Trump Wants Tax Plan to Cut Corporate Rate to 15% • Hacker News Board

Re: Trump Wants Tax Plan to Cut Corporate Rate to 15%

#81

Post by harryh » Mon, Apr 24, 2017, 8:45 PM UTC

abhv wrote: post #79

harryh wrote: post #27

Earlier quoted context omitted.

The IRS is not stupid. It's perfectly capable of distinguishing a real business from a dummy business set up just to pay personal expenses. There are all kinds of rules about this sort of thing.

If I own a software business that earns 500k-1m a year, currently, I can organize as an LLC and induce pass-thru income that is taxed marginally at ~50% (federal, state, NYC). If I organize as a C-corp, I pay the corporate rate which is also roughly 40%, and I also get double-taxed on salary and any dividends paid to owners. Under these new rules, if a C-corp gets taxed at 15%, there is a strong incentive to pass all…

Well, the disincentive to make it a C-Corp goes down. But your taxes will still be higher that way: 15% + individual taxes vs just individual taxes.

I certainly agree that the double taxation issue is a problem and it would be even better if both situations were taxed the same way but I'm not sure what this has to do with tax evasion.

Re: Trump Wants Tax Plan to Cut Corporate Rate to 15%

#82

Post by abhv » Mon, Apr 24, 2017, 8:46 PM UTC

DenisM wrote: post #60

abhv wrote: post #18

Lower corporate taxes can also help create structures which allow wealthier people to avoid taxes. For example, if you can create a structure in which all of your consulting income + capital-asset income goes into a C-corp, and you pay most of your own expenses through the C-corp (e.g., Trump tower home office), then you can keep most of your income taxed at only 15%. The C-corp holds it forever, and pays your expens…

I don't think it works this way. If it's a "legitimate" expense it gets deducted from profits, so the tax rate is zero, even under today's rules. If it's not a "legitimate" expense, e.g. a vacation paid by the company, the beneficiary gets taxed as if he got this much money in salary. The part of your list that will be taxed differently under new rules is assets - jets, boats, etc. Even so, usage of the boat for leis…

1. I agree, your math is better explanation of the point.

2. In very high income categories, many activities can be classified as "legitimate expenses" since deals hinge on reputation, entertaining, etc.

Re: Trump Wants Tax Plan to Cut Corporate Rate to 15%

#83

Post by ska » Mon, Apr 24, 2017, 8:47 PM UTC

harryh wrote: post #76

ska wrote: post #65

Earlier quoted context omitted.

[edited summary] Apparently techniques exist to let you capital gains rather than income, increase deductions, or both. In some cases chase subsidies, which is roughly equivalent. And (cf Panama papers) obviously offshoring. All theoretical interest on my part, so who knows. Government estimates on lost revenue from this range wildly (order 1billion to 100billion) from what I've seen, but they are at least convinced…

What you describe is largely a myth.

ok.

Re: Trump Wants Tax Plan to Cut Corporate Rate to 15%

#84

Post by DenisM » Mon, Apr 24, 2017, 8:56 PM UTC

abhv wrote: post #79

harryh wrote: post #27

Earlier quoted context omitted.

The IRS is not stupid. It's perfectly capable of distinguishing a real business from a dummy business set up just to pay personal expenses. There are all kinds of rules about this sort of thing.

If I own a software business that earns 500k-1m a year, currently, I can organize as an LLC and induce pass-thru income that is taxed marginally at ~50% (federal, state, NYC). If I organize as a C-corp, I pay the corporate rate which is also roughly 40%, and I also get double-taxed on salary and any dividends paid to owners. Under these new rules, if a C-corp gets taxed at 15%, there is a strong incentive to pass all…

You don't get double taxed on salary, salary is expense and offsets income.

Re: Trump Wants Tax Plan to Cut Corporate Rate to 15%

#85

Post by ethbro » Mon, Apr 24, 2017, 8:58 PM UTC

harryh wrote: post #75

jellicle wrote: post #67

Earlier quoted context omitted.

The loophole allows self-dealing transactions to move local profits offshore. Apple US buys iPods for $10 from China and sells in USA for $100. $90 profit, taxable, right? Wrong. Apple US licenses the Apple name from Apple Ireland for $89/iPod. Final tax sheet looks like: Revenue: $100 cash from Apple store in San Francisco Expenses: $10 Apple China, $89 Apple Ireland Taxable profit in USA: $1 (minus labor and such,…

You actually have it backwards. US firms that do a lot of business overseas are being paperwork-shifted outside of the US not to avoid paying taxes on US operations but to avoid paying US taxes on operations that take place largely overseas. This is how Apple ends up with 250 Billion (or whatever it is now) overseas that it doesn't want to Repatriate and pay US taxes on. That money wasn't earned by selling iPods in t…

Both of these are problems.

The first is the US government not doing enough to prevent shell IP licensing from being used to eliminate US profits (while the companies are benefiting from US stability and legal protections).

The second is the issue with US companies repatriating (or not) profits earned in foreign subsidiaries.

Re: Trump Wants Tax Plan to Cut Corporate Rate to 15%

#86

Post by ghostly_s » Mon, Apr 24, 2017, 8:59 PM UTC

harryh wrote: post #27

abhv wrote: post #18

Lower corporate taxes can also help create structures which allow wealthier people to avoid taxes. For example, if you can create a structure in which all of your consulting income + capital-asset income goes into a C-corp, and you pay most of your own expenses through the C-corp (e.g., Trump tower home office), then you can keep most of your income taxed at only 15%. The C-corp holds it forever, and pays your expens…

The IRS is not stupid. It's perfectly capable of distinguishing a real business from a dummy business set up just to pay personal expenses. There are all kinds of rules about this sort of thing.

And yet we have Trump's business (cited by the OP), which per public info has possibly been 'doing business' for years without turning a profit or generating any real value.

Re: Trump Wants Tax Plan to Cut Corporate Rate to 15%

#87

Post by ethbro » Mon, Apr 24, 2017, 8:59 PM UTC

notadoc wrote: post #44

technotony wrote: post #8

I think the big thing about this is that it will lead more companies to bring capital back to the US from overseas where they are hoarding it. If they either spend it or distribute it to Americans that's likely good for the economy. It also improves the IRR for projects, which should lead to more investment. Hopefully, it works to get the economy going.

If the goal is to repatriate earnings why not incentivize repatriation instead? Bring it back tax-free if you invest it in R&D on needed projects, x many new jobs, etc.

Too expensive to manage? Or too easy to game?

Better to just tax it once and call it even.

Re: Trump Wants Tax Plan to Cut Corporate Rate to 15%

#88

Post by harryh » Mon, Apr 24, 2017, 9:01 PM UTC

ghostly_s wrote: post #86

harryh wrote: post #27

Earlier quoted context omitted.

The IRS is not stupid. It's perfectly capable of distinguishing a real business from a dummy business set up just to pay personal expenses. There are all kinds of rules about this sort of thing.

And yet we have Trump's business (cited by the OP), which per public info has possibly been 'doing business' for years without turning a profit or generating any real value.

Say what you want about Trump's business (and there is plenty to say!) but it's clearly a real business. It owns tons of real estate and licenses the Trump brand all over the place.

Re: Trump Wants Tax Plan to Cut Corporate Rate to 15%

#89

Post by hn_throwaway_99 » Mon, Apr 24, 2017, 9:49 PM UTC

bpodgursky wrote: post #15

0%, with raises to capital gains to offset the tax revenue, would be better, but I can understand it's politically infeasible (because people are ignorant). Better than nothing.

Yeah, to me it seemed to make much more sense to get rid of corporate taxes entirely, and then just tax all dividends and capital gains at income tax rates. Is there an economic (as opposed to political) reason this is a bad idea?

Re: Trump Wants Tax Plan to Cut Corporate Rate to 15%

#90

Post by 542458 » Mon, Apr 24, 2017, 9:54 PM UTC

abhv wrote: post #79

harryh wrote: post #27

Earlier quoted context omitted.

The IRS is not stupid. It's perfectly capable of distinguishing a real business from a dummy business set up just to pay personal expenses. There are all kinds of rules about this sort of thing.

If I own a software business that earns 500k-1m a year, currently, I can organize as an LLC and induce pass-thru income that is taxed marginally at ~50% (federal, state, NYC). If I organize as a C-corp, I pay the corporate rate which is also roughly 40%, and I also get double-taxed on salary and any dividends paid to owners. Under these new rules, if a C-corp gets taxed at 15%, there is a strong incentive to pass all…

Actually, it's even worse than that. From Trump's tax plan:

> Right now, freelancers, sole proprietors, unincorporated small businesses and pass-through entities are taxed at the high personal income tax rates. [...] The Trump plan addresses this challenge head on with a new business income tax rate within the personal income tax code that matches the 15% corporate tax rate

They want to change it so S-corp income gets taxed at 15%, rather than at personal income tax rates. Which is completely crazy, since every CEO in the US will be forming an S-corp and passing all income through it to get a flat 15% "income tax" rate.