January 28, 2005

END IT, DON'T "MEND" IT:

Congressional Study Notes Ways to Collect Billions More in Taxes (EDMUND L. ANDREWS, 1/28/05, NY Times)

The federal government could increase tax revenues by $311 billion over the next 10 years if it clamped down on hundreds of ways that individuals and corporations elude their obligations, according to a Congressional study issued on Thursday.

The report concludes that the nation's system for taxing overseas profits of American corporations is so flawed that the government would save $55 billion if it simply scrapped the system altogether. [...]

In principle, the United States has a tougher corporate tax system than many other countries have because it uses a "worldwide" approach that imposes taxes on profits of American companies regardless of where those profits are earned. European corporations are subjected to a "territorial" tax system that does not tax profits on foreign operations.

But in practice, the Joint Committee on Taxation said, American corporations almost permanently defer their taxes by keeping money outside the United States in low-tax countries like Ireland or India.

"By maintaining deferral indefinitely, a taxpayer can achieve a result that is economically equivalent to 100 percent exemption of income," the report said, referring to a company's foreign income.

The problem of taxing foreign corporate profits has been the subject of intense political battles for many years. During his campaign to unseat President Bush, Senator John Kerry of Massachusetts proposed giving American companies a one-time opportunity to bring their accumulated foreign profits back to the United States at a fraction of the normal corporate tax rate, which is 35 percent. In exchange, he proposed abolishing the practice of letting companies defer their United States taxes in the future.


Just as they have no constitutional rights, businesses shouldn't be taxed. Period.

Posted by Orrin Judd at January 28, 2005 7:24 AM
Comments

" Just as they have no constitutional rights, businesses shouldn't be taxed. Period."

What, exactly, are you talking about? I can be sued by a business, or enter into a contract with one. Businesses can lobby Congress, or any other government body, and these days they practically control most of them. About the only thing they can't do is vote directly. If they are not taxed, then there's a great deal besides that should be denied them.

Posted by: M. Bulger at January 28, 2005 10:32 AM

M:

Precisely.

Posted by: oj at January 28, 2005 10:38 AM

By businesses, I assume you mean corporations. Corporations are taxed because of the benefits they receive on ownership liability.

I don't understand OJ's comment to M. Is he saying that corporations should be abolished?

Posted by: Chris Durnell at January 28, 2005 10:42 AM

Corporations don't actually exist, so of course they are not taxed. They are, however, a convenient collection point for taxing people without riling up the voters.

Posted by: David Cohen at January 28, 2005 11:24 AM

OJ:

Not very Third Way of you, this not taxing corporate profits. Of course, you are completely correct because of this.

Posted by: Palmcroft at January 28, 2005 11:24 AM

The expense of taxes is included in the cost equation when a company figures out its pricing structure. So in effect taxes paid by companies are passed along to consumers. As OJ notes above they are essentially middlemen in collecting taxes from people. Reducing corporate taxes would lead to a) lower prices for consumers and/or b) higher profits for the company which will benefit stockholders and bondholders.

Also, as someone who has interacted with corporate tax depts for 20 yrs, corporate tax depts consist of very smart people who spend almost all of their time figuring out ways to reduce the amount of taxes paid by the company. Reducing/eliminating corporate taxes would allow these people to use their talents in more economically profitable ways.

Posted by: AWW at January 28, 2005 11:31 AM

The expense of taxes is included in the cost equation when a company figures out its pricing structure. So in effect taxes paid by companies are passed along to consumers. As OJ notes above they are essentially middlemen in collecting taxes from people. Reducing corporate taxes would lead to a) lower prices for consumers and/or b) higher profits for the company which will benefit stockholders and bondholders.

Also, as someone who has interacted with corporate tax depts for 20 yrs, corporate tax depts consist of very smart people who spend almost all of their time figuring out ways to reduce the amount of taxes paid by the company. Reducing/eliminating corporate taxes would allow these people to use their talents in more economically profitable ways.

Posted by: AWW at January 28, 2005 11:33 AM

Palmcroft:

Very Third Way--we're going to require them to provide HSA's to employees and 401k's and fund the privatized SS.

Posted by: oj at January 28, 2005 11:55 AM

The only thing to watch out for is the self-employed keeping their income in their corporations instead of paying themselves. But if we had a more consumption oriented tax structure, that would come out in the wash as well.

Posted by: Annoying Old Guy at January 28, 2005 12:27 PM

AWW, Good point. Same with the estate tax.Lots talent wasted in that area too

Posted by: jdkelly at January 28, 2005 1:00 PM

Why not scrap the whole tax system and replace it with a consumption tax?

Posted by: Bart at January 28, 2005 2:29 PM

It seems we lost our way from how the country was set up. It is indiviuals with constitutional rights who should be free of taxing every aspect of their lives.

Posted by: gg at January 28, 2005 2:29 PM

With rights come responsibilities.

Posted by: oj at January 28, 2005 4:45 PM

They are, however, a convenient collection point for taxing people without riling up the voters.

Once again, David coalesces the entire issue in one sentence.

Posted by: Jeff Guinn at January 28, 2005 7:23 PM

OJ, Agreed in principle. But what, though, would you do regarding foreign corps/shareholders who would then be benefiting themselves of US services (e.g. legal system protection, policing, infrastructure etc) w/out paying their share of such costs? Allow them to ride free?

Posted by: ras at January 29, 2005 3:18 AM
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