“Ten Percent of S&P 500 Companies Avoid Paying U.S. Taxes” is a Bloomberg story that a friend cited on Facebook in disgust: “Plutocracy on parade.” The article notes that “At 35 percent, the U.S. corporate rate is the highest in the developed world.” (Actually closer to 40 percent if you include state taxes on corporate income; see KPMG and compare to the European average of less than 20 percent) So there are two potential stories here:
- American corporations, their owners, and their managers are greedy because they are trying to avoid double taxation of profits by converting to REITs or they are trying to avoid the U.S. corporate tax on worldwide operations by moving to low-tax foreign jurisdictions.
- Americans who don’t invest or work in private corporations are the world’s greediest people when it comes to demanding a share of the profits generated by fellow citizens who do invest and work in such corporations.
Story #1 seems to be all that we ever get. Nobody seems to be interested in why Americans who aren’t involved in a company feel entitled to take 40 percent of the company’s profits (and go to the polls to elect politicians who will take it for them) while an uninvolved person in England will content him- or herself with just 21 percent of the profits (KPMG). Nor do reporters interview people in Singapore and Switzerland and ask “Why do you work so hard instead of just helping yourself to more than 17 percent of what your neighbors who are investors or workers in corporations are able to generate?”
Since a corporation’s revenues eventually flow to individual people, much of this evasion can be foiled by eliminating the corporate income tax and taxing individuals instead. A tax on individuals leaves far less scope for evasion and can be designed to be extremely progressive. Yet people find the symbolism of sticking it to incorporeal, evil entities far more thrilling than funding the government programs they claim to care about. See:
http://www.bloombergview.com/articles/2014-07-16/we-don-t-need-a-corporate-income-tax
Three things stand out as being taxable: wealth, production, and consumption. It seems the last of those is the most appropriate and the simplest to collect. Discussions about how to reengineer the Goldbergian tax on production are wasted energy. It seems to me that production should be rewarded, not disincentivized.
American companies can grow very large without ever doing business outside the US. Companies in European countries typically don’t; at some point they will have to expand outside their home countries.
If corporate tax rates in one European country become significantly worse than in the other, lots of small and medium-sized business will happily relocate their head offices. Maybe many European countries’ governments would like to impose a 40% corporate tax rate; instead they have to worry about the neighbouring country lowering theirs to 15%.
I agree with nipper, but actually corporate profits do belong to the government. Corporations are government chartered entities for specific purposes. They are creatures of the state. There is nothing private about them.
There is another story here that does not get enough attention: Corporations in the US sometimes have to wait more than a year before before they get final certainty on the amount they have to pay in taxes. On the other hand, in some European countries you can get a so-called “ruling” that guarantees your tax amount even before your fiscal year ends (as long as you don’t deviate more than a few percent from the preliminary numbers you submitted).
Corporations/investors are very unhappy about large uncertainties on their balance sheet so they would even pay a bit more to go to a jurisdiction where they get that certainty. Consequently, even if the US lowers it effective rate to 20% those corporations are not going to come back unless the US’ tax authorities improve too.
Ed, you are completely wrong. Just because corporations have government charters does not make them government property. Even in the days when the issuance of a corporate charter required a special act of the King or legislature, the issuance of the charter did not imply that the government had any ownership in the assets or profits of the corporation. And for almost 200 years now, the issuance of a charter has been a formality – anyone who files the papers and pays a small fee is issued a charter for any legal purpose.
Patents and copyrights also exist by government fiat but that doesn’t mean that the government owns title to your invention or software program.
The reason the government issues these charters is not in order to enrich itself but in order to encourage economic activity by limiting personal liability. GM is being sued now for billions of $ by various people who claim they were injured as a result of faulty ignition switches. If every investor in GM could be held personally liable as a general partner to the full extent of his assets for such injuries, no one would have ever invested in GM in the first place and we would all be riding around in horse carts and there would be no UAW jobs.