A Corporate Tax Dodge Gets Harder | Hacker News Reader

A Corporate Tax Dodge Gets Harder

nytimes.com

49 pointshvo91 comments

"while tax laws have failed to keep pace with tax-avoidance strategies made possible by a complex mix of corporate offshore accounts and global capital flows"

It would be more accurate to say that tax laws have failed to keep pace with tax avoidance strategies made possible by tax laws. MNCs don't operate in a vacuum. Every decision they make is informed by laws that were written by Congress and can be rewritten by Congress just as easily.

I'm very sympathetic to arguments that tax rates should be higher, but this quote places the blame on corporations, like "tax-avoidance strategies" exist independent of tax law.

Extremely naive question (not asking rhetorically - I really want to know): what is the point of taxing corporations?

Some thoughts on why I ask:

* given that they must disburse their income eventually in the form of dividends, salaries, payments to vendors, etc. this adds pointless complexity to the tax code

* if one eliminated corporate taxation, one could also eliminate the special (lower) tax rate on dividends and a whole rat's nest of loopholes

* it might help deflate the (IMO) dangerous idea of corporate personhood

what is the point of taxing corporations?

Well, then just tax the income of the employees and shareholders!

But what is the point of taxing income? After all, they have to spend that money sooner or later to buy things. So instead just have a sales tax!

And away we go: you can chase down a bunch of rabbit holes of "why tax this when sooner later people have to do that, you could just tax that instead!" and end up with cycles of taxing corporate profits, taxing incomes, taxing sales, taxing land...

The real issue is that the only reliable way we know of to maintain civilization is to have some sort of government. Whether you want it to be ultra-minimal or not actually makes no difference, since even a "contract and property-rights enforcement and nothing else" minimal government still needs some money to run, and can't just rely on random charitable donations. So it will sooner or later have to capture some percentage of the value generated by its presence in order to fund itself, and that means tax.

But the instant you tax one thing, people find a way to avoid it and do some other thing instead. So you tax the other thing, and then the thing they go to after that, and sooner or later you have to have at least a nominal tax on everything just to cover all the bases and make it impossible to (legally) completely avoid taxation. Which in turn means the question is not "why do we tax this", but "what is the correct balance of how much to tax this vs. how much to tax that vs. how much to tax that other thing, in order to achieve the revenue necessary to support the government we've decided to have".

Taxing land is actually a really good idea. You can't hide land from the tax man, and you can't decide to produce more or less land---so the taxes won't impact supply.

https://en.wikipedia.org/wiki/Georgism

"Economists since Adam Smith have observed that, unlike other taxes, a public levy on land value does not cause economic inefficiency. A land value tax is often said to have progressive tax effects, in that it is paid primarily by the wealthy (the landowners), and it cannot be passed on to tenants, workers, or users of land. Land value capture would reduce economic inequality, increase wages, remove incentives to misuse real estate, and reduce the vulnerability that economies face from credit and property bubbles."

And then when people start artificially building vertically rather than laterally in order to avoid paying taxes? Then you change your tax calculation to be based on square-footage of space-available, and then you're back to square one where 'taxes impact supply'.

No, you want them to build up.

Tax will be levied on the value / rental income of the unimproved land---not on a fixed charge per area. (There are some ways to use auctions to set these taxes automatically in an economically efficient way.)

See eg http://www.economist.com/blogs/economist-explains/2014/11/ec... or https://en.wikipedia.org/wiki/Land_value_tax

Very beloved by economists.

Or you could not tax them more, or at a lower rate that accounts for the sunshine they block out and the airspace they occupy. That would encourage the density that every wealthy technocrat is gagging for.

But what is the point of taxing income? After all, they have to spend that money sooner or later to buy things. So instead just have a sales tax!

Economists agree that a VAT is, indeed, the most efficient form of taxation (besides pigouvian taxes and maybe a land value tax).

The reason we don't do that is that a sales tax obviously hits people in proportion to the benefits they receive from society rather than in proportion to the value they create. If you tax corporations you can hide this fact from voters. "Don't blame we the politicians, blame the evil corporations for raising prices!"

> The reason we don't do that is that a sales tax obviously hits people in proportion to the benefits they receive from society

Really? I buy perhaps 2x what the average American and maybe 4x what the poorest Americans who are not on government support buy. I'm pretty sure that I get more than that ratio of benefit from a stable society.

Warren Buffett gets some massive multiple of the benefit than I get, but I doubt he pays more than 10x in sales tax what pay.

What benefit does Buffet gain? He lives in a normal sized house, maybe he has a driver and flies first class. How is that a massive multiple of what a software engineer (guessing at your profession) gets?

The poorest Americans probably benefit more than you from a stable society - the poor suffer the most from an unstable society. Wealthier people can usually pay for stability to some extent.

I have safety and peace that allows me to plan multiple years ahead, invest in property, take out a 30-year mortgage, buy securities, education (mine, my kids), or build a business and know that the world is (overwhelmingly, not perfectly) stable and predictable. I pay (dearly, IMO) for that stability already through my various taxes.

I believe that the rich (and upper middle class such as myself) benefit sub-linearly (but still positively) with income but since our required expenses are such a smaller fraction of our income than the working poor, that a sales tax is regressive in practice. (That's why many locales start to patch sales taxes by excluding non-prepared food, milk, clothing, etc. to make it somewhat less regressive.)

I'm not sure that a steeply progressive tax on income is "better", but surely a regressive tax structure is something that I'd prefer strongly to avoid.

Why is regressiveness (measured with respect to income) a bad thing?

As you note, high income people don't remotely consume everything they produce. What they don't consume is invested, increasing productivity in the future.

A progressive (w.r.t income) tax merely reduces investment (since high productivity folks have less to invest), and will be consumed if it is redistributed to lower productivity people. Why is a shift from investment to consumption considered a universally good thing? Could a situation arise when you'd favor a regressive tax structure in order to increase investment and reduce consumption?

It's quite strange for me to be arguing this side, as I generally favor a flat consumption/VAT tax, if I believed we could actually cut over to it without just increasing the overall tax financial and compliance burden by keeping today's system and ADDING a high rate VAT. I would also be willing to accept a zero-rate VAT on certain essentials, but wouldn't demand it.

The reason to oppose regressive income taxation IMO is the decreasing marginal utility of money. If you take the view that some amount of taxation is proper and necessary, the question that follows immediately is how to best raise that money. I'd prefer a flat consumption tax (with minimal, if any, exclusions), but if you can't switch wholesale to that system and instead you retain some amount of income-based taxation, that taxation ought not be regressive (IMO) because that double-credits the most advantaged members of society (decreasing marginal utility coupled with decreasing rate of taxation).

I'm also opposed to estate taxes, taxes on dividends and capital gains, etc, and all other forms of multi-level taxation. Ideally, tax the money once, tax it at a level rate for consumption, and minimize the compliance and collection costs and losses.

There's a good reason for income taxes, which is that you can tax richer people more, which is good. That's an argument for getting rid of sales tax and corporation tax.

Surprisingly, corporation tax prevents tax offshoring!

It's easy for a stockholder to avoid income tax by placing his stocks in a holding company registered overseas. By moving closer to the money's source -- i.e. corporate profits -- Uncle Sam has a better chance of getting his share.

Things didn't work out that way, of course, but the idea was a good one.

Another thought, if you eliminated corporate income tax, then those payments to vendors wouldn't be subject to tax either. The B2B market would be basically untaxed.

This is a huge win for the 1%, but would really suck for regular people who would have to take over their tax burden.

That's an interesting point. I wasn't thinking of the elimination of sales tax - would that cover it?

> Given that they must disburse their income eventually in the form of dividends, salaries, payments to vendors, etc.

Apple is just sitting on $300 billion (with a b!) dollars currently, and they are just one company.

If anything we should be taxing those war chests higher because sequestering that much money is bad for the economy as a whole.

Also, eliminating the corporate income tax would open up a gigantic loophole in tax law. People could simply incorporate into a single person corporation, then make sure the corporation makes all of their money and just happens to provide services that help the person (like buying food and shelter).

> Also, eliminating the corporate income tax would open up a gigantic loophole in tax law. People could simply incorporate into a single person corporation, then make sure the corporation makes all of their money and just happens to provide services that help the person (like buying food and shelter).

Given that corporate income tax is basically completely ineffective right now, I don't know why you think this would possibly be any harder to enforce against.

> If anything we should be taxing those war chests higher because sequestering that much money is bad for the economy as a whole.

If you eliminated the corporate income tax, this money would instantly be some combination of (a) disbursed in dividends (b) brought back into the US and spent on expansions or acquisitions or (c) spent on stock buybacks, which would then be captured as capital gains tax. There's no need to make this more complicated.

Thank you - that was sort of the source of my question as well. It seems that since the current complicated scheme has perversed incentives to make the corporate tax ineffectual, why not try to simplify.

I think (a) and (b) only lead to taxes if the stock holders are American. I have a lot of non resident alien friends who hold the same stock as I do and their tax rules for dividends and capital gains are very different, it isn't clear to me that they have to pay anything. Much of corporate war chests are spent on R&D abroad, which is necessary to garner favor in some countries. The money wouldn't necessarily flow back to the US even if it could unhindered.

People could simply incorporate into a single person corporation, then make sure the corporation makes all of their money and just happens to provide services that help the person (like buying food and shelter).

What's stopping people from doing that now? I'd love to incorporate and call my salary "revenue" and deduct all of my expenses from it. But I can't due to tax laws.

I don't think anything would change.

Apple or any other company is going to sit on that much cash if they don't have anything productive to do with it. I don't know how you would come up with a non-arbitrary threshold for taxing "war chests" and punishing companies (in the form of increased taxes) seems very perverse for what could be the most rational decision for a company to make.

If the US had a sane repatriation system and rates were not so low, Apple would have used overseas cash instead of issuing debt for recent buybacks and dividends. They will also likely use some of the cash to eventually buy back debt if it makes sense for them to repatriate.

There actually are laws that impose much higher tax rates on cash in "holding companies" but convincing the government that you might need that much cash is pretty easy.

> Apple is just sitting on $300 billion (with a b!) dollars currently, and they are just one company.

> If anything we should be taxing those war chests higher because sequestering that much money is bad for the economy as a whole.

Just to play devil's advocate, is there a chance they're sitting on it because they'd be taxed for using it to finance R&D, acquisitions, or for other uses?

And I think you really mean "beginning to tax those war chests", because I don't think corporate holdings continue to be taxed, post income-tax. Am I right that you're essentially advocating negative interest rates for corporate-held cash?

I think it's more because they just don't know what to do with it. Tax avoidance is an additional incentive, but probably not the main one.

I wasn't entirely serious about taxing corporate cash holdings, but as I think about this more may not be the worst idea in the world. Obviously you would set the bar high enough that the tax wouldn't kick in until the corporation went beyond reasonable (maybe at a billion dollars? Not too many corporations make capital investments larger than this do they? And even those would probably be financed for tax reasons.)

Make it more expensive to sit on excess cash than to actually use it. Punish complacency.

I would argue that activist stockholders are already on this case for their own self-interest: witness Icahn et al compelling Apple to give back some of their cash as additional dividends.

Wouldn't Apple have to repatriate the cash to the US in order to pay it out as dividends? (And thus pay both corporate income tax and dividend tax on it.)

In the current scheme of things, I believe Apple was able to pay the extra dividends using its income. The activist shareholders agitated for a bigger return to shareholders and Apple complied, as I understand it. I don't believe cash repatriation was required in this scenario. It seems that Apple was also "encouraged" to perform stock buybacks by these investors.

ref: http://learnbonds.com/124673/apple-inc-aapl-is-preparing-to-...

>"because sequestering that much money is bad for the economy as a whole."

What exactly do you mean they're 'sequestering' the money? Short of them keeping it hidden away in a locked vault somewhere, surely that money is being circulated through the economy in one form or another.

>If anything we should be taxing those war chests higher because sequestering that much money is bad for the economy as a whole.

That's what inflation is for. If you think saving is bad, make inflation go up and saving will decrease.

That is a fair point. I guess since one can't count on a corporation to spend a significant portion of its income every year, the corporate tax provides a mechanism to pull some money out of their income instead of waiting for their expenses to trickle down to the economy.

i'm guessing it's invested or deposited in a bank, and banks loan money out against their deposits, so still productively used.

In kind personal income is already taxable.

Most obvious reason is that corporations are taxed to fund the government. Beyond that, if they weren't tax, you could just build a massive corporation, never take any cash out, and use it to make smaller businesses more profitable.

I've always presumed that the point is to encourage the company to spend money and get cash recirculating through the economy, which of course you can further tax through the VAT system, PAYE system, etc.

What is the point of taxing an individual, given that they must also disburse their income eventually?

given that they must disburse their income eventually

Must they?

EDIT: snipped confusing comment mixing expenses with income - by disbursements, I meant dividends. They don't all disburse all of their income every year, it is true. I guess it is a pretty strong reason to tax their incomes perhaps, i.e. to get a share of their income instead of waiting for the trickle down?

Idea: everyone gets free meals at work (not a taxable benefit!), use of company cars, generous travel budgets (not a taxable benefit!), etc. So suddenly your compensation has increased quite a bit, but your personal income tax bill is the same. Now instead of the IRS chasing tax-inverters and shell corporations, now they have to go through every worker's books to try and guess what kind of benefits are taxable or not. (OK sure, the corporation will still pay goods and services taxes on those benefits it provides for its employees... hopefully.)

That's one possible argument against not taxing corporations. It could be even more expensive to enforce taxable benefits rules if there were no corporation taxes. I think I read somewhere that C-level managers in South Korean corporations have _very_ modest salaries but get many benefits like these that aren't (currently) taxable.

Eh, if a company is abusing the tax code to provide a ton of perks for its employees I would have a harder time complaining about it, at least when compared to the company abusing the tax code to keep billions of dollars locked up in vaults overseas doing nothing.

so switch to the simpler paye system as used in the UK employers have to say how much benefit in kind they give to emploeeys every year in the p60 form makes taxing it simple

@kspaans true, but that food is being purchased from vendors to provide them taxable income. My thought was that this doesn't seem like a turtles-all-the-way-down problem - ultimately someone gets some money whether in the form of salaries or dividends and they pay taxes on it.

It's not that simple. Corporation tax is levied based on profits, and for good reason - taxing corporations based on pure income would penalize low-margin, non-vertically-integrated businesses for no good reason. But there's all kinds of tricks that multinational businesses can play with their expenses to make it seem like they haven't made a profit in the US and it's difficult to outlaw and disentangle all of them.

No one really responded on why corporation should be taxed on profits at all. In the end if profits are distributed, these will be taxes as ordinary or capital income anyway. And "stashing" is not a problem, if anything, "stashing" makes everybody a bit richer, since chunk of money is essentially temporarily destroyed.

It would be more accurate to say that tax laws have NOT failed, because mostly designed by lobbyist, they had loopholes built in by design.

Easiest examples are lobbyist from TurboTax team making sure taxes are complicated so you actually pay for TT services.

https://www.propublica.org/article/how-the-maker-of-turbotax...

No, the US has not kept pace with the rest of the world with regards to setting reasonable tax rates and how profits made it other markets are treated. That is why companies move to incorporate elsewhere and laws be damned many will do so.

The US is in danger because other economies are growing in s size and it won't be long before being based elsewhere just makes sense not only because of taxation but because of local sales.

Instead we have vindictive politicians who wonder why they are reviled many times over. Here's a hint, what they are willing to do to punish a company is a clear indication they respect nothing and no one and will and do use the law to punish those they don't like

look up IRS APA

tl;dr most tax avoidance schemes get the blessing of the IRS (and the other foreign tax authorities) before they are attempted. It also costs money. lol.

Tax rates should be higher? Higher tax rates are what incentivize avoidance. Look at Apple $200 billion in offshore cash. The US wants to tax that at 35%. Lower the rate to 10% and the government collects $20 billion. Keep it at 35% and the government collects zero.

If the world taxes consumption instead of income, tax avoidance would disappear. I am tired of people who didn't earn the money thinking that the government has a right to it. Government is too big, taxes are too high, entitlements are ridiculous. When did it become the role of government to provide pensions and health care? Why shouldn't that be solely private sector? Should the government give us food and clothing as well? It's ridiculous. Helping the truly poor is one thing, but becoming a cradle-to-grave nanny goes against the very concept of freedom. Americans work from Jan 1 to April 24 just to pay for government. We spend more on taxes than food, clothing and housing -- combined. And people want higher taxes? How about controlling spending first, then we can talk about a credit limit increase.

Moderately curious: do you really believe that there is a tax rate greater than 0% that would prevent corporate tax avoidance? I mean, at 10% why wouldn't someone just make the argument that it should be 5% instead?

For me as a very small business owner the threshold is at about 15%.

Protecting tax revenue is not an answer. Accountants can move faster than lawmakers, and lawmakers may or may not prioritize this kind of a thing at any point in time.

The solution is to encourage and foster economic growth. The outliers like Apple with large cash reserves being held offshore should be dealt with individually. (Not calling them out, it's just that they are well known for it) You don't penalize them for being smart with their money, you simply incentivize them to use the money in-country.

The news this election cycle seems to be a flurry of anti-1%/anti-corporate propoganda. There seems to be a feeling of take-take-take from these entities that took-took-took from us. That mindset simply does not work long term. Without real economic growth tax revenue is a finite and dwindling resource.

Two things: Making companies pay their legally required tax bill is not 'taking'. It's just making them follow the spirit of the law. Secondly, accountants can only move faster than the law if there are loopholes - if you close those loopholes it does in fact get harder and harder for them to move around them, and it does in fact bring in more tax revenue. If it didn't, they wouldn't lobby against it.

All that being said, the corporate income tax doesn't make a whole lot of sense in the first place and we should probably get rid of it and replace it with a more economically sound revenue stream. However, as long as the law is on the books, it ought to be enforced, and even moreso ought to be enforced fairly for large corporations and small.

Two responses:

If there was a flat tax of some sort, you might be able to say "pay their legally required tax bill" in this conversation, but considering that tax dues are the result of a formula derived from a set of laws that span multiple volumes, what is actually due is almost always subject to debate. It's not like paying $3.48 for a gallon of milk.

Second, there are always loopholes. Unless you have a vastly simplified system the way you operate your companies' financials will always have a system where there are advantageous ways to structure finances where taxes are concerned. Moving money offshore is always a possibility. You can't force money to stay in the U.S. You can create an environment such that it's the most desirable place to keep it.

While there are certainly squabbles to be had around the edges, there are also clearcut cases where companies ought to be paying more. There are definitely gray areas, and those should be dealt with in a nuanced way. But many of these things are clearly exploitative.

To your second response - your argument is akin to saying "there will always be security vulnerabilities, so why care about security?". Just because it will always be possible to evade taxes, doesn't mean we should give up and make it easy.

Corporate income tax makes a lot of sense unless you want to see all productive assets end up in a corporate shell and untaxed.

The solution is to pass a credit for the tax paid down to the shareholders which they can use against their own tax bill. We have this here in Australia (it is called Franking credits). I pay 30% tax on the profit of my company and when I pay a dividend to myself I also pass on franking credits for the tax paid on this profit which reduces my tax bill. This way income is only tax once not twice.

Ya, that is a real problem with just eliminating it. I think there are probably ways of working around that problem, but they may be messy.

I don't think just giving shareholders a credit is sufficient though. Fundamentally the problem with the corporate income tax is that it takes away productive capital from companies - capital they could be using to hire more people, invest in R&D, etc.

The reason we have a corporate income tax is that people think corporations = wealthy, and they want to tax the wealthy more. This is a fine goal, but it'd be better served by doing just that: taxing the wealthy more, rather than taking what would have been productive capital away from private enterprises.

The problem is if you don’t get the corporate and personal income taxes approximately equal is you end up with people basically running everything through a company. The nice thing about franking credits is they work like a LLC in making corporate income tax a pass-through structure to the shareholders.

At the moment US companies don’t seem to be constrained by lack of capital, more a lack of profitable investment opportunities due to weak consumer demand. I ams sure making the 0.01% richer will help solve this.

> Making companies pay their legally required tax bill is not 'taking'. It's just making them follow the spirit of the law.

They are following the law though. It's the law that allows this. If you create more laws that disencentive the behavior people will just find more loopholes.

spirit of the law is meaningless here. Generally we don't consider anything illegal unless it is actually illegal. Are you following the spirit of the tax law when you itemize your deductions and get a nice tax break?

I wasn't making a moral argument about the companies themselves. They are following the law, and that's fine. But the authors of the law did not intend for things like corporate inversions to be used to avoid tax bills.

Again, this is not a moral judgment of the company. It's simply a flawed law. The law was poorly written and these companies have exploited that. That's ok, but we should fix the law.

Exactly! There is no "spirit" of the law. You don't give someone a speeding ticket for going 25 in a 25 because the spirit of the law is that they should be going slow.

Ah, "spirit of the law". A favorite of the authoritarian (unless, of course, we are talking constitutional law).

At what point do taxes become "taking"? Do they ever? I mean, why isn't the forceful confiscation of someones labor/result of labor considered "taking"? Just because in this one instance we change the definition? Seriously never understood this...

Well, i'm starting from the premise that governments have the right to levy taxes. If you'd like to argue that point we can do so, but that is not particularly relevant to this discussion.

Nitpick: Governments don't have "the right" to do anything. We the people consent to grant them abilities. I think reasonable taxation is a perfectly legitimate function of government -- not many would argue that. However, we are light years away from reasonable taxation. I'm a year out of school and already I work over 6 months of the year to pay taxes... But, I digress...

The law is the law. This notion that "the spirit of the law" is king is incredibly dangerous. Next level dangerous.

Have you ever seen the tax code printed out? To argue that you should "just close the loopholes" is absurd.

Also, the notion that if companies keep more of their earning then tax revenue will fall is a huge fallacy. If you over tax, tax revenue will fall. It's a proven fact, all over the world.

The answer is to simplify the tax code. Create economic certainty (from a tax liability standpoint) and the economy, as well as tax revenue, will surge.

I don't disagree with any of that. I wasn't arguing that the spirit of the law should be enforced despite it not being written, I was arguing that the law should be rewritten to better conform to its spirit. And I agree that probably the best way of accomplishing that is to simplify the tax code. You'll get no argument from me there.

Fair enough, sounds like we agree. Sorry for sounding combative; I get a little touchy about this stuff :) Have a good one internet stranger!

The spirit of the law is much different than the actual law. What these companies are doing isn't illegal.

Closing these loopholes may bring in some more revenue in the short-term, but if it no longer makes sense financially, they will just move their HQ to another country completly.

Ya I don't necessarily disagree. I think the economics should be considered. But I think we should fix the law so that it operates as intended, and/or re-evaluate the original intent in light of economic realities. What we should not do is say "hey wait, this bug is actually a feature, if we fix it, these companies will leave". That seems silly to me.

This argument holds less and less water each year, what with Apple, Facebook and Google and company all sitting on an amount of wealth so insane that even they barely know how much money they actually have and with the middle class nearing extinction.

At some point the corporate overlords are going to have to acknowledge that in order to maintain their positions, they're going to have to let some of the other people have some of the money, if for no other reason than so they can spend it. I don't hate the rich at all, I think they're acting rationally in a poorly designed system that incentivizes them to hoard more and more while the rest of us fight for the scraps, but that system can only go on so long.

I'd love to have a debate with you offline about this. I think I've already gotten a little more political than appropriate for this community, and if not my response to this most certainly would be.

I will only say that if you are tired of fighting for scraps - change your perspective, work your ass off, and earn yourself a bigger slice of pie. This is the United States of America. Everything is possible.

I won't get into the politics further, but can I say it's amazing to me that Internet Economists always assume that the people complaining about the lack of economic opportunity in the U.S. both A) are not working hard enough to deserve it and B) are unhappy with their current economic state.

For the record, I'm perfectly happy. I'd obviously enjoy a raise, but I don't need it, I have food on my table and an excellent lifestyle. The fact that I can appreciate that while saying, hey, maybe we should spread the prosperity around a little are not mutually exclusive and should be doable by any human being with empathy.

Preposterous. It might work for you, and it might even work for FuzzyZeus, but it's quite clearly impossible for everyone to "earn" themselves a bigger piece of pie.

I have worked pretty damn hard to get where I am, but it occurs to me more and more that there's no good explanation that in a country as wealthy as ours that you need to work yourself to the bone just to get a moderately good lifestyle. And then we brag about the fact that we worked 2 jobs through college or whatever like it's some kind of badge of honor to be a voluntary slave for a few years.

I'm not saying a Cadillac in every driveway, and there should definitely be reward for those willing to put in the extra hours and what have you, but you shouldn't need to put in extra hours just to claw your way to what would be considered a basic American lifestyle. I think that's silly.

>Apple with large cash reserves being held offshore should be dealt with individually.

What evidence is there that the money Apple holds offshore was generated 'onshore'?

If it is the case that funds that Apple holds offshore were generated offshore, it's unreasonable that an entity should pay taxes on it. How much income tax do you pay to countries you don't live in?

> How much income tax do you pay to countries you don't live in?

If you're a U.S. citizen living and working abroad, but spend 35 or more days in the U.S. in a given year, then the answer is - the same amount as if you lived and worked in the U.S. full-time.

"If you’ve never lived abroad for an extended period of time, you probably don’t know the United States requires its citizens to continue to pay taxes back home. You are required to file taxes on foreign income even if you pay taxes in the host countries."[0]

[0]https://turbotax.intuit.com/tax-tools/tax-tips/General-Tax-T...

An interesting tangent that I expected someone to bring up but not applicable to the scenario I illustrated: > How much income tax do you pay to _countries you don't live in?_

That's my point... if you're a U.S. citizen, even if you don't live in the U.S., you still pay U.S. income tax.

Edited to say, I agree with your larger point though. This situation is ridiculous, and income earned outside the U.S. should not be taxed by the U.S. gov't. in my opinion.

None but anecdotal. I only used them as an example because they are frequently used as one, it was not any form of indictment.

Bingo. This populist/protectionist agenda on both sides of the isle is incredibly troubling. Turns out it's also an incredibly effective way to drum up support.

The president "retro-actively" changing tax code does nothing but create uncertainty.

People shop around to get the best deal, especially on large or ongoing expenses.

Corporations shop around to get the best incorporation deal, which includes taxes, knobs on taxes, import/export regulations, legal climate, etc.

If X shops around and finds a legal means of getting what they need cheaper, they go for it, whether X is a person or a company.

Both at the personal and corporate level, the more financially well-off you are, the wider your shopping reach is. For somebody making $30k/year, a couple of percent difference in exchange for upheaving your life isn't going to be worth it. But for some entity making $300M/year, a couple of percent is a lot of money, and it's worth seeing what they can do to shave those points off their taxes. People with a lot of money also have much more mobility to move to a lower tax area of their choosing, and still travel where they want.

So in the comparison to shopping around, you really can't fault this type of corporate action, until they actually go illegal. You need to deal with the incentive structure these people & companies are looking at from their perspective if you want their money to stay in your jurisdiction.

> So in the comparison to shopping around, you really can't fault this type of corporate action, until they actually go illegal.

Watch me.

There are many times when people have incentives to take actions that harm those around them, and yet somehow a lot of us manage to act ethically.

There are plenty of behaviors that are legal but unethical. I could, for example, cheat on my significant other. There are some strong biological incentives to do so. But nobody would say, "you can't fault him for cheating on his SO until he actually goes illegal". Laws exist to disincentivize the extremes of unethical behavior. When you consider that the rich have an inordinate influence over what laws are passed, it becomes clear that often behaviors which are unethical enough to be illegal remain legal because the rich benefit from them.

The people exposed by the Panama Papers knew they weren't behaving ethically, otherwise they wouldn't have gone to such lengths to hide their actions. I have no qualms about faulting them for their actions.

In business, "I was just following incentives" is the new "I was just following orders". They're teaching this to business students in college, that the only responsibility a company has is to its shareholders. Any person or corporation with this ideology is effectively a sociopath, and society should treat such corporations the same way we treat known sociopaths.

I agree with you that we should disincentivize this kind of tax evasion, but any disincentive that assumes that there is no fault for following incentives will simply plug one leak: the rich and corporations will simply find another way to be avoid contributing to society. If you really believe that incentives are the problem then we need to create a real disincentive: jail time for persons and seizure of assets for corporations.

Finding a deal on taxes is a completely different realm than surreptitiously dumping toxic waste, or whatever else "harm those around them" and "just following orders" tends to imply. The reductio ad absurdum doesn't really mesh here. I agree with the sociopathic judgment of people using such excuses to be predators against society. But we're simply talking about Place A offering a better financial package than Place B.

Tax codes are insanely complex, and there's a bajillion ways to look at them and apply them. Tax breaks are typically done for the government to incentivize people & businesses to engage in behavior, and tax hikes are typically done to dissuade behavior, without specifically outlawing things. The sum total of these is a big mess in which if a few percent matters to you, you can research and optimize. Given how the tax code comes into being, that is exactly the spirit of the law.

> the rich and corporations will simply find another way to be avoid contributing to society

This is a moot and frankly prejudiced point. People & organizations with more wealth & power have greater flexibility and mobility, regardless of the system they're in.

> But we're simply talking about Place A offering a better financial package than Place B.

That's such a massive oversimplification of the truth that it no longer resembles the truth.

Place B is the place where these people grew up, learned, and became wealthy and powerful. They used the resources of place B to get to where they are. You don't see the many of the wealthy starting off in obscure islands with permissive tax codes. But suddenly when it's time to pay for all the resources they have used, they're shopping around? Give me a break.

What you're proposing is equivalent to me going and stealing the shiny new Porsche I always wanted, then claiming it's okay because I shopped around and found a deal on an old Pinto at the local junkyard. I pay the junkman, I get my Porsche, and we're even, right? The only difference here is that I'm not rich or powerful enough to make that legal.

> This is a moot and frankly prejudiced point. People & organizations with more wealth & power have greater flexibility and mobility, regardless of the system they're in.

"Prejudice" means I've judged them before having any real information about them.

The Panama Papers are far from the first indication that the rich leech off society and don't pay their fair share, but they sure are the most damning and specific. How much evidence so you need before you're willing to admit that I'm being judicial and not just prejudicial?

The moral of this story is to incorporate in Singapore or Estonia. Since the US won't let you leave it's better never to enter.

At what level does this make sense for the HN case of two college grads founding a startup in California? No US lawyer specialising in paperwork for small businesses would tell you "never mind Delaware, you should go offshore!" So what are the short term benefits of being incorporated in the US?

While there are benefits of eager investors, stable (enough) infrastructure, low personal tax rates, etc in the US, in this context it's more that the costs of being in the US are pretty negligible when you're small. There's fixed overheads and lots of additional unfamiliarities in figuring out offshore and multinational business that don't make sense when you're a small startup focusing on developing your product and sales chain.

Once you get large, though, the tax differences can start becoming the size of entire departmental budgets.

If you want to make the tax law more robust then we must make it simpler. Every new law just creates a new vector for loopholes. Anyone that has filled out something more complicated than a 1040ez knows that the current state of things is very broken and the complication is a serious advantage to wealthy corporations with tax lawyers.

Make it simple and accessible. Stop carving out special exceptions into every nook and cranny. And for God's sake stop creating more laws that further complicate it.

Complication is a feature not a bug. You can't solve this until you solve the reason why the complication occurred in the first place (politicians need for cash). Any simplification of the tax law will just slide back to the current mess as each lobby group buys the loopholes they want. If you want to fix the tax system you need to fix the political system's need for cash.

One of the more interesting things about this US election season is that the population is starting to get this. I think the US Supreme Court were rather clever ruling that injecting unlimited cash into the political system was Ok as it has accelerated this process of voter education.

The significant problems we have cannot be solved at the same level of thinking with which we created them.

1. Impose tax on corporate revenues, not profits

2. Regulate market capitalization of corporations

> 1. Impose tax on corporate revenues, not profits

Problem with that is that it encourages needless integration. If you tax revenues, a company and its supplier will basically pay twice as much tax as when they merge.

Or do you have a clever idea to solve this?

(Value Added Tax's structure does solve this problem to some extent.)

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