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Comment by charlesdm | Hacker News Reader

Because there is no point in being frugal if you have to pay significant corporate tax. And it helped expand "the empire" he was building, because he could reinvest everything.

He most likely hated wasting money, whether that was on excessive expenses or taxes -- it makes no difference. The money is gone either way.

I have a friend whose grandfather built quite a large retail business (in the billions). He said his grandfather was the same, including the tax avoidance. Grew up poor, made it, and hated wasting money.

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> Because there is no point in being frugal if you have to pay significant corporate tax. And it helped expand "the empire" he was building, because he could reinvest everything.

Only profits are taxed, not sales. So if you "reinvest everything" you are not going to pay taxes.

You can hire more people, buy other companies, rent more equipment, etc. The net result is that the company grows but has no profits. It doesn't work if it buys real-estate, for example, as that increases the company value and the owner then needs to pay for the increase of the value of the company. But then it's on the share value increase, and not in profits.

High taxes can incentive grow as spending money to grow it's less costly than to capitalize profits. That's why lowering taxes is seen as an opportunity to withdraw money and reduce investment.

Sure, but you might not want to reinvest everything today, or within the same tax year, or perhaps you can't tax depreciate an entire property in the same year, etc. Acquisitions of stock (i.e. when acquiring competitors) can't also generally be offset against corporate tax.

There will always be some 'leakage' and taxes to be paid. Non-profits are generally exempt from all corporate taxes. If you don't care about putting profits in your pocket, they tend to be very tax efficient.

In the case of Ikea, a royalty on all sales (for use of the brand name) is paid to a low taxed for-profit entity. That's how he made his money. The larger the empire, the more royalties he gets, so the structure does make some sense. Not as perfect as running a pure for-profit entity, but probably one of the most tax efficient.

If you're paying significant corporate tax isn't being frugal even more important?

Flip the situation: a) I can be frugal and pay corporate tax; or b) I can be frugal and pay no corporate tax. He picked option b.. which is fine.

You don't start a business from the notion of funding the state.

But you said there's no point in being frugal if you are paying significant corporate tax. If you have a heavy tax burden surely it is important to allocate your remaining resources frugally?

I'm saying option a is better than option c) spend wastefully because you pay high taxes.

Your comment seemed to advocate for this third option.

I now understand your meaning to be "paying high taxes is not frugal" which I disagree with for other reasons. Specifically paying unnecessary taxes would not be frugal but a company can still be frugal and pay high tax rates. To put it another way I do not believe tax avoidance is a frugal necessity.

Perhaps I phrased it wrong -- I believe, if you are a person who is extremely frugal, you will also automatically want to reduce your tax liability. Because at the end of the day the result is the same: an expense means money leaves the business, taxes mean that money leaves the business.

It's not necessary.. but probably a personally trait of frugal people. You reduce expenses.

You're absolutely right however that high taxes tend to incentivise reinvestment (so you can tax deduct). But too high taxes also deter entrepreneurship to some extent, because past a certain point a lot of people will feel they're working more for the state than for themselves.

Sure but you can reduce your tax liability to the maximum extent of the law and still pay high tax rates. This is still frugal.

I don't disagree with your second paragraph but I don't see how it relates to frugality.

Yes, of course. But only if the law says you have to; that's what legal avoidance is all about.

If you legally find a way to reduce your liability to zero (i.e. like Kamprad did), then you're also being frugal? This obviously might not be entirely ethical, but it's extremely frugal. :)

It's not wasting money - his business benefited from having an educated, healthy, safe workforce; from having roads to deliver products and customers to stores; and from a justice system to enforce laws and protect all of that property. He was just greedy and didn't want to pay his fair share.

Looks like he clearly didn't believe that was worthy of paying the taxes he would be paying.

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