Here is a comment I left over at MN Publius...
"Per James' note that some companies did not pay taxes lately. MnPub Dems vs Rep Here is an article that seems to cover both sides of the topic. Reuters 30 Companies Paid No Taxes They note that closing the loopholes is necessary, however the biggest tax avoidance of this type is given to us citizens in the form of the home mortgage interest deduction. They said it "dwarfed" the benefits given to businesses. Maybe we should get rid of that deduction, I would be fine with seeing it go.
Also, please note that allowing businesses to write down capital expenditures faster and write off R&D was done to help encourage them to spend more, thus supporting our economy. The upside for you is that they won't have these write offs available in the future so their taxes should increase. (ie no future depreciation left since they took it all up front.)
Also, don't forget that us stockholders end up paying taxes on any corporate profit. (ie dividends paid / stock price increases) So the reality is that the money is taxed as a business profit or a personal profit. "I am always puzzled by who Liberals think own these companies. They seem to miss the point that they are owned by us... Our 401K's, our pension funds, our IRAs, our college savings accounts, our other mutual funds, etc.
Then there is the topic of their repatriating profits from other countries... Bloomberg Tax Holiday Now I know little about this, so here is just a thought. If these were profits generated in another country, didn't the companies already pay tax in those countries? Why are we asking them to pay taxes on profits earned else where in the world. In my simple world, it seems the goal is to relieve the people in other countries of their cash as fast as possible and get that money back into the hands of the American Investors. Then they can pay taxes on their dividends and capital gains, and start buying and investing with it.
So what do you think of all this taxation stuff? Should we get rid of the mortgage interest deduction to help raise more revenue? (and promote more conservative houses)
32 comments:
I am always puzzled by who Liberals think own these companies.
I am often puzzled by conservatives who think that the shareholders, who in technical terms, own companies, think that ownership matters,or that the company is somehow run for their benefit. In case you haven't noticed, they it doesn't and they aren't.
The point of shifting profits abroad is to have them paid in a jurisdiction with a lower or more favorable tax treatment. If they were in fact generated abroad, that might make sense, but in practical terms they are not. The downside of this is that you end up with a lot of money in a place where it isn't very easy to spend it, and possibly no one wants to live, and where local investment doesn't make a lot of sense. So naturally, you want to bring the money back someplace where it's usable. But that's the place, more often than not, where the money was in real terms generated in the first place, and it's where you paid some lawyer to create a fiction allowing you to transfer the money away for tax purposes. This, incidentally, is why many liberals, along with many conservatives are no big fans of corporate taxes. They favor big businesses who are able to play musical chairs (or perhaps whack a mole) with their profits allowing them to avoid taxes, while giving them an unfair advantage over their smaller, more localized, competitors.
--Hiram
Since writing the above posting, I have read the front page story on Best Buy in this morning's Strib, and as a result, have modified my views. It seems that some shareholders do own their companies, and have the right it seems, to use their company's assets however they wish. And apparently to dictate the choice of a management team whose goal it is, not to serve the interests of either the business, or it's minority shareholders, but to satisfy the whims of it's controlling stockholder.
I don't think this is an isolated problem. I think it's a general one. As my friend King Banaian has informed me, incentives matter, and somehow in this country we have created a system of corporate governance that uses a system of incentives that don't serve the interests of the public, the bulk of the shareholders, but instead serves the interests of managers and controlling shareholders to the detriment of all. And that's another reason why the American economy is failing.
--Hiram
Of course companies are run to keep stockholders happy, the mgmt has a vested interest in their happiness. If the stock price drops too low, someone will buy them and kick out the current management. That is why your friends at Bain have such good success. Someone at the top forgot who is paying the bills.
Now it seems that you think the mega companies are not making huge profits in other countries and that this is all a tax dodge. Based on my employer's revenue streams, I can assure you that a large amount of corporate profits come from outside the USA borders. This is a true global economy and the people in these other countries love our products and services.
What about that personal tax dodge that most of us are taking advantage of? (ie mortgage interest write off)
Star Tribune Best Buy Article
I guess this makes my point, the system is working and will punish the Mgmt's errors in judgement... I wonder if someone will buy them if their stock price falls far enough.
Of course companies are run to keep stockholders happy, the mgmt has a vested interest in their happiness.
They aren't, and they don't. These are myths of very recent vintage. Companies are run to keep their managers happy. And to a certain extent, this is inevitable. After all, what do stockholders bring to the table? If they bring no value to the table, which they don't, and if they have no real influence on corporate decision making which they don't, why should the managers of a company concern themselves with their interests at all? Which indeed they do not.
As for the system working, how am I, as a Best Buy shareholder, which I probably am in some mutual fund or another, benefited by a story in the paper telling me how rotten the managers of the company I have shares in, are? Do you think that's going to make the value of my shares go up? Or down?
--Hiram
Now it seems that you think the mega companies are not making huge profits in other countries and that this is all a tax dodge.
They are indeed. That's why they open offices in places like Switzerland. That's why repatriation of profits, which in effect means bringing them back to countries where in real economic terms, as opposed to the fictions created by lawyers, they were earned.
--Hiram
What about that personal tax dodge that most of us are taking advantage of?
Corporations are able to deduct interest, why shouldn't individuals? Why is home loan interest the only, or at least one of the few forms of interest we are allowed to deduct? And really, aren't the reasons we allow home interest deductions pretty much the same as we allow businesses to deduct interest, that is, because we view that deduction as economically stimulative?
--Hiram
I don't think you went far enough. Corporations pay no taxes whatsoever. They simply increase the cost of their products, reduce dividends to shareholders or, most likely, use one or more tax advantages, including moving offshore, to reduce their taxes. And there is no such thing as a "loophole." Every single provision of the IRS code was written in by Congress for some purpose, either to encourage some form of economic activity or discourage some other. Thus we have the home mortgage deduction to encourage home ownership, the oil depletion allowance to encourage oil exploration, the R&D credit to encourage R&D, and 57,000 pages of others.
Personally, I would scrap the whole IRS code in a heartbeat and replace it with a national retail sales tax (aka FAIR tax). That eliminates all of the foolishness about income, all the deductions and forms, GREATLY advantages our exports and keeps profits and jobs here while eliminating the fiction that corporations actually pay taxes. Corporate decisions would start being made based more on what best made the company profit, rather than how best to hide that profit from the world's highest corporate tax rates.
J. Ewing
"Corporations pay no taxes whatsoever."
Corporations pay taxes because if they didn't, they could be used as a tax haven. To say they pay no taxes is also to say they can't be used to protect income from taxation, something that is not the case. One reason why people make the decision to incorporate is the favorable tax treatment the corporate structure often gives.
--Hiram
America has the highest corporate tax rates in the world. What nobody seems to ask is why, exactly that is. Especially when you consider how powerful the corporate interests are in our system of governance. The answer to that question, I think, is that there is no real effort beyond lip service to lower corporate tax rates is because the current tax structure as it actually applies is quite beneficial to corporations, especially large corporation, the ones best position to take advantage of the tax breaks, which are also possibly the most generous in the world, provide.
--Hiram
I would scrap the whole IRS code in a heartbeat and replace it with a national retail sales tax (aka FAIR tax).
A general reliance on any one tax is that one tax is to easy to avoid. And as always where taxes are concerned, the devil is in the details. Would you, for example, charge a sales tax (which to be revenue neutral would about 30% on transactions in financial assets? If you did, there, pretty much would go the stock market.
As for imports, I can see why making products 30% less expensive when sold abroad then here would stimulate exports, not to mention black and grey, re-import markets, but I am less sure why that benefits consumers.
--Hiram
--Hiram
Hiram,
Biggest shareholders, in this case mgmt, will lose the most. I don't think they were managing towards that goal. Fortnately Best Buy does not appear in the Top 10 of any of my mutual funds.
I assume you are in favor of taxing those profits twice... Once in the country where they were generated and once when they come back to the USA... Makes little sense to me.
Businesses get to deduct interest because it is a cost of doing business. (ie only pay taxes on profits) Not sure that logic applies to us typical citizens and our homes.
J,
That's funny since I was thinking we should get rid of sales taxes.Speed Gibson: Taxes I'll hopefully post more on this later this week.
Biggest shareholders, in this case mgmt, will lose the most.
it's very rare in publicly held corporations for management to be big shareholders. And very often what interest management does have are comprised of assets they didn't pay for. But in any event, it's of little comfort to shareholders who are losing that someone else is losing more.
"Once in the country where they were generated and once when they come back to the USA... Makes little sense to me."
The problem is that the income wasn't taxed in the country they were generated, the United States, and weren't really taxed in the country they were nominally assigned for tax reasons. Avoiding taxation altogether makes a lot of sense to me, but I don't think it's sound public policy.
"Businesses get to deduct interest because it is a cost of doing business. (ie only pay taxes on profits)."
I am a great believer that a lot can be learned from household economics. Think of a household as a business, and being able to deduct interest makes a lot more sense. Or think of a homeowner as an ongoing participant in the business of real estate.
Businesses pay lots of taxes besides those on profits, something that helps explain why even liberals are open to the idea, in theory at least, of getting rid of the corporate income tax. The biggest tax bill businesses face are in property taxes. Sales taxes also. Those kinds of taxes are intrinsically local and hard to evade. It's much easier to move income to Switzerland, then say, a hunk of Duluth.
--Hiram
I don't know much about corporate taxes (or individual taxes either as my spouse files our tax return) but I do have a couple of opinions.
First, the mortgage interest deduction should be limited to one home and maybe only $20,000 per yr interest. Why should the tax code subsidize multi million dollar homes and vacation homes?
Second, no doubt business taxes could be tweaked to make them more fair or more likely to encourage economic growth. I have no idea what specific changes would be wise but I do believe changes to the tax code should be revenue neurtral or perhaps increase total revenues collected. Given last years substantial budget shortfall I think the GOP plan to decrease some business taxes with out offsetting increases is crazy. With all the cuts made to the budget recently there is little left to cut without significant impact. Also the schools are still owed a couple billion $.
I don't think there is any such thing as a revenue neutral change to the tax code, and I'm not certain we should care. Any change to that impossibly complex code is going to advantage some people and disadvantage others, and both are going to, as rapidly as possible, rearrange their affairs to the new tax rules. And that isn't what the tax code should be about, distorting the free market decisions in a free market economy. Only the simplest tax can be fair, and even that isn't fair to everybody. But treating every dollar differently depending on who makes it, how many others are made, and where they are spent doesn't make any sense.
And of course there is the Laffer curve, which we are so far "over the hump of" as to be Laff-able. Taxes need to be cut. If the Russians can have a low flat tax and grow their economy, so can we.
J. Ewing
Wiki Laffer Curve
Nyhan Laffer Curve
I have often railed against those who confuse tax policy with the filling out of tax forms. It's the mistake commonly made by right wing talk show hosts who say something to the effect, "If rich guy so and so, thinks the rich don't pay enough in taxes, why doesn't he send the government an extra check?"
However, the problem I have with Laffer is that he doesn't seem to understand the complexity of taxes, and how they interact with each other, something that filling out your own tax forms helps. The other problem I have with Laffer is that his supporters often misunderstand him, particularly when they argue that raising tax rates lowers tax revenues. The Laffer curve says no such thing, or rather it says, that whether or not that's the case depends on where you are on the curve.
--Hiram
Well, every time tax rates in the US have been dramatically lowered-- Kennedy, Reagan, Bush-- government revenues have gone up, and tax increases-- Clinton-- have not brought in less than projected. I think it is obvious we are over the hump of the Laffer curve. hiram is correct, however, that the shape of that curve depends on the details of tax policy, and only sweeping changes like an overall reduction in rates can have a readily visible effect. This, too, argues for tax code simplification. The best argument, however, is to understand that every penny government takes out of the economy through taxes, beyond that for its essential functions, goes to something less productive than what the private economy would have chosen.
J. Ewing
J,
If revenues got bigger, why did the National Debt sky rocket under Reagan and the Bushes?
Here is a graph of the debt with some Liberal commentary. Zfacts Debt It does not paint Reagan or Bush policies as favorable.
"If revenues got bigger, why did the National Debt sky rocket under Reagan and the Bushes?" -- John
I think this is best solved by posing it as a third-grade math question: If John gets 50cents a week as an allowance, and his father gives him an additional 25 cents per week for helping with the dishes, how much does John get every week? Now, if John was spending 50 cents per week and now spends $1 every week, how many weeks can he do it?
J.
So you are saying that Reagan and the 2 Bush's spent excessively... Now by my math they had the White House for a combined 20 out 28 years... And only during the middle 8 did our debt decrease. This does not bode well for voting in "Conservative" Republicans...
Here are some interesting graphs.
Business Insider Tax History
The President gets the credit, or blame, but who controls Congress controls the purse strings, or doesn't, in some cases. The US would benefit greatly from the kind of balanced budget requirement that 49 of 50 states already have. The incentive to overspend is simply greater than the desire to raise taxes.
J. Ewing
I agree that the balanced budget amendment should be passed.
Intellectual Conservative Bal Budget
I thought the Conservative view was that the Democrats always got the blame no matter who was in charge...
No, the conservative view is that the Democrats only get the blame when it's their fault. Which it always is.
J. Ewing
Thanks for making my point.
Didn't know you needed the help. :-)
J.
Oh, I see your point. When Republicans are "in charge," like during Bush 43, spending rose with a Republican Congress. How can that be the fault of Democrats? Because the Democrats created the welfare entitlement and put the spending on autopilot. They also never got away from "baseline budgeting" (not that Republicans ever proposed better, AFAIK) which automatically runs spending up every year. It's not sustainable nor rational.
J.
Bush II cut taxes and strated 2 wars... What was he thinking???
I don't know. I keep thinking, though, that so long as we are going to assume that simply electing the right President fixes everything until the next election, at which point he gets BLAMED for everything so that we can put all of our hopes on the new guy, we're going to continue to be disappointed and we can't stand a lot more of that. We need a lot more citizen participation in government to put some checks and balances on the stupidity.
J. Ewing
That I can agree with. Let's end the stupidity...
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