A lot of a tax return is just huge reams of supporting documentation (accountings of expenditures, etc). Also, keep in mind the scale of the endeavor. $150bn in revenus accounted for in 57,000 pages. I.e. 1 page of documentation for $2.63m in revenue. How much did it cost to generate and analyze? $10m? $50m? At $50m that's an overhead of 0.03%, for an inevitable part of running a modern society. Seems way less inefficient when you put it in context.
That's a very good point. Once again the "headline" about a "huge tax return" distracts information away from the real problem, which is that US nominal corporate rates are too high and the effective rates are too low.
The real problem is not necessarily all the work that goes into filing the tax return, but rather the influence peddling that leads to policies that misallocate* scarce resources to politically favorable projects.
*this is just my bias, but I am willing to bet it's the consensus among economists that firms allocate private resources more effectively than politicians when those politicians are largely influenced by the firms themselves.
The capital allocation is smart for an individual company given the political environment, but the political environment is silly. The current system of politics and influence is likely a Nash equilibrium. In the current environment no one has anything to gain by unilaterally changing their strategy, and thus hiring lobbying firms is a good allocation of capital.
Yes, but the point missing is that those 57,000 pages went into a tax return that produced no revenue for the government.
That's good money spent by the company, but terrible for society as a whole.
If you're going to make it so large companies pay no tax, just set them a 0% tax rate and turn the lawyers and accountants towards more productive uses.
Ultimately, economic growth comes from growth in productivity, i.e. making stuff people want. We seem to be riding an ever-increasing complexity of arbitrary systems, including tax laws, financial regulations, healthcare regulations, etc. that is drawing an ever greater share of the time and talents of the well-educated workforce into the world's largest game of Dungeons & Dragons against each other, and not making anything that anyone wants.
I've wondered a lot lately whether our bureaucracy might someday collapse under its own weight. Given the scale of many of our problems, and seeming incapacity of our bureaucracy to solve them, it seems like eventually people might come to the conclusion that the only solution is to throw out the bureaucracy and start over.
No bureaucracy collapses under its own weight. What happens, when rules become too complex, is that they start being enforced arbitrarily, according to the discretion of the enforcers. The system still derives its legitimacy from the supposed impartiality of written rules, but in fact becomes an ad-hoc collection of petty fiefdoms in a loose hierarchy.
Or, revision and simplification. Reagan's elimination of bracket creep springs to mind.
an AMT for corporate income might be a useful limiter. We'd like you to grant options, we'd like you to donate charitably we'd like you to do a bunch of stuff, but at the end of the year, we still want X% of your income.
I think that bracket creep has very little to do with simplification. If one plots the page length of the US Tax Code over time, that figure continually increases. Simple page count is probably more highly correlated with the complexity and arbitrariness of corporate tax. Tax brackets often fit on 1 page, are rarely litigated in court, and pose little complication to corporations.
Well, according to wikipedia, simplification doesn't get full credit. Repealed laws are replaced with notes about the law so people can understand what was going on in an historic context.
So, perhaps the litteral line count is constantly increasing - but simplification happens. you could, clearly, argue that 3 steps simpler is a drop in the ocean, and that's not without merit. however claiming simplification is impossible is clearly false.
I'd hate to imagine the size of the bureaucracy required to manage THAT change, much less the mission creep, cascading timelines & massive cost over-runs. :-/
What would happen if corporate taxes were lowered to zero, but capital gains were taxed as ordinary income? Corporations are not people, etc., and maybe taxes should only be imposed when they actually enter a human being's possession.
One problem. Let's say I own a corporation and the corporation decides to use it's profits to purchase a G5 Jet, a mansion, a fleet of limos, an entertaining budget, etc. I'm essentially going to live like a king tax free. While I wouldn't technically "own" the items I would benefit from them. How can you regulate benefit? Where do you draw the line as a costs of doing business and a direct benefit to the CEO?
As of 1986 (in the US), such things are taxed as compensation.
Before 1986, most compensation to corporate executives was given out in such forms. In many other countries, executive wages are lower and the difference is made up with non-wage compensation such as what you describe.
This is very much in evidence if you know e.g. any Japanese CEOs. Our CEO (old day job) was bragging at a meeting one day about the $X00,000 car he drove, and then said "Remember, I work for a living, that's the company's car." It will continue being the company's car for the duration of his tenure with the company, and after he is CEO emeritus and on an advisor-to-the-board position he will naturally be given a new company car, and ...
It also gets straight-line depreciated at, probably, 95 ~ 100% business use.
(This is considered standard business practice here, in the same manner that an American businessman expensing a WSJ subscription would be totally-inconceivable-to-challenge standard business practice. When I bring in my income tax return in March I'm probably going to get chided again by the tax office for "forgetting" so many of my deductions.)
Well, then just Tax Wealth (and set cap gains rates to 0% while you're at it).
If the limos and G5 jet that your company bought were inefficient assets, then as an owner of the company you would still have to pay for them but your return on investment would be decreased, penalizing you for this poor allocation of resources.
That's the libertarian answer, yes. But it doesn't work. In fact this kind of thing is routine in the corporate world. The randian solution here requires that there be a class of corporate executives willing to live comparatively impoverished lives. But they don't exist, because they're chosen by corporate boards populated by people who don't want to see their own perks vanish. And those boards are elected by, overwhelmingly, investment bankers living in the same world who view the inefficiency in their investments as minimal (remember they want to sit on boards some day too, and won't rock the boat).
All of those people (the "1%" I guess) would need to simultaneously decide to take a pay cut to produce your hypothetically efficient executive compensation. It won't happen.
Wealth taxes are actually just as old as income taxes, predating even Hammurabi. To a degree, the two are highly correlated. For example, a flat property tax on a farm is just a wealth tax while a tax on the farm's crop would be an income tax.
One of the fundamental principles in taxation is that each person should pay in proportion to their ability. The ability can be interpreted to be proportional to their income, profit (income with deductions), or wealth, which leads to different tax schemes. It just so happens that in this century, much of corporate tax is based on profit and much of personal tax is based on income.
I am not quite sure where you are trying to go with your argument based on executive compensation and why that necessitates an income tax over any other type of tax.
Perhaps, if the concern is the increasing remuneration of corporate executives, it would be worthwhile considering what factors have changed over the last century that may have led to the current situation.
It seems that wealth taxes are a far more sensible kind of taxation. But, strangely, there is little serious discussion of them.
I sometimes wonder what it would look like if there were just two kinds of taxes responsible for most government revenue: a VAT and a wealth tax. The problem seems to be that, psychologically, people would rather be taxed via witholdings.
That's strange, because whenever I propose wealth taxes to self-identified libertarians they complain about "double taxation" or somesuch. This is probably why my answer gets voted up by neither libertarians nor, uh, non-libertarians.
The proposal I provided was given in the context of "Let's say I own a corporation ...". Not "Let's say I'm a manager of a large corporation". When the person owns the inefficient corporation, then wealth taxation seems like a viable approach.
I think crappy management is a genuine problem at large companies, but I'm not sure that any kind of corporate taxation will fix it.
Then I misunderstood. I thought your earlier answer was sarcasm. A real libertarian could never accept a tax on wealth. All taxes are bad, but the only ones that are acceptable are taxes on economic activity. Taxing wealth is, in the randian sense, punishing success.
Yeah, I don't really understand taxing business at all. They create jobs, then don't create a tax burden (like say an apartment building full of families attending local school, yet the govt constantly subsidizes building apartments). Why would you tax an entity that enables citizens to earn money and pay their taxes?
A business profit isn't profitable to anyone until it is distributed to employees or shareholders, at which point it is taxed again.
Businesses use the country's infrastructure just as much as the citizens. They want police so they don't get robbed, they want roads and a post office, they want electricity for their buildings and sewers and all the other stuff taxes pay for.
That's what property tax, and the electric and water bills are for. Roads are paid for by a mix of taxes, a significant part of which is fuel tax. The post office isn't subsidized by taxes.
Some companies really are hoarding [0] cash. By which I mean, they're stashing it in very liquid investments, rather than investing it in long-term ways back into their own company, and rather than hiring new employees. (And many banks are choosing not to lend those cash stockpiles out as capital.)
Corporations have good reason to do this. For many companies, they want to have the flexibility to take advantage of opportunities created by this economy, but they don't want to move just yet since there's so much political uncertainty. Nobody wants make a big investment only to have Congress levy a punitive tax on that investment. Nobody wants to hire a bunch of new people and then be forced to spend a bunch of money due to an unforeseen change in labor or health care law. So companies are sitting on cash, simply waiting for the political situation to settle down enough that it's safe to start using their cash productively.
[0] horde - a large group of people or warriors. hoard - a stockpile of resources.
Actually, no. Back in 2008 when banks were failing but the economic numbers showing that we were in a depression hadn't come in yet the Fed was faced with a problem. They felt like they needed to pump money into failing banks, but they were worried that this might cause inflation. To allow them to inject lots of money into banks without it getting out into the rest of the economy they came up with something called the Interest on Reserves, that is the Fed would pay the banks not to lend the money out.
It totally fulfilled its objective. Despite huge growth in the money supply America was soon actually experiencing deflation in 2009. Sweden, on the other hand, actually charged banks interest on the excess reserves they were holding - and their economy recovered very quickly...
But it's not as simple in my view. Yes banks do lend out a portion but currently the reserve they have to keep have increased a lot in the last few years and the flow is not very well distributed (in my view) to through the whole economy.
I'd like to know if there are some analysis of this somewhere. My hypothesis is that certain sectors have seen drops how much money has been added through lending while others have seen increases.
Why would it be any different from taxing property that you simply own? In fact, where I live, blighted, disused buildings are taxed at a punitive rate.
That seems the most logical solution to me. But I think corporate taxes are also aimed at "pushing" companies to invest/spend more of their revenue than they would if they could funnel all profits straight into accounts in the Cayman islands or wherever.
I like this in principle a lot, but capital gains tend to be more lumpy than normal income so this interacts badly with our current progressive income tax structure. Better to go to a consumption tax if we're going to do this.
I thought this whole story was debunked a while ago along the lines of GE bringing forward their losses from the previous tax year, which is why they paid no tax
Given the vast size and complexity of GE's business, I don't really think 57,000 pages is unreasonable. Who knows how many hundreds of sub-units they might have, foreign entities, etc.
At $150 billion of revenue, that's $2,631,578.95 of revenue per page. Which is better than most tax filers have to deal with.
Especially when, as a result, they save billions of dollars in tax payments.
You can also download the data as an Excel Spreadsheet - they may obfuscate as much as they want - but if you start leveraging the XBRL tags - you can automate search for that incriminating needle in a haystack...
This is what the SEC auditors are doing these days1
You realize that is a 10-Q and not a tax return? IRS and SEC are separate institutions. There is a big difference between the types of financial reporting for stocks versus federal income tax.
This blogger is, as usual, arguing that the corporate tax code is somehow too complex.
Rather what is happening is that GE is intentionally gaming the system. Most of those 57,000 pages are self-inflicted. If GE refrained from tax-dodging activity and only undertook regular business activity, their tax return would be much, much thinner.
A few lines of patching to the tax code to require that income earned in the U.S. be taxed in the U.S. would fix the majority of the problem. Literally a couple of sentences.
First, the definition of 'corporate income' is soft and fuzzy, and it's very hard to translate into a technical definition useful for making tax policies. Second, the US has tax incentives and the idea behind them is that you're supposed to take them. The system is designed to be gamed, it wants to be gamed, except when certain corporations game it in a certain way then suddenly there's lots of outrage without anyone really asking why the tax system was intentionally set up to work that way.
Instead the outrage usually ends with pitting on the blame on the congress/corporate lobbying system (which is real but overrated, and just an amplifier of the problem not a source), or the assertion that all corporations should be demanded to follow some ill-defined moral code that would arbitrarily please the speaker.
Although there are clear problems with the tax code, people forget that some of the complexity is there because that's what most people actually want.
People want a tax deduction for charity.
People want to tax corporate profits, not revenues - so you need to figure out how much is actually profit. Is R&D a real expense? Can we just sink all our profits into R&D and say we have no profits? But you can't just tax all R&D as if it was profit that the company is hiding or software companies would go out of business. What about when you have some complicated schedule of when a client pays you - do you record the revenue when you earn the money or when you get it?
Many people want a tax deduction for a mortgage (whether or not this makes any sense).
Like software, complexity gives room for hacks. You can't hack into a hammer, but you can hack into a computer. If you want a complex tax code, you don't simply declare "Simplify!" It's like "I'm going back to my typewriter to avoid viruses." There are more realistic ways to deal with the problem, and like computer security, it takes real time and effort.
This may be an interesting piece of rhetoric, but does little to advance the argument. I know that GE employs some of the most sophisticated international tax planners on the planet (as they should). I have no idea how much tax they have avoided, and I doubt they evaded any.
How much tax do you think they should have paid? How much should Johnson & Johnson have paid? Due to a quirk of the laws of Wisconsin, it is comparatively easy to find out how much money their corporations actually paid to the government, which is not necessarily close to the amount on their filings.
This cuts the estimate of their tax subsidies by a bit over $200M, so 1000x the remainder would be about $700B. Is it your contention that GE dodged taxes equal to roughly the cost of the US military?
The tax code already requires that income tax earned in the U.S. be taxed in the U.S. My father's job essentially involves making up the numbers. Why do I say make up numbers? Often, corporations are multinational. Some part of the corporation makes a sale, but parts in two countries did the work. The rule is that the sale is allocated between the two parts as if they were two companies, and each part pays where it's located. But how much would the part that made the sale pay the other part if they really were two companies? Who knows? So they hire people to make up convincing numbers; they find other transactions between companies that actually are separate to compare to. As you might imagine, this leaves tons of wiggle room.
In short, in this case, the reasonable thing is actually the law, but it gives companies plenty of room to take advantage.
"Consider the resources that GE spends to lowers its tax bill... Indeed, a corporate tax system with a tax rate of zero could well be preferable as it would waste fewer resources and raise not much less revenue."
GE does pay their taxes. The issue is that they structure their business in a socially inefficient way in order to minimize their taxes. They do pay the taxes they owe.
I'll speculate that what you may really oppose is structuring transactions in order to avoid taxes. But then again, you may not.
Do you oppose employers providing health insurance, i.e. untaxed compensation? Do you oppose individuals buying a home when the mortgage interest tax deduction tips the scales in favor of home ownership? Or corporations switching to green energy sources when tax subsidies make it economical [1]?
[1] Incidentally, this is one of the bigger tax breaks GE used.
I'm sure they pay the taxes they owe and they do it within the legal framework they operate in, otherwise we would be reading a whole other article about corporate fraud.
Instead the article is about a company that paid zero in taxes on their profit thanks to "extraordinary use of tax breaks and clever accounting".
I'm not against any of the tax structures you mention, GE doesn't need the best tax experts in the world for those things. So even though I haven't read the 57,000 page tax return I am willing to guess that all of the tax breaks used where not of the same considerate nature as the ones you mention.
It just seems like the primary motivation is to avoid paying taxes, not switching to green energy or even pay health insurance. The article even mentions "inefficient ways that GE structures its businesses just to avoid paying taxes", which, if true, is a major indicator.
Of course I may be completely wrong, I don't know what the motivation is and why they seem to work so hard not to pay taxes on their profit.
The biggest tax break they got is a loss carryforward. This is a one time event due to losses incurred by GE Capital, and is almost certainly not something they did on purpose.
In contrast, GE's green energy and paying for employee health insurance are done directly to avoid paying taxes.
GE's windmills are profitable primarily because of the tax benefits. And there is no business reason whatsoever why a company should pay for employee health insurance, or car insurance, or cable TV. Companies pay for health insurance because it reduces the tax bill, and they generally don't pay for car insurance (which doesn't reduce the tax bill).
I tire of this argument. They do. They pay taxes according to the laws of the land.
Are they being fiscally responsible by paying less to the tax experts than they'd pay in taxes? I don't know, but I'd suspect either those experts will always continue to justify their existence (e.g. "Yes, Mr. CEO, we've saved you oodles of money") or corporate boards and executives just prefer not to think about taxes and accounting and such and just keep some accountants and lawyers around anyway.
The only way to prevent this is to move to a sales tax model. Anything else can be gamed ad nauseum as GE & co have so helpfully proved. With today's tax system, the amount of taxes you pay are inversely proportional to the amount of complexity you're willing to deal with.
And since corporations are legally people, you're barking up the wrong tree with conversations about not taxing businesses. Sales tax it, period. Cannot be circumvented.
That is not the experience of many nations which have sales taxes, for example, the United States. Among many favored ways to circumvent it are underreporting, effecting the transaction in a jurisdiction which has a favorable sales tax (New York every so often prosecutes people for the crime of buying art in Connecticut), classifying the sale as something which has favorable tax treatment, etc etc. I've heard hilarious accounts of merchandising decisions by which a handbag was only sold in combination with a scarf such that the transaction became clothing + accessory (taxed at LOW%) rather than luxury goods (taxed at HIGH%), despite neither the buyer nor seller benefiting from the bundling of the scarf.
classifying the sale as something which has favorable tax treatment
The UK, with a VAT/sales tax rate of about 15% has similar cases. A popular biscuit (Jaffa Cakes) are legally classed as a cake (and hence have lower VAT rate), as opposed to a biscuit that have higher VAT rates. cf. http://en.wikipedia.org/wiki/Jaffa_Cakes
Many people oppose ideas like this because it is less progressive (w.r.t. income) than an income tax, and they hold an apriori belief that taxation should be proportional to income. This is because consumption rises sublinearly with income, and people at the bottom actually tend to consume more than they earn. In mathematical terms, dConsumption/dIncome < 1.
In practical terms, this means that most of Steve Job's wealth is not stuff he can consume, but rather productive capacity that he directs.
In fact, many people at the bottom of the income scales actually consume considerably more than they earn, so a sales tax would be a big tax hike for them.
Raw data: ftp://ftp.bls.gov/pub/special.requests/ce/standard/2009/income.txt
Sales tax only puts the burden disproportionally on the poor.
If you're making millions of dollars a year you're probably only spending a small fraction of it and if there's only sales tax you pay tax on a percentage of what you spent. So let's say you made 30 million dollars and spent 8 and say the sales tax rate is 15%. In this case you paid 1.2MM in tax for a marginal tax rate of 4%.
On the other hand if your income is 15k you're probably spending it all or very close. In which case your marginal tax rate is 15%.
Not all that fair I'd say.
Personally I like the progressive income tax method. I just think capital gains should be taxed as income rather than at a flat 13% and no special rules for corporations either. If they want to be people they can be taxed like people. If they want to be different then we can just get rid of corporate personhood. I doubt they'd like that much.
If they want to be different then we can just get rid of corporate personhood.
Ok, lets do that. A group of people working in a building with the word "GE" on it just violated a contract with you. Who do you sue?
With corporate personhood, you sue the legal person GE. Your responsibility ends here - it's up to parties within the entity GE to figure out who goes to court, and the court can seize any GE assets if GE refuses to pay (assuming you win).
That's all corporate personhood is - a convenient legal interface. I'm not sure why you believe having this particular interface necessitates double taxation of income earned by corporate owners. Could you explain?
GP is talking specifically about the recent ruling that corporations have e.g. freedom of speech, and can therefore send lots of money to fund political campaigns. It basically gives corporations a huge amount of political power.
As far as I'm aware, no such ruling ever occurred. Corporations are currently barred from funding federal political campaigns. They also have no free speech rights that your (non-person) printing press or cell phone lack.
(Before you cite Citizens United vs FEC, please go read what it actually says.
In short, the decision is about the free speech rights of the human owners of a corporation. http://www.law.cornell.edu/supct/html/08-205.ZO.html )
You can actually fix a lot of the sales tax issues by excluding certain categories (e.g. unprepared food, clothing).
I am more a flat rate tax person with a base exclusion per tax payer (i.e. your kid working a summer job files for themselves) and only one tax line (the government can divide it between SS, FICA, etc). As a curiosity, I was trying to figure out what would actually be revenue neutral. I think somewhere in $20K deducible then 17 - 20% flat rate after that. It is really not that easy to get all the information needed to play with various scenarios.
You can actually fix a lot of the sales tax issues by excluding certain categories (e.g. unprepared food, clothing).
That's what my state historically has done. The last time I bought an expensive business suit, the purchase was free of sales tax, because a business suit is clothing. There is always pressure, however, to broaden the categories of goods and services that are subject to sales tax, especially when a government unit has a shortage of revenue relative to what it is expending to maintain government programs.
Creeping sales taxes is a problem and pretty much why I think Cain's 9-9-9 plan is not a good idea. I would prefer to leave sales tax to the states and have the federal do other.
There are always court cases about silly things; you don't need taxes for that. Five years ago, a Massachusetts judge ruled in a commercial leasing lawsuit that a burrito is not a sandwich: http://www.democraticunderground.com/discuss/duboard.php?az=...
No doubt it gets to be a little weird, but unprepared is a pretty well defined thing if you don't do what the federal food stamp program in the US does and type of food shouldn't really matter. If it requires cooking or is primarily an ingrediant then no tax.
US weird stuff: If you buy a frozen burrito it is ok. Unless the store has a microwave and you use it, then it is not ok. If you go home and microwave it then it is ok.
I don't have to define it, it is in the law books in several states - even the fed food stamp program has its own version which I mentioned is problematic.
milk and fruits are often considered ingredients in these laws - chocolate is too, chips are often taxed. stuff gets complicated depending on who wrote the law.
what's with the down votes - I didn't write the damn laws like this
1. Don't tax the essentials. Milk, fruits, vegetables, lean meats, non-luxury cloths. Don't tax the first $50 of a pair of shoes. Don't tax the first $15k of a car.
2. Determine the average monthly sales tax paid for by a person at the poverty line. Have the government send a monthly check for that amount, minus 10%, to every citizen. Everyone should pay some tax.
If you have a more expensive house, you are paying a much higher tax rate and not actually getting much more out of the money you are putting into the system.
If their kids are in private schools, they are also paying double or triple what the average person is paying, yet not actually using it.
There are also many taxes wealthy people pay for but never actually use.
so it's fair. Also, whatever happened to "paying your fair share"? This phrase seems to be going around a lot, yet it only seems to involve people at a certain income level.
Amusing, given that you're repeating deceitful rhetoric designed to be hostile to anyone except those already making a fairly fantastical amount of money. (The drive to defend those who are screwing the one repeating said rhetoric is common, though I still don't understand it.)
Paying for services you don't consume as a reason to consider one's tax burden "higher than it should be" is a meaningless red herring. I don't have kids at all, yet I pay for schools--I'm paying NaN% more for no value! Holy shit, that's a lot of % (or is it? I can't evaluate it). I don't use public transporation, but I'm paying for it. I am not rich, but I also don't use these services. You do not, however, see me complaining about it, and I do not attempt to handwave that into some claim that I am paying higher taxes than I "should be." (As it happens, I should be taxed higher. I would vote in favor of someone who wanted to tax me higher, should those in higher brackets be appropriately taxed as well. This will never happen, because screwing the middle class is the name of the game.)
Your implication that "the 1%" are in fact paying anything remotely close to an equitable sum is made so is left at best curious by the staggering wealth gap that simply continues to grow at an unsustainable pace within this country. If "the 1%" paid their fair share, that would not be happening. Yet it is. Res ipsa loquitur.
Yes, it can be circunvented, here in Uruguay and neighbouring countries we've had sales tax for decades, and there are more than enough loopholes to circumvent it.
Heck, even local governments evade sales tax (spanish link saying that the governor of Misiones teaches how to evade sales tax):
The complexity is because the government uses the tax system to motivate behavior. There isn't a mortgage tax deduction just for the heck of it, it is there to encourage people to own houses. There are long term and short term capital gains because the government is encouraging people to hold investments for a longer time.
Any "simple" tax gives up these governmental incentives.
