the logical outcome?

[Cyberyeti]

If corporate tax is zero...

 

Suppose I create AWM Inc. with myself as sole owner. My employers treat me as a contractor and transfer all my compensation to AWM and no tax is paid.

 

Of course, I probably want the money in my own pockets. But there are many ways to do this. I can make sure my workplace is far from my nominal home and AWM provides a comfortable per diem. I can have AWM "loan" me computer equipment, a company car, a cellular phone. The company pays for frequent flights between my workplace and my nominal home, and sends me on business trips to "check out real estate investments" in exotic locales. All of these corporate "perks" and "business expenses" are effectively tax free and could easily reach into the hundreds of thousands of dollars in value.

 

If I need more money from AWM, I just pay out a dividend to myself, taxed at the lower rate for long-term capital gains.

 

While this may "seem like a scam," real (large) companies do exactly this with executive compensation. No reason it should be legal for a big corporation and not for AWM Inc. Only the corporate tax rate provides defense against this.

 

Most of these are illegal or don't work in the UK for individual contractors (I was one, worked 140 miles from home and could claim almost nothing for accommodation or travel after the first few months as it was deemed by then to be travel to my normal place of work for which you can't claim, you need multiple simultaneous employers to pull this off), the rules were changed so that you effectively pay NI on dividends from your own company as well.

 

Some of the equivalent things do however work better for large companies. Like a very famous case where most of an executive's salary is paid direct to his wife who is resident in Monaco. The one that hit the papers here recently was somebody who got his salary paid to a company in a tax haven, who loaned it back to him on a no interest never pay it back basis. Loans don't attract tax. This loophole is being closed. There is talk of a law being brought in to the effect that "if it looks like a duck and walks like a duck, it's a duck".

[PassedOut]

Disgusting! It's hard to understand the thinking of those who pull such stuff. People who evade their tax obligations lack decency and good character no matter what schemes they employ.

[mycroft]

Even with the corporate tax rates as they are, what AWM, Inc. has set out is both common and works. I would say that at least 25% of my colleagues at my current job are self-employed contractors, working 100% for Company. Remember, all business expenses are tax-deductible, so that's your car, your gas (well, what's used going to work and back), your home office (including the computer that RDPs into client sites when it's not playing Diablo III or movies),...

 

The more money you have, the better the accountants/tax lawyers you can hire, and the more creative deductions you can take.

 

Also, dropping the corporate tax rate to zero, (and changing the other taxes to compensate) without *requiring* offsets in compensation, will simply Walmartize. Sure, what customers used to pay as passed-on corporate taxes they now pay as visible income or sales taxes; but their wages will not have gone up, and the product's prices won't go down that much...

 

Of course, in a free market, competition would drive prices down to a reasonable profit. That's why there are so many laws ensuring that there are barriers to a free market - but only when it's in favour of the company over the customer (or the worker, or the environment). Software Patent Law (and patent law in general, for many things) is so biased in favour of the patenting company in terms of lock time vs development cost that it in itself (remember, almost *everything* has software in it now) makes the requirement to drop prices almost moot.

[phil_20686]

If corporate tax is zero...

 

Suppose I create AWM Inc. with myself as sole owner. My employers treat me as a contractor and transfer all my compensation to AWM and no tax is paid.

 

Of course, I probably want the money in my own pockets. But there are many ways to do this. I can make sure my workplace is far from my nominal home and AWM provides a comfortable per diem. I can have AWM "loan" me computer equipment, a company car, a cellular phone. The company pays for frequent flights between my workplace and my nominal home, and sends me on business trips to "check out real estate investments" in exotic locales. All of these corporate "perks" and "business expenses" are effectively tax free and could easily reach into the hundreds of thousands of dollars in value.

 

If I need more money from AWM, I just pay out a dividend to myself, taxed at the lower rate for long-term capital gains.

 

While this may "seem like a scam," real (large) companies do exactly this with executive compensation. No reason it should be legal for a big corporation and not for AWM Inc. Only the corporate tax rate provides defense against this.

 

These things do happen, but they are basically examples of badly written law. If your argument is that the law will always be badly written/exploitable, then thats ok. It makes for a whole topic all of its own, but european countries have successfully closed many of these loop holes. Of course, there are still some, but the UK tax law now has what is basically a "spirit of the law" clause, so if the IRS can convince a judge that your scheme has no legitimate purpose other than avoiding properly owed tax, then they can claw it back even if you were within the letter of the law. Not completely sure how I feel about that, but that is current practice.

 

http://en.wikipedia....amsay_Principle

 

http://en.wikipedia....rniss_v._Dawson

 

Think canada has one of these clauses, they call it General Anti-Avoidance something or other, GAAR?

 

I just prefer to think about these things in purely economic terms, which is not always that practical when it comes to legislating.

[Cyberyeti]

Of course, in a free market, competition would drive prices down to a reasonable profit. That's why there are so many laws ensuring that there are barriers to a free market - but only when it's in favour of the company over the customer (or the worker, or the environment). Software Patent Law (and patent law in general, for many things) is so biased in favour of the patenting company in terms of lock time vs development cost that it in itself (remember, almost *everything* has software in it now) makes the requirement to drop prices almost moot.

There are issues with this in the field of drug patents. It is now so expensive to develop drugs with all the trials that need to be done, that anything you can't patent will not be touched by the drug companies, and it's inhibiting the development of drugs for diseases that may be uncommon in the wealthy world but affect large numbers elsewhere.

 

Also as the company only has (in the UK) 15 years I think to get its money back before the drug can be made by anybody, the cost of the new drug to the NHS is astronomical if it's not a common disease. The NHS is reluctant to pay more than about £35K a year for a drug, and some new cancer treatments are coming in at more than this. Also supplies of some drugs are running out in the UK, because the French and Germans will pay more for them, but that's another story.

[onoway]

It would instantly cut about ten thousand pages of tax law, devoted to what are and are not business expenses subject to tax credits.

Ok, what about a flat tax on income, period? No deductions except wages and costs of materials. That's already more of a break than the workers get. They don't get to deduct the cost of their houses (at least here) or the other mundane bits such as energy usage that they have to pay to cover the costs of living, so why should a company not also have to pay for the costs ITS existence entails? Then the actual true costs of things would show up and it would likely be less appealing to send trees from Alberta to Japan to be made into toothpicks and sent back to Wisconsin. .

 

It would POSSIBLY cut a little into the incentive to bring everything in from another country also, if the wages were deductable but the transportation costs and so forth were not. As the price of fuel goes up those will be getting to be more and more of an issue, and why should taxpayers encourage that by not requiring companies to pay those costs if they choose to put their businesses offshore?

 

And a flat tax would certainly simplify tax codes, if that's the goal. I don't know what such a tax should be, but pehaps it should be in line with the rate that the average worker for the company pays?

 

What it appears to come down to is a matter of values, whether people or businesses are more important and which should have priority. I am not convinced that IBM or Walmart or Exxon or even Pfizer or ANY single business is so important that the world could not get along without it, so it should pay its own way and earn the patronage of consumers. If it cannot do that, then maybe it needs to rethink some of its business practices or maybe it isn't really a viable company.

 

I find it disingenuous to suggest that Big Pharma is badly treated because of patent laws. The markup and profits such companies show suggest otherwise. Big Pharma is worth a thread of its own...

 

Of course, putting in a flat tax would cause chaos for a while, at least, (at least if it also wiped out all the deductions) and is in direct opposition to the "global market" way things are going. So it will likely be seen as undoable. But I can't see how the way things are going is sustainable either, so thought I'd throw it out there.

 

On a radio talk show today one caller said that governments (and big business?) need to STOP thinking of the taxpayers as ATM machines. You put in a law and get out money...

[Cyberyeti]

 

I find it disingenuous to suggest that Big Pharma is badly treated because of patent laws. The markup and profits such companies show suggest otherwise. Big Pharma is worth a thread of its own...

 

Not saying it's badly treated, just that the system in place hinders the development of some drugs that are worthwhile from a "general good" perspective but uneconomic to develop because of the way the laws are. And bear in mind I only know anything about the UK situation. Big pharma makes money off the drugs it develops because it chooses which to proceed with, I'm not sure the priority should be "which drug makes me most $$$" rather than "which will alleviate most suffering".

 

One case in point. There is a treatment for certain sarcomas which has been known for more than 100 years and basically involves giving the patient a cocktail of bacteria to provoke an immune response which then attacks the tumor. It has proved effective in some patients in various trials, but none of them has been the really serious sort of trial that would get it licensed as a medicine. There is no incentive on any of the pharmaceutical companies to take this on as they couldn't patent it. http://en.wikipedia.org/wiki/Coley%27s_toxins

[mycroft]

There are issues with this in the field of drug patents. It is now so expensive to develop drugs with all the trials that need to be done, that anything you can't patent will not be touched by the drug companies, and it's inhibiting the development of drugs for diseases that may be uncommon in the wealthy world but affect large numbers elsewhere.

And that's what the patent law was designed for - to give enough of an opportunity for profit that it's worth inventing something (and wasting all the time and money on failed inventions), because it's in society's best interest for invention to be supported. I argue, as do many, that Software and Business Method patents are so far down the other end of the spectrum that if patent protection on these methods and practises were set at 1 year, they'd already be on the corporate side of the balance.

 

Ok, what about a flat tax on income, period? No deductions except wages and costs of materials. That's already more of a break than the workers get. They don't get to deduct the cost of their houses (at least here) or the other mundane bits such as energy usage that they have to pay to cover the costs of living, so why should a company not also have to pay for the costs ITS existence entails? Then the actual true costs of things would show up and it would likely be less appealing to send trees from Alberta to Japan to be made into toothpicks and sent back to Wisconsin.

Flat taxes (individual or corporate) have several issues, in that we want to be able to use the tax system to encourage practises that benefit the country. The key one, though, is the declining value of additional money I mentioned before. A flat tax of 9% (now where did I get that number from?) is much more damaging on $10 000 than on $10 000 000, even though the actual amount is also 1000 times as high.

[onoway]

Of course. There would have to be a level (perhaps 1 1/2 times poverty level?) at which point this would kick in..no point in trying to grab taxes from someone who has barely enough money even to survive. And if they could make a little without being penalized then they might get to like having some money to spend and actually work hard enough to get out of poverty. That's a different discussion tho.

 

Even 9% of $10,000,000 is a whole lot more than nothing, which is what was suggested. And if deductions were limited to only wages and material costs,(sort of an integral point I think) then the actual taxes due would inevitably be a good deal higher than when all sorts of deductions were allowed. The point is not to try to drive the companies into the ground though, only to have them pay their own way as any other money earner has to.

 

Also, if wages and materials were the only deductions, there would be no incentive to try to cut wages or use second rate materials, rather the opposite, and that would seem to be a good thing?

 

Aside from many wage earners who would be ecstatic if their tax rate went down to 9% !! a flat rate would possibly also be an incentive to work. I know of people who have turned down a raise or quit after getting one as they calculated (or saw on their first subsequent pay cheque) it would cost them money because they'd be thrown into a higher tax bracket. Seems sorta counterproductive. Perhaps they'd get it back in refunds, but in the meantime..

[mike777]

taxes are so tricky......just simply defining what is taxable income or earned income is tricky.

Income recognition is very tricky and confusing.

 

 

One simply example is building airplanes...when is the income earned?

 

In general you have years and years of loses......and one big year when the plane is finished or do you create(which they do) a more complicated tax system.

 

 

Look at internet companies where they have years and years of loses.....and yet are worth billions.

 

 

taxes are just really complicated.

 

 

Step one if you have a flat tax is to define what that tax is based on...in other words how do you define taxable or earned income?

 

at this point you hve not!

[blackshoe]

Personally, I think this whole discussion of taxes is cart before the horse. The first thing to do is trim (not balance, trim, although the budget should imo be balanced) the budget. Government is spending money on too many things it should not be spending money on at all, or at least should be spending at much reduced levels. Trimming the budget is of course much harder politically than raising taxes. :(

[PassedOut]

Trimming the budget is of course much harder politically than raising taxes. :(

Lowering taxes without trimming the budget is very easy politically, though, which is why we have this problem now. :(

[ArtK78]

I seem to recall a balanced budget during the Clinton administration.

 

It is amazing what can be accomplished if one does not reduce tax rates for the very rich while at the same time conducting multiple wars halfway around the world.

[PassedOut]

I seem to recall a balanced budget during the Clinton administration.

 

It is amazing what can be accomplished if one does not reduce tax rates for the very rich while at the same time conducting multiple wars halfway around the world.

Yes, but it was politically very difficult for the democrats. Every republican voted against the Clinton 1994 tax increases, bellowing that the tax increases would bring about another depression. In the aftermath, Newt Gingrich and his republicans demonized the democrats who had voted for fiscal responsibility and took the House of Representatives in the November elections. Parallels with the 2010 healthcare reform are striking.

 

The Budget and Deficit Under Clinton

 

Q: During the Clinton administration was the federal budget balanced? Was the federal deficit erased?

 

A: Yes to both questions, whether you count Social Security or not.

The 1994 tax increase was coupled with pay-as-you-go spending restraints, meaning that new spending had to be balanced either by reducing spending somewhere else or by increasing revenues. Economic growth then naturally erased the deficit, with the dot-com bubble speeding up the natural process considerably.

 

The fiscally irresponsible policies of the 2nd Bush administration (and plenty of democrats voted for those policies too) started us back down to the mess we find ourselves in now. Although the housing bubble during the Bush years did mitigate the losses, it could not overcome the tax cuts plus the wars plus the unfunded prescription drug entitlement.

 

Don't get me wrong -- I'm fine with lower taxes. Just lower them after cutting the spending.

[luke warm]

Newt Gingrich and his republicans demonized the democrats who had voted for fiscal responsibility and took the House of Representatives in the November elections.

and, if memory serves, it was shortly after that election that the budget was balanced and the deficit disappeared... my memory could be hazy though, it often is

 

The fiscally irresponsible policies of the 2nd Bush administration ...

if you thought bush was fiscally irresponsible, you *must* think obama is doing an exceptionally poor job... he did, after all, call bush irresponsible and unpatriotic for having $4T in debt (after 8 years, mind you) and he (obama) has more than doubled that in under 4 years

 

oh that's right, it's bush's fault

[PassedOut]

and, if memory serves, it was shortly after that election that the budget was balanced and the deficit disappeared...

Yes, the Clinton tax increases and budget restrictions had the intended effect, even though many of democrats who forced those fiscally responsible changes into law lost their seats as a result. With Clinton in the White House, though, the law could not be undone. It took Dubya's election for that to happen.

 

I certainly disagree with Obama's position that the Bush tax cuts should be retained for anyone who makes less than $250,000. If Romney advocates returning to the same tax rates and budget restrictions that Clinton had (fat chance!), I'll strongly consider voting for him. The deciding factor then would have to be whether or not Romney would defend the US without getting into a stupid war with Iran.

 

As to the right-wing "social" issues, it seems likely that Romney would come back to the middle once in office. In any case, fiscal responsibility and staying out of unnecessary wars are the biggest issues for me, not the social issues: Politicians often talk about those but seldom take action.

[awm]

The difference between Bush and Obama on the deficit, is that Bush actually did things to increase the deficit. He signed two massive tax cuts, a big expansion of medicare spending, and got us into two very long wars... without paying for any of it! While there was a mild recession when Bush took office, most of this spending was well after the economy had started recovering.

 

Obama's main legislative accomplishment has been the Affordable Care Act (which actually reduces the deficit, paying for the insurance subsidies to low-income families by cutting overpayments to Medicare Advantage, cutting out middlemen in government-backed student loans, and several small tax hikes mostly on high-income people). He's done several things to reduce deficits (various freezes on federal employee hiring and pay, ending the war in Iraq, various deals with Republicans to cut spending) and in some cases wanted to do more (ending tax-cuts on income over 250K, offering a "grand bargain" to the house republicans to cut trillions from the deficit). He spent a lot of money in the stimulus (which was basically a response to an emergency and only one-time spending in any case) but otherwise has been relatively thrifty.

 

So why are the deficits so huge? The main reason is because of the economy. Spending on safety net programs (like unemployment insurance and medicare) has automatically risen as more people are unemployed. At the same time, revenues have dropped (because people who don't have income don't pay income tax). Note that this isn't (mostly) anything Obama has legislated into place. Sure, he extended unemployment insurance (as both parties have done every time unemployment is anywhere near this high) and he passed a payroll tax cut (intended to be temporary, but the only even half-effective stimulus he could get past Republican obstructionism in Congress)... but these are relatively small contributors to the problem. It's also true that we are still paying for some things Bush did... but the reason our deficits now are so much bigger than in 2007 is primarily the lousy economy.

 

The way to fix the deficit... is to fix the economy. Austerity in general will make the economy worse. Of course, if just "spending more money" would fix the problem we'd be doing a lot better right now. The trick is to spend our money wisely. Tax cuts on people who will spend the money (middle class people, mostly) help the economy a lot more than tax cuts on people who will save the money and/or invest overseas. Spending on things like education and infrastructure (which themselves improve our economic competitiveness) help a lot more than spending on things like wars overseas, or spending on counter-productive things like polluting our environment. We don't necessarily need a "bigger government" to fix the economy -- we need a "smarter government." On this I suppose I agree with Mitt Romney... but his definition of "smarter government" seems to involve lower taxes on the wealthy, massive increases in military spending, and cuts to safety-net programs... all of which seem like "dumber government" or "more corrupt and plutocratic government" and do exactly the opposite of what we need to fix the economy.

[y66]

We don't necessarily need a "bigger government" to fix the economy -- we need a "smarter government." On this I suppose I agree with Mitt Romney...

 

Suppose? Sorry. No quibbles with anything else in your post.

[blackshoe]

oh that's right, it's bush's fault

Well, it can't be Obama's fault - after all, he's a Democrat! :ph34r:

[jonottawa]

Perhaps I can simplify things for you, Luke.

 

Clinton was the greatest president ever because he balanced the budget, raised the standard of living for all, and brought us prosperity. He was probably the highest IQ president we've ever had. He was an alpha male who liked sex with lots of women (as many presidents before him) and the Repugs decided to destabilize the US economy and impeach him for it.

 

Bush was the worst president ever because he was an alcoholic, unintelligent, war criminal who bankrupted us morally and economically and in 8 short years brought us from 'sole superpower' to 'permanent decline.'

 

Obama is a mediocre president whose biggest mistake was pretending that compromise with Republicans was possible and worth seeking. He is the competent, articulate version of Bush.

 

I hope Romney wins this election, because when this country goes the way of the Dodo bird, it's only fair that it's under a Republican.

 

....

 

Now as to the tax rate issue. Republicans always like to draw historical analogies about 'tax cuts' without ever mentioning what the prevailing tax rate was at the time. Doing so is completely dishonest and anyone who does so should be disregarded.

 

It seems to me that a relatively high marginal tax rate of 60% on income above $500,000/yr is warranted until such time as the budget is back in balance. It's only fair that the people who voted for the guy who bankrupted the country should chip in to un-bankrupt the country. Repugs will mewl about punishing 'job creators' and 'small businesses' but we know that's a lie. They mewled similarly when Bush I raised taxes and when Clinton's first budget passed by a single vote. That Koolaid is getting pretty hard to swallow.

[mike777]

"Clinton was the greatest president ever because he balanced the budget, raised the standard of living for all, and brought us prosperity"

 

 

I think you hit the main point......the president has amazing powers.....

 

now if you can just explain how one man did all of this.......

 

----

 

 

your post may have the answer:

 

 

It seems to me that a relatively high marginal tax rate of 60% on income above $500,000/yr is warranted until such time as the budget is back in balance. It's only fair that the people who voted for the guy who bankrupted the country should chip in to un-bankrupt the country

 

 

--

 

 

we have a 16 trillion deficit and a yearly one trillion addition how much does your plan raise?

 

if we can raise enough trillions with taxes ........ok just tell us how?

[jonottawa]

Mike:

 

Does Clinton deserve as much credit for getting it right as Bush does for getting it wrong? No. You're right, the prosperity of the 90's isn't ALL due to 1 president or his administration. But America's decline, moral bankruptcy, and massive debt is Bush's legacy. He thought stealing elections was ok. He thought ignoring Al Qaeda and focusing on 'missile shields' was a brilliant strategy. He thought massive tax cuts for his rich buddies was a great idea. He thought launching 2 wars and introducing a huge new entitlement program (prescription drug benefit) without raising taxes was just peachy, even though he knew that Baby Boomers were about to start hitting their senior years. He thought America should torture people. He thought secret prisons were neato. He thought that spying on Americans and creating a huge new security bureaucracy was what the founders would have wanted. His supreme court justices think that there is a constitutional right to buy public office.

 

If anyone ever tells you 'this is the most important election of your lifetime' be sure to tell them 'no, that happened in 2000.' It's too late for a do-over.

 

As for taxes, no, higher taxes on the rich alone are not sufficient to fix the problems we face. But they're a good start. If Republicans didn't demagogue almost every issue, we could get lots of great things done and many of the problems we face would have been solved long ago. But Republicans can't accept the simple math that the wars they started combined with the aging US population inevitably accumulate huge bills that must be paid, even with significant entitlement reform.

[jonottawa]

"American Exceptionalism" is an irritating myth. The US has higher crime, worse healthcare system, a more unequal society, the worst educational outcomes in the developed world, ghettos of under-privileged children consigned to crime and poverty through the failure of the education system, the highest incarceration rate in the developed world, and yet your politicians go on tv and announce to rousing cheers that they live in the greatest country on earth. Its bizarre. Except that it isnt, its similar to britian in its Empire building phase, or the early days of the USSR. Young countries with short histories do not appreciate how easy it is to make expensive mistakes. On the other hand, I have friends who live in houses which are older than your country. That gives a certain perspective.

 

I think you misunderstand 'American Exceptionalism' a bit. American Exceptionalism is the absolute belief that America is the greatest country in the history of the world in spite of the mountain of evidence to the contrary. It's not so much a myth as a religion.

 

You say we have the highest incarceration rate in the developed world (I don't think 'developed' is a necessary modifier) and an American Exceptionalist hears 'USA is #1!'

[kenberg]

The problem that I see with "American Exceptionalism" is that, other than needlessly aggravating people, it has no consequences.

 

We should aid Syrian rebels because of American Exceptionalism? Or should we mind our own business because of American Exceptionalism?

 

We should support the ACA because of American Exceptionalism? Or should we work for its repeal because of American Exceptionalism?

 

We should extend the Bush tax cuts because of American Exceptionalism? Or should we raise taxes on the wealthy because of American Exceptionalism?

 

The phrase has no content whatsoever. Which of course makes it very attractive to politicians.

[jonottawa]

The problem that I see with "American Exceptionalism" is that, other than needlessly aggravating people, it has no consequences.

 

I think it has 2 very negative consequences.

 

First, it serves as justification for the unjustifiable. We can torture people because we are exceptional. We can launch wars of aggression because we are exceptional. We can rack up trillions in debt because we are exceptional. ... etc.

 

Second, it makes it almost impossible to fix problems or to acknowledge past mistakes. Acknowledging problems is seen as unpatriotic, acknowledging past mistakes is the most unforgivable sin of all: 'apologizing for America'. Only when problems become so massive that they are unavoidable can they be addressed, and by then the fix is far more painful than it would have been if it were addressed earlier.

 

Anyway, not everybody agrees with my definition of American Exceptionalism (that proponents see America as a special snowflake, facts be damned.) I gotta admit, this guy (below) makes a pretty good argument for it, even though he seems to be mostly arguing that the 20th century was the American Century, which most people would tend to agree with I think.

 

http://youtu.be/nuv0K8H8ILM

 

This article by Bill Maher kinda reminds me of this discussion. A brief excerpt:

 

"The grown-up answer is: identify problems scientifically, prioritize and solve. The Republican answer is: there isn't a problem. And anyone who tells you different is a liar who hates America. We don't have to make hard choices. We just have to ignore the science and the math -- that's why God gave us values."