There Are Problems in the US Tax System (duh) - OG Myth-Weavers

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There Are Problems in the US Tax System (duh)

 
There Are Problems in the US Tax System (duh)

But this article is still really well-written about it.

Quote:
The shameful thing about Apple Inc.’s ability to structure its business to avoid United States taxes was not that it did it. In fact, as Apple executives tried to point out at the Senate hearing at which their tax strategies were detailed, they could have chosen to pay much less in American taxes than they did.
That pretty much encapsulates it. The rest is details. So, how do we fix this? I think it's pretty obvious at this point that we need to scrap the entire tax system, at least for corporations, and start over again. According to the article, it seems to be well acknowledged that the tax rate as it stands (35%, nominally) is too high. Apple Execs in the article are claiming that it needs to be single-digits, which I'm not entirely sure I believe (as much as they threaten to leave and go to other markets, we are still the biggest economy in the world. They ain't leavin', yet), but I doubt the rate can be much above 15%, if that. The other real big question is how to decide which income to tax where. Again, the article says there are a bunch of companies looking for a "territorial" tax system, of which I'm again slightly skeptical. However, I don't know much about alternatives. Anyone who can offer enlightenment?

The entire US tax system is crazy. I agree to scrap it, what to replace it with is something similar but less draconian and labrynthian.

And stop taxing US citizens regardless of where they live, and stop taxing resident aliens on all of their assets/income, regardless of where they are.

I haven't read enough to claim more than a basic understanding of the system, and estimate that it would take several months of focused reading to reach that point. I'm a bit biased in that I feel that the laws should be fully understandable by everyone, so if you feel otherwise take the remainder of this comment with a bit of salt.

In my opinion, the present tax system along with other laws not in my knowledge should probably be replaced. I would likely set up a system such that randomly selected and anonymous groups of citizens research and evaluate laws every eight years they are on the book. Given that their identities are unknown to the world and to each other, there should be relatively little room for lobbying in such a system, and if a sufficiently large group is used the results should accurately reflect the opinion of the majority of citizens.

Under such a system, were I to take a look at the US tax code, I would likely set a new law along the following lines:
1.) Negative income tax up to the previous year's poverty line.
2.) Income above the poverty line gets a 15% tax.

Corporations want to be treated as individuals, so they are. Gross income over the poverty line gets a 15% tax.

Once again, the above is entirely opinion, and does not have nearly enough research behind it.

Quote:
Originally Posted by Michael View Post

And stop taxing US citizens regardless of where they live, and stop taxing resident aliens on all of their assets/income, regardless of where they are.
Consider it the world wide tax for all those hikers who decide to go around middle east and get caught all the time lol

Resident aliens should get taxed the same rate as anyone else, as they get access to emergency services and infrastructure as anyone else in the boarder for long periods of time.

Quote:
Originally Posted by silverwolfer View Post
Resident aliens should get taxed the same rate as anyone else, as they get access to emergency services and infrastructure as anyone else in the boarder for long periods of time.
As an immigrant I can assure you that non-citizens in the US get taxed exactly the same way as everyone else, unless they're working illegally... but that's, well, illegal.

The thing with Apple is that they're not just using loopholes in the American system, they use differences between the systems in different countries and use loopholes in how these interact with each other.
If Apple sells 1000 Ipads, but all the profit goes to a daughter company in say Ireland or the Cayman Islands -before being transferred to Apple, through several other similar subsidiaries, the least taxable way available- then that's 1000 Ipads' worth of revenue you can't tax as such no matter what system you make because it's not Apple's profit, it's some Irish company's profit... which just happens to eventually find its way to Apple.

So you can rework the American tax system all you want but the Apple -to be fair, though I've heard some people say they're pioneers in the field, Apple isn't the only or, most likely, the worst offender, it's just a handy coincidence- situation won't be resolved unless at least a large majority of the world sit down and adjust their tax systems to prevent that.
Which, well... isn't going to happen. Not with the vastly different ways people feel about taxation around the world.

1) Assuming that one takes US 35% CIT rate at face value it is actually much higher than in European countries that are mocked by US conservatives as socialist. Having such high tax rate is actually asking international companies to be creative.

2) You have a tax system that complexity really impress me as a person who as part of my former job (and now subject of my Ph.D. thesis) deals with subject of international taxation. (but I specialise in the EU)

3) Technical question - ex. a branch of international company with HQ in the US buys goods in China and sells them to the EU. You (Americans) would like to tax heavily that profit which is very remotely related to the US, don't you? And are complaining that big part of global profit is taxed in countries where it arises at local lower tax rate?

4) There is also a third problem - possibility to juggle with financial capital, intangible assets and risks. Can an intangible asset be moved to a different, low tax country? Yes. So where now is the profit? Same with capital - instead of investing in a share capital of company the same money can be lent as a loan. Instead of generating income in one country (paying CIT there, and maybe some withholding tax on dividends) the company has no income because it paid interests which are generally treated as tax deductible cost.


Possible dealing with the problem:

1) Minor adjustment: presumably a bit lower tax rate and a some nervous hunting for loopholes. This hunting is easier said than done and you should expect a backslash of damaging also business that don't do any avoidance but got in crossfire - ex. really have business partner in low tax jurisdiction. Keep in mind that would not solve the problem but only mildly alleviate it.

2) Scrapping CIT (or dramatically reduce it) and replace it with something where international companies can't be very creative - VAT (plus maybe higher taxes on petrol or real estate). You may also think about idea - higher, a bit regressive taxes but instead more generous public service like healthcare to all, which would compensate such shift from taxing income to taxing consumption to people at the bottom.

3) Some kind of utopian international agreement between at start at least NAFTA and EU, which would introduce one common income tax for the whole block. (with moderate possibility for local variants) The block has to be big enough to be able to bully other countries and treat third countries with heavy withholding taxes, which would both effectively combat international tax avoidance at expense of making many types of absolutely normal and desirable transaction with countries outside of the block unprofitable.

Monk Wren's article from NYTimes:
Quote:
If that is not going to happen, the United States could simply end the deferral system and put in some kind of minimum tax based on global profits. If an American company paid less than, say, 15 percent, in total taxes, then it would owe the difference to Uncle Sam immediately, whether or not it brought the profits home.
Not so simple. Assuming that an international company would be really hurt by that, it should reorganize its structure: it should be no longer an American company with branches all over the world, but an ex. Irish company with a big branch in the US. Yes, that would not require to change anything with tangible assets, just some job for lawyers, accountants and tax advisers.




 

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