way in terms of investment etc, this seems like something that even politicians could wrap their heads around. Yet, it is unlikely that it will ever happen.
Five minutes later the argument would be "why should we pay taxes on US earnings but zero overseas? Why discriminate against US consumers? Why are US products cheaper overseas?"
Yeah, it's actually very logical once people drop their emotionally charged attitude towards "the corporations". I'd rather see US corporate cash in US bank accounts to be spent on a mix of continued innovation, local job creation and dividends to investors.
There's the other side also - the US would effectively become a corporate tax haven. That in combination with our long standing excellent legal system, would likely be an impetus for foreign companies to incorporate in the US opposed to say Hong Kong or London.
You'd think the attitude of the "land of the free" would be "open for business" instead of so adversarial.
Company A has $100
Company A spends $50 building a product they sell for $100
Company A sells product for $100, now worth $133
Company B has $100
Company B spends $50 building a product they sell for $100
Company B sells product for $1 to company C in Belize, now worth $50.83
Company C sells product for $100, then moves cash back to Company B, now worth $150.83
Company B is worth more now in this case as Company B wouldn't be paying tax on bringing the cash on-shore. Company B will strike deals with other trade partners to lessen tax for everyone involved, especially when there is millions worth of savings to be had.
If the argument is that much of the value is created in the states, then that is already captured mostly in USA income taxes (after all, labor is a dominate cost for R&D).
The point is they're still avoiding paying tax they should be paying. I don't think the stance that one company should pay tax on their widgets while another company doesn't. Tax avoidance is robbing everyone.
I'm not saying this is specific to America. If you look at corporations setup by these companies in other countries, ie New Zealand they paid $5.5m NZD in 2013.
Given the high tax bracket in New Zealand. For arguments sake:
1x iPhone 5S 16GB was $1000NZD + GST (which is paid by consumer).
iPhone profit margins: 30%
Profit per phone: $300NZD
Now, top tax rate in NZ: 35%
Tax paid on each phone in theory: $105
At $5.5 million, let's assume they only sold iPhone in New Zealand and we'll exclude all other products.
In reality there are more than 52,000 iPhones sold in New Zealand each year. Based on mobile market share, iPhones hold 30%. There are 2.5 million mobile users in New Zealand putting total number of iPhones at 750,000.
Hang on a second, at $105 tax on each phone, shouldn't they have paid tax of a total $78.8bn in New Zealand?
But to-date, the amount of tax Apple Corporation has paid in New Zealand is.. $27m
Don't you think there's something wrong with those numbers?
Oh wait no, because ACTUALLY Apple is just a company setup in Bermuda who pays other companies to make the phones and sells them internationally at 30% profit with no tax. In reality this is more like 11.5% because the bulk of their corporate-to-corporate payments are done through Ireland, but with larger companies this is funnelled through local companies at a 0.5% profit (to keep the lights on).
You are confusing the highest marginal rate with the amount of tax actually paid. The term you want to google to inform yourself is "effective corporate tax rate".
Comments
This is a good case why the US should lower corporate taxes to a rate that is competitive with other jurisdictions, or just get rid of them all-together. Corporations don't actually pay taxes even when they do; it's the consumers who pay for them in the form of increased prices (tax is just passed on as an expense). Better to collect the tax at time of sale (VAT) - perhaps on a sliding scale.
Corporations don't actually pay taxes even when they do; it's the consumers who pay for them in the form of increased prices.
This assumes that prices are directly linked to cost of goods sold, and that firms have no pricing power whatsoever. Now, if every firm sold commodities, perhaps that would be true..
But firms do have some pricing power through vendor lock-in, the degree to which their product is differentiated from competitors, etc.
In Microsoft's case (for Windows, Office, and other products) there are no alternatives consumers are willing to switch to, and the price is not based on COGS, so a decrease in corporate taxes would only pad Microsoft's bank accounts.
Edit: shortened for clarity
Woa woa, when did you last visit a computer shop? OSX is a very viable alternative to Windows and consumers are very much willing to switch to it.
It's an alternative, but they're not commodities. MacOS and Windows are highly differentiated and even have their own ecosystems. The situation is very different than that of two manufacturers of baking soda, for example.
Turns out twenty-somethings in the City are an extreme minority. Huge amounts of mfst lock-in comes from the enterprise world. To move work between work and home virtually requires Office. I fought it for years until my IRB got delayed because the tables "didn't look right". At some point, $100 is worth less than just getting the damn research started.
Talking exclusively about PCs worldwide, in the last five years OSX has grown more than 100% from 3% to over 6%. However, also note that the dip in the Windows market share has been a mere 3-4%. In other words the parent's point is valid.
Lots of time, sometimes there is a little Mac corner, if one is on a big city.
Here in Europe, only for the consumers willing to shell out 1129 € over 400€, for a computer with non-replacement parts, get a Mac.
Specially hard in the countries were the average salary is around 1000€ and the minimum wage around 500€.
If tax laws are changed such that economic activity transacted within the US, among those present in the US, are taxed as being within the US, rather than using Double-Dutch, and Irish loopholes, to avoid taxation, then there's no need at all to reduce corporate tax rates. Rather, they can be raised to levels more consonant with where they were in the 1950s.
Taxes are a transaction fee. The benefits of corporate profits accrue most decidedly to those who own or participate in that profit stream: stockholders and banks, principally. Among whom you'll find an income and wealth distribution skewed remarkably upward from that of the population at large.
Consumption taxes are inherently regressive: the poor spend far more of their money on purchases. Without an offsetting credit, VAT only exacerbates the underlying inequity problem.
This is why it should be a progressive VAT. Essential goods have no to little tax (the same goods that say, food stamps would cover), consumer goods a higher tax and luxury goods the highest tax. Second-hand goods would have no VAT tax at at all, which is what low income earners should be purchasing in many cases.
Also, no tax system will solve inequality; the cause stems from other places (culture, education, government structure).
>or just get rid of them all-together
We should, indeed, eliminate taxes on foreign corporate earnings. Most of that money would wind up back here, in the relative safety of US banks & investments. A substantial portion of that money would go to paying dividends, which would directly generate capital gains taxes, and much of the rest would wind up being invested here in the US.
We would be doing what we should be as a center of innovation: importing cash from the rest of the world and using it to improve the US economy. Considering that today this money not only generates $0 in taxes, but does not benefit our economy in any way in terms of investment etc, this seems like something that even politicians could wrap their heads around. Yet, it is unlikely that it will ever happen.
Five minutes later the argument would be "why should we pay taxes on US earnings but zero overseas? Why discriminate against US consumers? Why are US products cheaper overseas?"
Yeah, it's actually very logical once people drop their emotionally charged attitude towards "the corporations". I'd rather see US corporate cash in US bank accounts to be spent on a mix of continued innovation, local job creation and dividends to investors.
There's the other side also - the US would effectively become a corporate tax haven. That in combination with our long standing excellent legal system, would likely be an impetus for foreign companies to incorporate in the US opposed to say Hong Kong or London.
You'd think the attitude of the "land of the free" would be "open for business" instead of so adversarial.
You need both, as this creates more loopholes.
var tax = 0.2
Company A has $100 Company A spends $50 building a product they sell for $100 Company A sells product for $100, now worth $133
Company B has $100 Company B spends $50 building a product they sell for $100 Company B sells product for $1 to company C in Belize, now worth $50.83 Company C sells product for $100, then moves cash back to Company B, now worth $150.83
Company B is worth more now in this case as Company B wouldn't be paying tax on bringing the cash on-shore. Company B will strike deals with other trade partners to lessen tax for everyone involved, especially when there is millions worth of savings to be had.
If the argument is that much of the value is created in the states, then that is already captured mostly in USA income taxes (after all, labor is a dominate cost for R&D).
The point is they're still avoiding paying tax they should be paying. I don't think the stance that one company should pay tax on their widgets while another company doesn't. Tax avoidance is robbing everyone.
They aren't, you are just being American-centric in saying they should pay tax in the states rather than invest abroad.
I'm not saying this is specific to America. If you look at corporations setup by these companies in other countries, ie New Zealand they paid $5.5m NZD in 2013.
Given the high tax bracket in New Zealand. For arguments sake:
1x iPhone 5S 16GB was $1000NZD + GST (which is paid by consumer). iPhone profit margins: 30% Profit per phone: $300NZD
Now, top tax rate in NZ: 35%
Tax paid on each phone in theory: $105 At $5.5 million, let's assume they only sold iPhone in New Zealand and we'll exclude all other products.
In reality there are more than 52,000 iPhones sold in New Zealand each year. Based on mobile market share, iPhones hold 30%. There are 2.5 million mobile users in New Zealand putting total number of iPhones at 750,000.
Hang on a second, at $105 tax on each phone, shouldn't they have paid tax of a total $78.8bn in New Zealand?
But to-date, the amount of tax Apple Corporation has paid in New Zealand is.. $27m
Don't you think there's something wrong with those numbers?
Oh wait no, because ACTUALLY Apple is just a company setup in Bermuda who pays other companies to make the phones and sells them internationally at 30% profit with no tax. In reality this is more like 11.5% because the bulk of their corporate-to-corporate payments are done through Ireland, but with larger companies this is funnelled through local companies at a 0.5% profit (to keep the lights on).
This is relevant: http://www.forbes.com/sites/jonhartley/2014/08/25/burger-kin...
U.S. corporate taxes are and long have been lower than the OECD average.
Really? It's the highest one on both of these lists:
- http://www.heritage.org/federalbudget/corporate-tax-rate
- http://www.kpmg.com/global/en/services/tax/tax-tools-and-res...
You are confusing the highest marginal rate with the amount of tax actually paid. The term you want to google to inform yourself is "effective corporate tax rate".