It's time to give up on shaming big tech companies for their low tax rates • Hacker News Board

Re: It's time to give up on shaming big tech companies for their low tax rates

#61

Post by Retric » Mon, Apr 30, 2012, 6:09 PM UTC

beagle3 wrote: post #41

Retric wrote: post #28

Earlier quoted context omitted.

Suppose 95% of what the Bill Gates foundation does is pure waste, should we raise taxes so his money is better spent? If you assume your correct you can make anything sound reasonable. However, despite popular opinion the US government is reasonable efficient given it's size, it's the goals that are poorly thought out not it's methods. If you want to suggest otherwise you need to compare total income with total outpu…

> the US government is reasonable efficient given it's size, Do you have a reference for that? Genuinely interested. I've dealt only with a small part of the US and State government, and all of those were horrendously inefficient (e.g., refusing electronic filing of documents; turns out that I type it in on my computer, print it onto the pre-made form, send it by regular mail; someone at the other end manually types…

The US government does a lot of different things most of which hard hard to compare with equivalent private sector work. Still, Social Security and Medicare are huge and have reasonable private sector comparisons.

Social Security Administration overhead ~1% http://www.ssa.gov/oact/STATS/admin.html Compared to 401k http://www.perfectswindle.com/?p=109 vs ~20% of 401k payouts go to administrative overhead.

Medicare vs. Private insurance http://voices.washingtonpost.com/ezra-klein/2009/07/administ...

PS: You can argue that SS should include IRS overhead, but you need to reach into a lot of other government programs or argue they should run 401k style programs to close that gap. Medicare pays less in overhead and less for the actual procedures there is some arguments in relation to work done, but they are are not obviously worse.

Re: It's time to give up on shaming big tech companies for their low tax rates

#62

Post by swombat » Mon, Apr 30, 2012, 6:39 PM UTC

mattmanser wrote: post #17

swombat wrote: post #8

Earlier quoted context omitted.

Is exploiting tax loopholes really unethical? Some would argue that the government is the biggest waste of money there is. I'm not saying that's my belief, but let's entertain that thought for a minute. If you believe that the government wastes most, say 95%, of its money on stupid things that should never receive a dollar from anyone (like the war in Iraq, to pick a random one), and you believe that you personally c…

Unfortunately you've missed the point of why it is unethical, everyone else has to pay more to support your avoidance instead. If they paid their way then the overall tax rate would be lower for everyone, instead of just for the rich. The irony being they're the ones who need it the least. So effectively Bill Gates made the decision to make everyone else pay more tax so that he could go and cure Malaria in Africa. Ca…

In practice, all that happens if there are more taxes paid is that the government spends more money. Do you really think you would pay less tax if the government received a $100b windfall? Of course not.

The way the government can cut its debt is by cutting its spending - the biggest slice of which is the military.

Re: It's time to give up on shaming big tech companies for their low tax rates

#63

Post by beagle3 » Mon, Apr 30, 2012, 6:44 PM UTC

Retric wrote: post #61

beagle3 wrote: post #41

Earlier quoted context omitted.

> the US government is reasonable efficient given it's size, Do you have a reference for that? Genuinely interested. I've dealt only with a small part of the US and State government, and all of those were horrendously inefficient (e.g., refusing electronic filing of documents; turns out that I type it in on my computer, print it onto the pre-made form, send it by regular mail; someone at the other end manually types…

The US government does a lot of different things most of which hard hard to compare with equivalent private sector work. Still, Social Security and Medicare are huge and have reasonable private sector comparisons. Social Security Administration overhead ~1% http://www.ssa.gov/oact/STATS/admin.html Compared to 401k http://www.perfectswindle.com/?p=109 vs ~20% of 401k payouts go to administrative overhead. Medicare vs.…

> Social Security Administration overhead ~1% http://www.ssa.gov/oact/STATS/admin.html Compared to 401k http://www.perfectswindle.com/?p=109 vs ~20% of 401k payouts go to administrative overhead.

Thanks. I don't agree it is a valid comparison (SSA puts all money in t-notes, 401k actually has (mostly useless, but non-zero cost) management) - but 1% is, in fact, efficient overhead in absolute terms. I'm impressed.

> Medicare vs. Private insurance http://voices.washingtonpost.com/ezra-klein/2009/07/administ....

> PS: Medicare pays less in overhead and less for the actual procedure.

Medicare decides how much they pay for most procedures, and the providers cannot refuse (and instead roll the cost onto less leveraged customers), so I'm not sure how can use that as a basis of comparison.

I can't find it now, but I recall a comparison to other systems (UK's NHS and other single payer systems) found that medicare was overall much less efficient (which is again, unfair - the NHS doesn't have to deal with private for-profit hospitals, medicare does).

Re: It's time to give up on shaming big tech companies for their low tax rates

#64

Post by rprasad » Mon, Apr 30, 2012, 6:50 PM UTC

beagle3 wrote: post #55

rprasad wrote: post #39

Earlier quoted context omitted.

(1) The tax system is very simple if you're not trying to game the system to (EDIT: changed from "or") minimize your tax burden. Almost all of the complexity arises from the allowance for deductions and the related regulations necessary to prevent abuse of those deductions. (2). Worldwide, that is the standard tax practice. It is called "territorial taxation." Source-based taxation is the U.S. practice regarding fore…

> Almost all of the complexity arises from the allowance for deductions and the related regulations necessary to prevent abuse of those deductions. Unfortunately, that complexity also applies to taxpayers who are not trying to game the system. And while they might only be, say, 5% of the population, they vastly outnumber the outlaws for which these regulations were made. e.g., if you have control of any asset outside…

As I said, the "related regulations necessary to prevent abuse." The FBAR and foreign asset reporting requirements which you are referring to are the direct outgrowth of wealthy Americans using offshore accounts and investments to evade taxes.

Prior to this abuse, investing in foreign assets or using offshore bank accounts was siginificantly less complex.

Re: It's time to give up on shaming big tech companies for their low tax rates

#65

Post by rprasad » Mon, Apr 30, 2012, 6:54 PM UTC

clarky07 wrote: post #48

rprasad wrote: post #39

Earlier quoted context omitted.

(1) The tax system is very simple if you're not trying to game the system to (EDIT: changed from "or") minimize your tax burden. Almost all of the complexity arises from the allowance for deductions and the related regulations necessary to prevent abuse of those deductions. (2). Worldwide, that is the standard tax practice. It is called "territorial taxation." Source-based taxation is the U.S. practice regarding fore…

>(1) The tax system is very simple if you're not trying to game the system or minimize your tax burden. Almost all of the complexity arises from the allowance for deductions and the related regulations necessary to prevent abuse of those deductions. How is taking deductions "gaming the system?" Why on earth would I not try to minimize my tax burden. The US government is not a charity, and it functions far worse than…

You wouldn't say that if you knew how most charities operate...

As for "gaming the system." I mean that they are attempting to maximize their outcome by "playing" all of the rules available. (For example, by committing a holding foul to prevent a receiver from scoring a touchdown in college football.) Essentially, they have gamified the tax code. I do not intend a positive or negative inference.

Re: It's time to give up on shaming big tech companies for their low tax rates

#66

Post by beagle3 » Mon, Apr 30, 2012, 7:10 PM UTC

rprasad wrote: post #64

beagle3 wrote: post #55

Earlier quoted context omitted.

> Almost all of the complexity arises from the allowance for deductions and the related regulations necessary to prevent abuse of those deductions. Unfortunately, that complexity also applies to taxpayers who are not trying to game the system. And while they might only be, say, 5% of the population, they vastly outnumber the outlaws for which these regulations were made. e.g., if you have control of any asset outside…

As I said, the "related regulations necessary to prevent abuse." The FBAR and foreign asset reporting requirements which you are referring to are the direct outgrowth of wealthy Americans using offshore accounts and investments to evade taxes. Prior to this abuse, investing in foreign assets or using offshore bank accounts was siginificantly less complex.

> related regulations necessary to prevent abuse.

While we could argue about the merits of FBAR in preventing said abuse (apparently, the IRS and treasury do not believe it is useful given the recent FATCA upgrade it got), I don't want to go there.

Your statement:

> (1) The tax system is very simple if you're not trying to game the system to minimize your tax burden.

Is demonstrably wrong. e.g. naturalized citizens who still have some assets in their country of origin (or even natural born citizens who inherit such assets), are subject to complicated tax filing whether or not they try to game the system or minimize their taxes.

Re: It's time to give up on shaming big tech companies for their low tax rates

#67

Post by rprasad » Tue, May 01, 2012, 6:47 PM UTC

JumpCrisscross wrote: post #38

rprasad wrote: post #20

Earlier quoted context omitted.

Money does not grow on trees; it does however grow in cotton plantations. Corporate taxes decrease profits for shareholders, but do not decreas wages for employees. By definition, corporate taxes are taxes on profits , so employee wages have already been deducted from corporate revenues by the time the tax liability is determined. Nobody is "hurt" collecting taxes. Taxes are simply a nonspecific bill from the governm…

> Corporate taxes...do not decreas [sic] wages for employees Given two companies, one that pays no taxes and another that pays 10% of profits in taxes, the former will have something between (a) cheaper access to capital (assuming equal expenditures), or, (b) more cash for R&D, employees, etc. (assuming equal returns). Saying that corporate tax rates have no effect on how much money a company has available to spend i…

First, your are calculating the total collective wages of a corporation's employees. I refer to the individual wages. Corporate taxes do not decrease individual wages, though they may impact the total number of employees hired...in smaller firms which have less resources. In larger companies (i.e., publicly traded companies), the company's tax rates do not affect hiring decisions. Business considerations other than tax rates affect hiring.

Second, you misunderstand the time-value of money theory. The theory posits that the money saved in taxes, if actively invested back in the business or other investments, will result in sufficient income to completely offset the eventual tax payment when it comes due. Low interest rates may change the expected timeframe, but the theory assumes that the company will attempt to maximize the return on its investments.

Re: It's time to give up on shaming big tech companies for their low tax rates

#68

Post by JumpCrisscross » Tue, May 01, 2012, 11:19 PM UTC

rprasad wrote: post #67

JumpCrisscross wrote: post #38

Earlier quoted context omitted.

> Corporate taxes...do not decreas [sic] wages for employees Given two companies, one that pays no taxes and another that pays 10% of profits in taxes, the former will have something between (a) cheaper access to capital (assuming equal expenditures), or, (b) more cash for R&D, employees, etc. (assuming equal returns). Saying that corporate tax rates have no effect on how much money a company has available to spend i…

First, your are calculating the total collective wages of a corporation's employees. I refer to the individual wages. Corporate taxes do not decrease individual wages, though they may impact the total number of employees hired...in smaller firms which have less resources. In larger companies (i.e., publicly traded companies), the company's tax rates do not affect hiring decisions. Business considerations other than t…

Empirically, "approximately 50 per cent of an exogenous increase in tax is passed on in lower wages in the long run" [1] through wage bargaining. Generally this will happen through a reduction in real versus nominal wages due to the documented stickiness of wages. Anecdotally, having worked at a private equity firm, taxes are an input into not only hiring capabilities at a firm but the wages and bonuses payable to those hired.

Regarding the time value of money, if a firm defers $1 in taxes today for 8 years it would need to earn about a 9.1% annualised return on that dollar to have $2 at the end of those 8 years, $1 for the taxes deferred and $1 to keep so that it is as if "as if the tax was never owed". Given that the S&P 500 had an annual average return of 3.46% (1.42% annualised) over the past 10 years your assumption that a 7-8 year deferral even nearly wipes out taxes includes a substantial risk assumption. An American firm should expect to wait 26 years for its tax deferral to be wiped out by time if we use the US's average GDP growth rate since the 1970s of 2.7% [2]. Note: above I was doing the inverse of this, asking what the discount rate would have to be to discount $x in 10 years to almost zero today

[1] http://repec.iza.org/dp5293.pdf

[2] http://en.wikipedia.org/wiki/Economy_of_the_United_States