This makes for a more productive economy overall.
I.e. the higher the tax rates, the more contortions people will engage in to avoid those taxes, and economic prosperity will correspondingly suffer.
People will not move their money back if you halve the taxes on them because zero will always be 100% lower than whatever tax is currently in the US. Some poor country will always suck that up for a one time charge in order to get foreign money. The money which has left the US will never return, because it will never make financial sense.
These aren't complicated transactions anymore, your investment firm will do it for you as a service. They've already found all the legal "loopholes" and have back ups in place for when they're shut down, because that's another way to increase their profits. The simplistic "if you cut taxes it will happen less" concept just breaks when it's effortless, cheap, and will be more profitable the moment you have over X dollars (where X is constantly going down).
How many billion dollars is Apple keeping out of the US for the sole reason of avoiding paying tax on it?
There is no point in paying tax on offshore money if they will immediately then spend it outside the US. There is no benefit to bringing the money onshore so why on earth would they do so?
Some people seem to assume that it's natural to build a phone in China, sell it in Italy, and then move the profit to the US and pay tax there. That assumption isn't good. There has to be a point to moving the money to the US.
It's not an exclusively US problem, it's a problem for any country in which Apple sells goods and services that has higher taxation rates than the lowest in the world.
I'm picking on Apple singularly here, but they're just a high-profile example of the many globe-spanning companies performing these tax 'minimization' (let's not get all slandery) acrobatics.
Designed in California. (4% tax paid in Ireland)
There are several kinds of taxes. Some are due at the time of something is sold, typically called VAT. Are you suggesting that Apple pays 4% tax in Ireland instead of paying the usual US VAT? I think not.
Some taxes are due later, when a company decides to have a profit. That can be the same year, but it doesn't have to be. It's entirely legal to save some or all of this year's income to spend on a planned investment in three years' time. If you want to build a new factory, or acquire some startups, you can put aside money from this years's income, and that happens with before-tax money. (The general principle is that if the owners are willing to defer their dividends, then the taxman defers the tax.) I know Apple has been doing that, keeping enormous sum of money in case it wants to acquire companies.
Are you suggesting that US companies shouldn't be permitted to save money for future investments? Or are you suggesting that foreign daughters of US holding companies shouldn't be permitted to save money for future investments? Or that the sums they save should have some sort of limit, e.g. "no more than x months' turnover"?
The point is, you are a US company, benefiting from US infrastructure, US diplomacy, US market, US government spending, even subsidies and tax cut rates, and so on -- so bring the money there -- but that's too much to consider for today's elites... The fact that you already took the jobs out (making the phone in China) just increased your margins on those revenues...
So, the point is, I dunno, corporate social responsibility?
Because it's an American company?
Similarly, I'm all for Huawei and Lenovo paying taxes in China.
That's because you have a job as it currently stands. If your job (and especially your whole sector) had gone abroad, you'd find the outsourcing PLUS tax evasion revolting. And as you'd be scrapping to pay the rent you'd wouldn't find particularly comforting that some consumer goods would be cheaper make this way...
That said, who said anything about the people "who work in the factories"? Strawman much?
The tax Apple saves from not paying it to the US isn't going to those "schmucks" (sic), so whether those people should be paid more (which I'm all for) is orthogonal to whether Apple should pay more taxes in the US instead of looking for legal loopholes
Let's see companies keep their "corporate social responsibility" to their own societies and countries first -- which they don't --, and we can talk about them "improving the world" at large afterwards...
I'm not sure what your point is in asking that question.
Primarily, the answer is "out of reach of the US Government".
If the profits from investments available in some poor country is less than the profits in taking the money back - taxes then it does make sense to bring it back.
I find it hard to believe in the age of tracking that we live in now that banks and consumer transactions that it wouldn't be hard to implement proper tax evasion tracking across borders. This is purely an issue of there being no political will to do this.
It would be even easier to just cut off the tax havens from the global economy - make it illegal for banks to conduct transactions with those banks / branches located in those havens, strand those assets from the global economy destroying the value of those bank accounts.
Though as C. Northcote Parkinson wrote, the higher the tax rates, the more people will engage in tax evasion. If it's high enough, it'll become the national sport.
If we were thinking about it in a way that "you're not one of the players, but the designer of the game," and you want the game to be sustainable and reputable, I believe the answer would not just that simple.
That is a game, I enjoy flaunting wealth over people and using my ungodly strong power I've worked hard for to stomp on people in a game.
But I don't want to live on a monopoly board, or squash people into oblivion in real life. Games are quite often about direct competition.
While there is some argument for making sure not to kill the motivation of hard workers due to equalising society too far, I don't think the US is close to that level, and the scale is far, far in the other direction.
Also, forcibly taking isn't correct, it's a progressive tax on income not a raid.
I don't think this analogy works for a meaningful conversation.
My point is individual player tends to complain how the game sucks from his standpoint without second-thought about the consequences to others, to the system, or even to themselves in the long run. I am more concerned about the non-leaner responses from changing the incentive structure. For instance, what would it turn out if, let's say, a gaming event where 90% of your income (EXP, game money, skill points, etc.) would be redistributed to others in the period of that event? Would anyone get excited about it? or people would say, "we gonna work on other things and wait for the freeriding," which is the most rational, economical decision for personal resource management. I would expect that every player of the game would spend more time with their family and we see drastically decreased MAU of the game as a result.
Perhaps because I tend to think of policy in terms of overall implication rather than from my own standpoint.
The type of thinking the parent poster spoke of, where you are "not the player, but the operator" is a fundamentally different type of thinking. It's much closer in fact to the desired mindset of an actual statesman.
Your goal isn't (or shouldn't) be to maximize the fortune you (as the operator) or you as the player after having made your changes as an operator reap, but to put in place a fair and equitable mechanism through which the collective needs of the populace (even when the populace is at odds with itself through stalemate or least harmful actiom) are served in a sustainable and resource efficient manner.
If people abuse tax exemptions and deductions, it makes sense to ask why those exemptions and deductions exist. But it doesn’t make sense to me to demonize the taxpayers. Especially since I doubt many celebrities (Bloomberg’s target) actually make any of these tax decisions on their own. They hire accountants to worry about that while the celebrities show their concern and political bona fides in public.
That plus financialization of everything has short-circuited part of the money treadmill. Too much is circulating at the top with too little at the bottom, where most spending is done.
Businesses need more customers with more money in their pockets, not more tax cuts.
Maybe negative rate is a better solution than wealth tax.
The idea is to force people to let go of their long term saving goals and spend now, because saving will make you lose money, thus making the economy grow.
It doesn’t seem to work as predicted though (countries doing that aren’t growing). Furthermore, people with access to other types of investment will just switch instead of spending their money.
In the end I believe this works as a sort of stealth taxation that affects poor people the most, because they don’t have access/knowledge/risk tolerance to more sophisticated forms of investment.
What you run into though, is an action economy problem. How do I spend potential billions in a way that it isn't just getting tied up in overly constrictive savings schemes?
I.e. how do I get people paid so they can buy? This is the paradox of chasing growth. A company that pays it's workers enough to allow them to consume to increase overall market health won't be the fastest grower, but enables market growth as a whole.
The economy doesn't need bubbles. It needs stable growth. Like baking bread. Not enough sugar or water, and the yeast can't make the bread rise.
Too much capital, funneled through businesses optimizing for max on paper growth at the expense of workers spending power is the same as starving that yeast, since it's the spending power being exercised which fuels company revenues.
The economy is rapidly approaching a sort of hostage taking situation. Capital holders want yield, but businesses want more capital, but can't deliver it because they're sacrificing their employees spending power to fuel their growth numbers on paper.
If current trends continue to the extremes, labor simply won't find employment worthwhile. Automation has staved off the rate of collapse of, but in the long run, it can't replace everyone else and won't magically restabilize the system.
Citation needed. E.g. Ireland has only a 10% corporate tax rate, but we still see corporations headquartered there engaging in contortions to avoid paying even that much.
I would rather suspect the kind of person who avoids a 70% tax also avoids a 50% tax or a 30% tax, and vice versa.
But you're comparing corporate and individual income tax.
https://www.worldatlas.com/articles/countries-without-income...
Somehow how we don't apply the same logic to other things that we laws for, but that we can bypass (either because its difficult to catch us or because we only violate the spirit of the law).
E.g. "I absolutely think that people should continue to throw waste to the countryside if they can be sure nobody's watching and they wont be caught.".
Throwing waste in the countryside is both legally and morally indefensible. Lowering one's taxable income using legal means is neither.
Or the law is ok, and bypassing it with scheming is "morally indefensible", even if the schemes are legal.
You're using the word "bypass" as though it means to break the law. He's using it to mean that he's following the law strictly in order to pay less taxes. Those two interpretations are not compatible.
Assuming a law is morally correct, trying to find loopholes to legally bypass its spirit, makes you a jerk.
Taxes are a highly complex system with thousands of rules on what is taxable and what is not, what income must be declared, what deductions are allowed, what investments count as pre-tax and what investments count as post-tax, etc etc etc.
It's not "pay your tax", it's "follow a massive set of regulations that determine what taxes you owe and then pay those taxes".
I assume you fill out your forms and take deductions that are appropriate as allowed by the law, right? If you do, you're violating the "spirit of the law" as you've stated it -- but no one believes that because it's a ridiculous position to take.
I have a tax-advantaged pension, tax-advantaged life insurance, and commute on a tax-advantaged bicycle. I believe all those things are in the spirit of my country's tax law - isn't the whole purpose of tax breaks on pension contributions to encourage people like me to put more money into their pensions?
Similarly I have no idea what the spirit of a rule giving capital gains different tax treatment from regular income could be, if it isn't to encourage people to form companies and take dividend payments instead of getting paid normally. Why on earth that's something Congress would want to encourage, I can't imagine, but presumably they passed that law for a reason.
To the rest-- yes, that's how I see it as well.
(and maybe not even then - from the decreasing marginal utility of money, the "suffering" per dollar is much lower for the rich vs receivers of tax funded social benefits)
We got skyrocketing wealth inequality leading to a near breakdown of the political and social order 30 years later.
That’s a pretty direct mechanism of action, not sure what else you need. However if you’re genuinely seeking answers there’s plenty of data on how regressive policies have led to increased inequality, it’s not a secret.
As for validating the second part I recommend turning on your television.
> Therefore, lowering taxes on the rich causes “skyrocketing inequality”.
Did I get your argument right? Seems to be missing a premise or two.
Sadly, the American government now works on a revised version of (2), i.e.: It is a proper role of wealth to put unreasonable limits on the power of government.
Or when it forcibly relocated people to reservations across the country?
Or when it put people into concentration camps because of a war we were fighting at the time?
Limits on (i.e. near elimination of) enforcement of anti-trust laws.
Limits on limiting the power of money in politics.
Limits on enforcement of civil rights laws.
Removal of limits on ownership of broadcast station licenses and cross-ownership of broadcast station licenses and local monopoly newspapers.
Limits on the availability of justice to the non-wealthy because of the high cost of participating in almost any application of the law.
Limits on the ability of those not on the contributors' list to get a meeting with their congressperson.
For example, recently the government decided it had the power to force me to buy health insurance from the only provider in the county. That went to the Supreme Court, who decided sure, ok.
A large increase in surveillance powers happened after 9-11.
A more historical increase in power was the government deciding it has the power to tell me what I could and could not voluntarily ingest.
Do you know that the US government did not originally have the power to print money, levy income taxes, or engage in civil asset forfeiture by accusing your property of committing a crime?
And on and on.
Note that I'm not commenting on whether these powers are good or bad. But they definitely are powers that have accrued to the government since the US was founded.
What I think you meant to say is that the government decided to impose a tax on you if you decide not to.
When the government forces you to do something, you’ll know.
At root, of course, the entire argument comes down to taxes, and people’s desire not to pay them, but still wanting a stable and orderly society with a strong functional government.
Same as it ever was.
9/11 resulted in fewer rights for you and me, but it didn't take anything away from Bayer. On the other hand, antitrust regulations have been slowly eroded for decades.
I can speak only for America, but that premise does not appear anywhere in our Constitution.
Rich are not dumb, they will not just sit and watch some state eat their wealth and getting nothing tangible back, in contrary. I know I would too, if for nothing else then my future kids and their kids.
Maybe we can herd them up and drop them in Somalia so they can get familiar with some of the tangible benefits of a stable society with a well funded and functional government.
When I meant tangible returns, it is in vein of giving say 4 millions $$ to the state and seeing nothing actually coming back in form of better roads, schools and hospitals or anything else in the area they live. The money just disappears in bottomless bit called state budget, where corrupt officials take a cut or two, then it gets paid either in salaries of state employees (which many view as ineffective bureaucrats) or in messed up overpriced contract work to maintain/improve, of course only to overly friendly companies.
It is a bit of a caricature of functional western society but so is some evil uncle Scrooge, reality looks a bit differently. The more we move towards this caricature the more real the culprits on both sides will be, including types you like yourself to pose in.
I recommend visiting Copenhagen, it's amazing. I've seen dozens of people in this thread explain why that type of taxation system can't exist. But I've like actually seen it happen in real life.
On the flip side there are literally zero places with a genuinely limited government where it's safe to be a billionaire.
The US has a more progressive tax system than just about any OECD country. Those northern European countries no longer have the close to 100% confiscatory tax rates they sometimes had because they end up hurting the country - what they do have are high effective rates that much of the country pays.
You need a map to figure out how rich people keeping more of their income and and paying less into shared services reinforces inequality?
EDIT: I would make my comment more substantial, but Margaret Thatcher made my comment better than I could.
In 1979 the average house cost 18,785 GBP and the average wage was 4,198, whilst in 1990 the average house price was 56,365 and the average wage was 11,820.[0]
The average house price increased 300% whilst the average wage increased 282%.
It's a grossly poor resolution comparison, but it shows that, using this metric alone, just looking at averages alone (somewhat problematic in itself), wages increased more slowly than housing.
[0]: http://thedesignlab.co.uk/costofliving2015/ukupdate.php?uid=...
Just try keeping up with even 3% inflation if you're a median wage worker. Meanwhile, the rich can easily beat that inflation and move their capital around pursuing higher returns. Inflation massacres workers over time.
If you have 0% inflation, and your wages go up 3% per year, you can make some real progress in a society over 20 years. If you've got even just 2% inflation, and 1% net real wage gains, you're going to struggle to get anywhere once recessionary set-backs are accounted for.
While that 2%-3% inflation is eating your wage growth and pushing up consumer prices, it's also rapidly destroying the real value of your primary middle class asset: your house.
The Fed loves persistent inflation because it debases the national debt, which is drowning the US Government. It's terrible for the average person.
When you raise marginal tax rates revenue goes up. Same as it ever was.
It suggests that lowering tax rates will lead to increases in revenue. That’s a factual prediction and it isn’t true.
Your characterization of the Laffer curve is an unfortunate misunderstanding which was widely propagated by Reagan’s political opponents. (Which was not helped by the fact that the Reagan administration, either due to incompetence or malice, propagated incorrect interpretations itself)
What the Laffer Curve expresses is that there is a certain amount of taxation where, if taxation is further increased, the actual government revenue will decrease rather than increase, due to growth in tax avoidance and evasion.
It does not mean that lowering taxes will necessarily increase government revenue (which is obviously false). It means that, past a certain point, increasing taxation is futile.
However, determining where the point beyond which increases in taxation lead to diminishing returns lies is hard and there is no reliable way to do it.
The curve posits a relationship between two variables. But there's data on this, and the curve doesn't hold, we've never seen the backside of the curve where lowering rates has increased revenue. And God knows people have tried, there are many who would love to find empirical evidence of this. They haven't.
Agreeing that "past a certain point, increasing taxation is futile" doesn't validate that curve. That point could well be a 99.2% marginal rate for all we know. We haven't seen it.
It's defined by an actual curve. That's why it's called the Laffer curve.
It could be a linear relationship with a ceiling. In which case it would not be the Laffer curve, it would be a straight line meeting another straight line. Which is different.
Regardless, the defining characteristic of the alleged curve is that it slopes backwards on itself, therefore lowering taxes will increase revenue. That phenomenon has not been observed in the wild.
It is quite obvious that a tax rate of 0% would lead to no revenue. It is also obvious that a tax rate of 100% would not lead to the full expected revenue, as people would need to evade taxes in order to be able to survive.
If we assume that tax revenue is a continuous function of tax rate, there must be an inflection point.
The Laffer curve is indeed a curve, but which curve it is is not specified by the theory. The theory simply follows from the argument I have outlied above. It is not a specific curve, it simply states that, if we take tax revenue to be a near-continuous function of tax rate, it must not be a monotonic function, but instead have an inflection point.
I understand that the idea is to grease the wheels of the economy by making more capital available for a company to spend on wages, R&D, recruiting; basically plowing it back into the company for reasons of growth.
It's a valid theory, in a vacuum, and maybe the reality of it was more valid in the 80's than it is now, in the times of uber-capitalism, double-digit growth requirements quarter by quarter and "shareholder value at all costs". But these are the times we're in, and tax breaks will improve the bottom line which will be reflected in the quarterly results and compared to the previous quarter and the previous financial year, and the current quarter will be declared a success and justify bonuses to executive management out of whatever is left over once the shareholder dividend has been determined - reflective, of course, of the improved bottom line. It's unlikely to reach anywhere near the low end of the hierarchy; it doesn't trickle very far down due to the very nature of how large businesses operate.
In terms of creating jobs, well, that will only happen when there's enough work to justify it, and in an economy that requires some form of stimulation, well, it's unlikely to occur until a number of cycles of stimulation have been in place. And if my opinion / experience of trickle-down economics, as described above, is close to "real world", then there's minimal bottom-end stimulation going to occur at all.
You're not wrong in your statement:
the higher the tax rates, the more contortions people will engage in to avoid those taxes
But how can that possibly be considered as justification or "the right way of looking at it"? It's a fucking disgrace and a dereliction of responsibility to the community in which they operate.