It’s about time! Sure seems like we could use a lot of this tax revenue to help out our unbelievably under funded country. However, I’m sure there are many arguments as to why these corporate loopholes benefit America and why they should not be overhauled. What are those arguments anyway? Something about the Republicans spewing forth a bunch of talking points. You know, how unfair and costly it is to make greedy corporations and wealthy folks pay their taxes.
Obama Seeks To Close Overseas Tax Loophole
President Obama vowed Monday to “detect and pursue” American tax evaders and go after their offshore tax shelters.
In announcing a series of steps aimed at overhauling the U.S. tax code, Obama complained that existing law makes it possible to “pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, N.Y.”…….“Nobody likes paying taxes, particularly in times of economic stress,” Obama said. “But most Americans meet their responsibilities because they understand that it’s an obligation of citizenship, necessary to pay the costs of our common defense and our mutual well-being.”
The current tax code, he said, makes it too easy for “a small number of individuals and companies to abuse overseas tax havens to avoid paying any taxes at all.”
Oh, if the world were a beautiful place, this would have enthusiastic support by the majority, as well as a little help from the media.
Republicans have been spewing talking points about how those poor corporations are not able to compete with the current tax system in place for years. Take this passage from the 2008 Republican Party Platform:
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p>”America’s producers can compete successfully in the international arena – as long as they have a level playing field. Today’s tax code is tilted against them, with one of the highest corporate tax rates of all developed countries. That not only hurts American investors, managers, and the U.S. balance of trade; it also sends American jobs overseas. We support a major reduction in the corporate tax rate so that American companies stay competitive with their foreign counterparts and American jobs can remain in this country.”
yet neglect to mention the tax write offs and the actual taxes paid.
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p>Perhaps if we changed this…..
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p>we could do this……
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p>Really sick of the Repubs spreading the disinformation all of the time.
If Americans win great… and if Americans are put out of work then I hope they remember the Democrats did it. It should be pragmatic for today and the future.
keep their hands off the new tax laws, it will be a great win. We are going to feel the effects of the Bush (policy failure record winner) Administration for years to come. Obama’s plans (from the stimulus pkg to the war in Iraq) will probably take years to counteract the damage done from 2001-2009.
4 (or 8) years will be beyond criticism since he’s living in a mess which George Bush created? Everything before GB was wonderful and everything done after GB will be wonderful but those 8 years were just killer. What a joke!
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p>You want to see special interests groups… watch them line up but do please note that the Dems are in charge of the House, Senate and Oval office so your team will OWN any and every special interest group. You can’t blame that one on Bush!
Yes those 8 years were a killer. Literally. It’s no joke.
We will pay the price for that administration for many years to come.
Obama is already coming under intense criticism. His stimulus package gets slammed daily.
Umm. NO. I don’t want to see special interest groups. I’ve had it up to my eyeballs with special interest groups. I said it would only be a “win” if they keep away from the special interest groups.
It’s about time.
These are tax evaders, pure and simple and should be treated as much.
which is legal.
pet project! Obama states in his quote that these companies are taking advatage of tax loopholes that are legal. He wants to change the law, then do it. While we are at it lets change the other loopholes that help companies cheat on their taxes. Non profits and universities avoid taxes, they use services like we all do and should pay for them. Just because they make sideline payoffs in the form of tax payments doesnt make it fair. Why should a stay at home mom be treated differently than a non profit? Lets also take back the billion Deval gave to the biotechs and the dough Sal gave to the movie producers. Fairness is the issue, one tax for all.
…let’s lower the corporate rates to reduce the incentive to seek shelter from taxation. US corporate income tax rates are the highest in the world and far above the worldwide mean and median for corporate taxation.
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p>http://en.wikipedia.org/wiki/T…
The highest rate is on the high side, but it appears that does not apply to most. (I followed your link then linked to the articles on Taxation in the US and Corporate Taxation in the US.) It may be the case that if we brought down the official rate to 30% then actually enforced it we’d be OK. I must admit that before I followed your link it seemed very counterintuitive given the wealth gap and how well corporations do for themselves in this country.
…which brings the total income tax burden on corporate earnings (in Massachusetts for example) to 48.5% on earnings betwen 100,000 to 335,000.
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p>It’s no wonder they seek sheltering.
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Unless you’re going to Hamiltonian extremes and proposing the abolition of states, I don’t know what to suggest.
I think Obama has it right, let’s lose the loopholes first.
Then lowering the tax rate would be great.
This should do wonders for our trade deficit.
Countries that bankrupted themselves to entice over such corporations, and can barely afford a working government? Iceland and Ireland seduced American business by slashing tax rates, and can barely put together a functioning society right now because of it.
Just lower marginal tax rates.
Have you noticed how much Chemistry work is going to China, India and other nations? We need “expert” advice on what will really happen from these tax loophole closings.
Any attempt to improve the situation of the American worker, or the American treasury, will engender a caterwauling response from the branch of American business that calls itself the conservative movement.
Conservative or not, every business leader I’ve ever worked for has been deeply concerned about the welfare of its employees.
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p>The fact remains, if a business isn’t sufficiently profitable after taxes it’s not going to attract investment (or received reasonable credit terms) and will eventually cease to exist.
when profits are great they never sufficiently trickle down, at least not in todays greed mentality. Now that corporations are falling flat because the consumer no longer has money to spend, we are providing taxpayer money to bail out. Businesses care about their bottom line and their high priced CEO’s. They do not care about the guy at the bottom who does all the work for little pay and benefits. Even though without that man or woman at the bottom, the company could not even exist.
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p>Profits surge to 40-year high | When will corporations spend some of their hoard?
In the business cycle, there historically be times of high profits and low profits. This is normal. After a period of growth, one would expect “record profits” as the revenues are now larger than the previous interation of the cycle.
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p>As far as the “man or woman at the bottom”, I think that you’re being naive in assuming that:
1) They (businesses) don’t care.
2) That anyone should receive compensation that’s not in line with the value of services they provide (regardless of the profitablity of the business).
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p>In general, business will pay the market rate (pay and benefits) that are applicable for a position. Frankly, the best way for workers to improve their lot is to improve their value in the workplace market and not to rely on zero-sum rent seeking behaviors.
Lose the services then decide how valuable they are. If business will pay market rate wages, then why the need for minimum wage laws. I would love to know what you mean by “zero-sum rent seeking behaviors”. I’ve never heard that term before and would like to know what it means. Thanks.
… minimum wage laws are an actual distortion in the market. I actually agree. In a natural and unregulated market, wealth will stratify. If you don’t think that the distribution of wealth in your society is a legitimate concern for it’s government, then regulations and laws that distort the market toward a ‘distributive normalcy’ are an example of government overreach. I myself like living in a middle class and like the economic engine that a strong middle class can provide and that stratified wealth can’t. Natural markets need distortions like this in order to stay healthy, because their natural tendency of stratification actually kills growth in the end.
Engaging in non-value producing actions for gain.
Zero sum: as in there’s a clear winner and loser.
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p>For example:
A labor contract that increases wages/benefit without providing a net return to the employeer in realized productivity.
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p>Much better:
Employees bettering themselves through education/training, improving their value in the employment marketplace. Here everybody wins.
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Isn’t that the point of this discussion? These corporations are already taking jobs oversees AND getting rewarded for it. I don’t like the implication that we need to kowtow to business or they hold our job market hostage. One idea I have to make us more competitive is universal single-payer health care. That’s a HUGE expense for businesses here that they don’t need to worry about elsewhere.
The idea that if we lower the corporate tax rate without tax shelter reform will inspire corporations to not use the loopholes is pretty hilarious.
…that the USA can remain competitive in a global economy with the highest corporate tax rates is “pretty hilarious” too.
they can lower the tax rate. Works for me.
the less effective the loophole. At a marginal rate of zero, loopholes are meaningless. Lowering the marginal rate has a similar but incremental effect.
That would require trust and there is none.
Not sure I like that idea. My understanding is that the reason they are exempt from taxation is that they provide a public service. That is, they are being rewarded for doing something that might otherwise require a government program, without direct benefit to themselves or a group of shareholders.
It seems to me that money made in the US should be taxed by the US, regardless of where a PO Box is kept.
deductions from US income for payments made by foreign corporations until the foreign corporation pays tax on it’s income. It’s an extremely complex area of tax law. The President’s proposal would defer the deductions until the foreign income is repatriated, so in theory the deduction would me allowed at the same time as the income is taxed. The proposal also makes some drastic changes to the way foreign tax credits are calculated.
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p>But the real problem is that the tax systems and the ways of doing business in all other countries across the world are so complicated that it’s almost impossible to write a law that targets abusive transactions without also pulling in legitimate transactions. And of the corporations that are complaining, it’s very difficult to determine if they’re whining because their tax shelters are being eliminated or if they’re mad because the proposal treats their legitimate business as a tax shelter.
It seems like it should be pretty simple to account for which money is earned in which country. If we are talking about a financial institution in which I invest, it stands to reason that since I am paying in US dollars and am a US resident, then income generated by my investment in the form of interest and fees should be taxed by the US. If the same company also makes money off a British investor paying in pounds sterling, then his money should be subject to UK taxes, etc. If we are talking about a supplier of goods like Wal-Mart, well income generated from its US stores should be subject to US tax, while those in other countries should be subject to those respective taxes. Again, it seems like the corporate address should be the least of the factors.
At a very basic level, the US taxes an international group of commonly owned corporations on all the group’s income, wherever earned, then gives it foreign tax credits for any taxes that are paid to foreign countries. But when you’re dealing with a large international conglomerate with hundreds of subsidiaries and affiliates and billions of dollars earned from hundreds of millions of transactions then it’s not as easy as just picking the US income based on whether a transaction is expressed in US dollars or involves a US citizen.
Or is just on Cayman Island P.O. Boxes?
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p>If it’s about repatriating offshore corporate subsidiary profits, then why wouldn’t taxing those subsidiaries induce companies to move overseas and import their products instead?
If a US based corporation is legitimately doing business in Switzerland, I have no problem with income generated from Swiss clients only being subject to Swiss taxes. Any income made from US clients should be held in the US and subject to tax by the US.
Here’s my favorite subsidy-sucking company, Evergreen Solar, recipient of Mass taxpayer dollars to build in Devons and create, “good high paying jobs”.
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p>Well, first, that move hasn’t gone so well. Management seems kinda weak and ESLR’s main advantage was they have a ‘string’ process that uses less expensive polysilicon. The trouble is that it doesn’t really have as much a cost advantage because of the large polysilicon plants that have opened driving down the cost.
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p>What to do?
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p>Hmmm, says the company. There’s not so much to be gained on the material cost side, so let’s address labor. Let’s move to China.
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p>Win-win.
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p>Well, aside from that annoying shipping jobs away from the US thing, how will the company pay taxes on the panels it makes in China and sells abroad?
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p>Enter Subpart F. A complicated subpart of the Internal Revenue code that basically taxes
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p>i) the royalties (if any) transferred to China (hint: through the magic of ‘tax guys,’ there won’t be any of value.)
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p>ii) money repatriated (hint: there won’t be any. Same ‘tax guy’ magic. The money earned abroad will be invested abroad.) and
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p>iii) shipments into the US of panels which are then resold. Stay tuned, but the margins on those will magically be very, very low because the China company will sell the panels back to the US at a fairly large transfer price, meaning the ultimate US profit will be low.
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p>So, what would the fair thing be? i) tax them on worldwide profits whether repatriated or not? That would mean forcing them to bring in money that they would otherwise invest in new capital, just to pay the tax, thereby slowing their expansion of all things green and good. ii) not let them go to China in the first place iii) take away all their State government subsidy? iv) ignore the whole thing with hands over ears saying La-la-la-la because Solar is good v) ??
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p>I’m sure you’ll realize your mistake and retract your snide remarks… or do I have to explain the difference, taxed and otherwise, between contractor and subcontractor? As well as the difference between transfer and expansion.
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p>Did you even read the article to which you linked? Or did you simply break out in that old familiar cold, but oddly arousing, sweat when you saw the word “China”?
Because, if I as a company create a concern in China and allow them to use my intangibles to manufacture product, then there’s no difference in the economics if i) I create a company, ii) establish a joint venture, iii) establish a contractual relationship between the Chinese concern and the US concern for them to provide product.
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p>End result, in taxes, employment and situs of manufacturing is china: production and jobs are shifted offshore. But, you know so much more, so yeah, explain the difference.
So I don’t understand why anyone would think that this would make firms uncompetitive – it will have little effect on competitiveness.
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p>The vast bulk of corporate profits go to the wealthy.
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p>In the US, the wealthiest pay 18% in federal taxes, vs. about 30% for the middle class.
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p>This move is simply a way to start moving the wealthiest Americans into a position where they pay their fair share.
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p>One might make an argument that this will make investment less attractive – however capital gains from such an investment, which is what really drives the attractiveness of the investment, are only 15% now, so I’m not buying this argument.
“One might make an argument that this will make investment less attractive…”
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p>Corporations exist to provide return on investment. Most investors seek out an optimal risk adjusted rate of return. If domestic corporations are not playing on an even playing field, I’d expect that investment to tend to dry up in favor of more attractive opportunities. So, we might see not only more jobs outsourced, but investment opportunities too.
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p>Second:
“The vast bulk of corporate profits go to the wealthy.”
Source for this?
My understanding, at least for public companies, is that the vast bulk of corporate profits disbursed (as dividends) are actually paid to institutional investors (like pensions) and not individual “wealthy” investors.
If I answered my own question then I also countered your objection. Do you disagree with the rest of the sentence I wrote?
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p>On point two, I indeed had a brain fart. What is true is that the wealthy get the vast bulk of their income from returns of one sort or another on investment (which is why the wealthiest Americans pay only 18% in federal taxes, while the rest of us get wages and such, and thus pay federal taxes at almost twice that rate). Thus, Obama’s move will disproportionately affect the wealthy – as intended.
for the claim they the wealthy “pay only 18% in federal taxes”? Do you mean that the wealthy pay 18% of the total revenues collected, or that the federal taxes owed by the wealthy equal 18% of their income? And how do you define wealthy?
They are taxed at an aggregate 18% rate.
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p>e.g. http://freakonomics.blogs.nyti…
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p>Also, the IRS used to publish a yearly analysis of the returns of the 20 highest earners (Bush stopped that, of course). The last one showed an aggregate rate for those 20 of 22%, but that was before capital gains dropped from 20% to 15%, so it would follow that aggregate would drop to 17%-18% or so, consistent with Buffet’s 17.7%.
a survey of Warren Buffet and his secretary. Not really representative of the US population in general. Not to mention that his secretary must be making a lot of money to pay tax at a 30% rate. You don’t even hit a 30%+ marginal rate until you make $164,550 if single and $200,300 if married. If the secretary is in fact paying an aggregate 30% of her income in taxes then she is making significantly more than that and is undoubtedly very wealthy herself.
As to the 30%, Buffet and I include Social Security and Medicare – which are, functionally, taxes.
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p>I disagree.
A high corporate tax rate significantly reduces capital appreciation attributable to retained earnings. A low corporate tax rate encourages retention of earnings (self funded growth) and reduces the dependence on debt financing (all good things from an investor point of view).
Why would a high corporate tax rate reduce retained earnings?
Less taxes –> more earnings.
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p>More earnings –> more growth (and/or larger salaries/benefits, and/or dividends, and/or retied debt).
because greed always wins.
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p>Repeat…..
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… of wage growth and tax cuts over the last 20 years would differ. Real wage earnings of the vast majority of people haven’t really risen, but through mostly republican administrations since Reagan, taxes have dropped.
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p>Anecdotally, I recall somewhere a someone being told by a small business owner how much the Bush tax cuts helped him. He asked him if if he invested his earnings to his employees or his business (using the tax cut for the stimulative effect it was allegedly given for),… he replied that he bought a boat. (Wish I could remember where that was from… for some reason I think it was in Jonathan Chait’s The Big Con, my copy of which is lent out.)
Just off the top of my head: boat makers, marinas.
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p>I guess when a business owner realizes a return on investment that’s a problem? I see that as a good (no great) thing. Should a business owner never profit from his business without improving the standard of living of his employees? Should a business owner only “spend” his profits in “responsible” ways? Sheesh, that seems a bit controlling.
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p>On wage growth:
My guess is that average inflation adjusted market value of employees has remained stagnant (in my industry inflation adjusted revenue per employee over the last 15 years has remained quite constant). I don’t see how any business can increase “real wages” under those conditions.
Besides… it was an anecdote.
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p>The point is that tax cuts to businesses are always sold as good for workers. It never really pans out that way for some reason though, as the history of wage growth over the last several decades shows. We ignore this disconnect between tax policy and wage growth at our own peril. At the very least we shouldn’t be selling these tax cuts as some kind of answer to wages.
Economically, wages are very “sticky”.
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p>It’s unrealistic to believe than any short-term economic stimulis would ever cause wages to move.
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p>I think business simulis is mostly effective in sustaining employment (or reducing spiking unemployment).
… but you’d at least think that wages ‘sticky-ness’ would be tied to productivity, but the gains productivity don’t seem to have any effects on wages, but they did seem to affect profits. It just goes to show that tax cuts don’t move wages.
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p>Of course, when the labor market was tighter in the mid 90s, that sticky-ness went away.
But I don’t see how it would change behavior enough to matter.
It should be about creating more jobs. To do that globally requires the US be competitive with other countries’ corporate tax rates.
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p>Aren’t ours the highest among the G12? If so, why are we considering a tax policy which will create a disincentive — repeat, a DISINCENTIVE — for corporate formation in the US?
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p>Don’t we want to create more jobs? Don’t we want to attract more corporations relocating or expanding?
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p>This tax policy proposal is counterproductive both on revenue enhancement and job creation.
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p>Besides, THIS WILL NEVER PASS CONGRESS.
will never beat The Clintons, let alone the presidency!
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p>But he tried anyway.
DOA
Our conservative friends are caught between saying that closing off-shore tax loopholes will hurt business and beside it will never happen. Conservatives are either completely against taxation or just haven’t thought about being against taxation.
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p>Although it matters whether or not we close corporate tax loopholes, Obama’s proposal could also be an opening salvo in a discussion about the proper role of taxes in our economy. It’s a discussion that was effectively shut down over the last 30 years or so.
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p>The Wonk Room has a rundown of the GOP, and unfortunately, conservative Democrat, bull. (You’ll have to go to the page for the hyperlinks).
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p>Mark