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Just get rid of the goddam corporate tax

You can think of corporate taxation as a sort of long chess match: The government makes a move. Corporations move in response — sometimes literally, to another country where the tax burden is less onerous. This upsets the government greatly, and the Barack Obama administration in particular. Treasury Secretary Jack Lew has written a letter to Congress, urging it to make it stop by passing rules that make it harder to execute these “inversions.” I’ve got a better idea: What if we made our tax system so attractive to corporations that they would have no interest in moving themselves abroad?

- Megan McArdle.

I have actually read the letter sent by Lew to Congress, and right rollicking laugh it is too. It talks about a new sort of “economic patriotism” (which prompts me to think of Samuel Johnson’s famous line of patriotism being the last refuge of the scoundrel). Lew does actually admit in his letter that it would be preferable to go for root and branch reform and reduction of corporation tax. The US has one of the highest corp. tax rates in the industrialised world – 40 per cent – while the average for OECD members is in the mid-20s, and in the case of some countries such as Ireland, in the low teens. As a result of this system, US corporations have, according to figures I recently heard from JP Morgan, north of $700 billion held outside the US. The likes of Apple, Google and Pfizer, among others. This system is crazy; it is a sort of corporate twin of the equally mad US system of worldwide tax in which anyone born in the US, even if they have never set foot in Jefferson’s Republic in adulthood, have to file an IRS return. The situation in that respect has got worse with the enactment of the FATCA Act, a truly terrible piece of legislation.

If the Republicans want to seriously act as a party that represents business and holders of equities – such as those with 401(k) plans, a big cut to corp tax makes sense. Firms will bring their money back home, either returning it to shareholders, or investing it in the US, etc. Sure, some vested interests that benefit from the current state of affairs will bleat, but screw them. (This is the sort of reform – practical, worthwhile and beneficial, that should be a basic proposal on the GOP table.)

48 comments to Just get rid of the goddam corporate tax

  • John K

    Corporation taxes all have the flaw that they impose a tax on profits, and any accountant will tell you that profit is a very fluid concept. Because companies can offset interest against profit, it encourages gearing, which ultimately makes companies unstable. I feel that only a tax on actual turnover makes any sort of sense, with no further taxes on profits or dividends. Obviously, the US corporation tax rate of 40% is insane, which is why companies use the thousands of pages of the tax code to find loopholes, which is a thoroughly perverse way of doing things.

  • Laird

    The other flaw inherent in a corporate tax (whether on income or otherwise; lots of state have gross receipts taxes) is that corporations don’t pay tax. The tax ultimately gets passed through to real persons: customers (in the form of higher prices), workers (lower wages) or owners/investors (lower profits). That’s it; there is no one else. And of course the “incidence” (technical term for flow-through) of that tax is not and cannot be known with certainty; it varies from industry to industry, company to company, and time to time, all depending upon a myriad of internal and external factors. Taxing corporations is favored by politicians because it’s invisible to the average person, since it doesn’t show up as a deduction from the paycheck, an extra charge on the sales receipt, or a check written to the government. But its perverse effects are legion.

    The best thing would be to abolish the corporate income tax completely; the next best thing would be to reduce it substantially. But in this era of rapacious government, where everything and everybody is seen as nothing more than a tax cow to be milked to the maximum extent possible, that’s not going to happen.

  • Lee Moore

    There are lots of good reasons to abolish corporate taxes, including

    1. simplification (NB abolition would be far better than reduction to a low rate, for this reason plus No.2)
    2. redeployment of lots of clever people to more constructive tasks
    3. elimination of state subsidy for debt financing over equity financing, and consequent benefits in terms of efficient capital allocation
    4. elimination of double taxation of corporate profits
    5. ability to charge ordinary income tax rates on dividend income, thereby eliminating the ludicrous political meme about dividends being tax favoured

    But in the real world there are also a number of real problems to solve

    6. deferment of taxes by retention in company (or the administrative horrors of retained profits taxes)
    7. avoidance of income taxes by inversion, change of residence, sale to tax exempt bodies etc
    8. creating tax disadvantages for debt funding, if creditors continue to be taxed on interest
    9. political odour – “they are favouring big business” etc

    In an economic textbook, abolishing corporate taxes is a splendid idea. In the real world, it’s not so simple.

    To some extent, corporate income taxes are a bit like VAT. A huge administrative burden, which in an economics textbook has no benefits. But like VAT, they are really there to minimise tax avoidance or evasion. If you collect sales taxes in itty bitty slices with a VAT, the final seller has only a small incentive to avoid/evade tax on the final sale. Likewise with corporate taxes you reduce, to some extent, the incentive to avoid taxes on profit extraction.

  • Angry Tory

    The biggest reason to end corporate taxation is also the best: corporate taxes are unconstitutional.

    The federal behemoth must be funded by subventions from states, or truly flat (dollar amount, not percentage) taxes on citizens – or of course any arrangements on non-citizens (3/5ers and aliens) and non-citizen corporations.

  • Paul Marks

    In the real world American taxes on business are now (not in the past) some of the highest in the world, the United States also has some of the worst regulations hitting “big business” (people can be sent to prison in the United States, or ripped off for large amount of money, for what in most counties would be considered clerical errors).

    Yet the “libertarian” left tell us that America is controlled by “the capitalists” – that all American policy is for the benefit of “big business”.

    Whereas in reality American enterprises are in desperate need of lower taxes and less regulations – are rivals for the name “libertarian” would have the world believer that high taxes and endless government regulations are just a plot by “the capitalists” to prevent competition (that they love high taxes and endless regulations really – which hardly squares with so many enterprises trying to move their operations out of the United States).

    Perhaps one should not be surprised at their counter factualism – after all the same people (the “liber” left) tell us that Franklin Roosevelt (whose arbitrary and contradictory interventions in the 1930s paralyzed the investment plans of even the largest business enterprises) was really the puppet of big business – as was “Teddy” Roosevelt, and Woodrow Wilson (if you dispute this – they will cite a socialist historian at you, as if his writings were Holy Scripture).

    Certainly some business enterprises (including large ones) are “pets” of the government (although the government can turn on its “pets” in an instant – like a rabid dog, all their campaign contributions and so on forgotten), but to pretend that the government is the “tool of the capitalists” (as our rivals do) is one of the most worst pieces of disinformation in the modern world.

    American business is desperate need of tax deduction and deregulation – yet the “liber” left pretend that high taxes, endless regulations (and even the out-of-control entitlement programs) are all really the fault of American business.

    We have a lot of enemies in the official left – but we also have to keep in mind the “liber” left also.

    The young may reject the picture of the world given by down-with-big-business Hollywood films and television shows (and given in the school and university textbooks) and be open to alternative – and it is for the function of SHUTTING OFF that alternative that the “liber” left exist.

    They present themselves as “libertarians”. Claiming to offer an alternative to the statist establishment – yet the “alternative” they offer is (under the camouflage) fundamentally the same.

    “Down with the rich, down with Big Business, down with the Capitalists” .

    Yes they may succeed in bringing such people down (in getting rid of Jon Huntsman senior and the rest) – but they (no less than the official left) will just replace the with destruction and starvation.

    Control the official story – AND control the “alternative” story, that is the plan of the left. Make BOTH “alternatives” fundamentally the same “down with big business”, “down with the capitalists”.

    Remember a century or so the left took over the word “liberal” in the United States – turning it round 180 Degrees (in Britain the situation was always more muddled – but there is no need to go into the problems of British thought just now) they could do the same with the word “libertarian” – turn it to just another version of looting.

    The attitude of people to the Corporation Tax is a good test.

    Suggest cutting it (or abolishing it) and watch their faces – that will tell you all you need to know about them.

  • Regional

    Socialists are no different to the French Court, the plebs are there to have the tax crapped out of them and the largess dispersed among their supporters. In the real world it’d be called extortion. Another example is the Holocaust where criminals were employed to rob and kill the entrepreneur class.

  • Fred Z

    “This is the sort of reform – practical, worthwhile and beneficial, that should be a basic proposal on the GOP table.”

    True, true, but the GOP will never do it.

    The Stupid Party thirsts for death.

  • Regional

    Fred Z,
    A movement that believes in freedom can’t have an ideology.

  • Laird

    Lee Moore, there are many solutions to those “real world” problems, but by far the simplest in the short run is to permit corporations a deduction for dividends paid. That would solve all the issues you raised, and as an added bonus would eliminate the gross advantage presently enjoyed by debt over equity financing (the tax code is the principal reason US corporations are so thinly capitalized and over-leveraged). It would also put corporations under enormous pressure to increase their dividend rates and not hoard cash. Yes, the inherent problems in determining what constitutes “profit” would remain, but their importance would be greatly diminished.

  • Paul Marks

    For people who do not like logical reasoning (“what you do is not logical reasoning Paul – it is just the ravings of a paranoid old Cong hunter now reduced to a bad joke in an amusement park” – fair enough my dears) then let us try an empirical test.

    Two States with a common border – South Dakota and Minnesota.

    If the “liber” left are correct (that income tax and corporation tax are just paid by the poor – with the rich “capitalists” protected from them, indeed benefitting from them) then wealthy people (and business enterprises) would tend to migrate from South Dakota (where there is no State income tax or corporation tax) to Minnesota (where there is a high State income tax and corporation tax) in fact the OPPOSITE is the case (business is moving to South Dakota from Minnesota).

    The effect would be even more marked if State taxes were not (to some extent) deductible from income before it is subjected to Federal taxes.

    If people really believe that the Obama Administration is the tool of “the rich”, “big business” they must also logically (sorry for using reason again) believe that State governments (such as that of Minnesota) that follow the same high tax, high GOVERNMENT SPENDING, and endless regulations policies are also the tool of the “the rich”, “big business”.

    In short they are nuts.

  • Rich Rostrom

    The corporate income tax is “regressive”. All shareholders are taxed at the same rate regardless of income level.

    In my system, corporations would pay no income tax, but all profits would be distributed to shareholders. Corporations which need to raise additional capital could sell additional stock. One could even establish an automatic reinvestment plan, under which shareholders could elect to receive additional shares instead of cash.

  • Laird

    Rich, your solution would work just fine, and it doesn’t even require the distribution of all profits (there are legitimate reasons that a corporation would want to withhold some). Just treat corporations as partnerships or LLCs for tax purposes: all net income is attributed to the owners, whether or not distributed. Obviously that doesn’t eliminate the thorny problem of calculating profits, and it also creates a new problem in properly allocating profits to shareholders who only hold their stock for part of the year, but both are solvable. It would force corporations to disgorge cash, since the shareholders to whom the profits are attributed would need some money with which to pay the tax. And it also eliminates the tax-created preference of debt over equity, so would actually be more economically efficient than the present system.

    Unfortunately, I don’t see that happening because politicians like the fact that the true incidence of the corporate income tax is hidden. To the economically ignorant general public it looks like free money. The system is dishonest at the most fundamental level, but then so are most career politicians which explains the attraction.

    Oh, and dividend reinvestment plans are nothing new, and in fact are common among larger corporations.

  • tony Hewson

    Save the world;
    Abolish Corporation tax.
    Abolish Limited Liability.

  • Abolish Limited Liability.

    Terrible idea. If people want to do business under limited liability… or not… that should be a matter between them and their customers.

  • Paul Marks

    “Abolish limited liability” – for churches, charities, clubs, associations and unions also?

    Remember limited liability for bodies corporate (including in trading activities) was worked out in Church Law (and in private Law Merchant) long before the state got involved.

    And….

    If (for example) you want to buy insurance for an unlimited liability people then go to Lloyds “Names”.

    Of course you will have to pay a higher price (for this and for all other goods and services).

    But if you demand that people risk their shirts (not just the money in the “trading pot”) that is the price you (and we) will have to pay.

  • Mr Ed

    Abolish Limited Liability.

    Terrible idea. If people want to do business under limited liability… or not… that should be a matter between them and their customers.

    Sloppy thinking, what of tort?

  • Lee Moore

    “It would force corporations to disgorge cash”

    One always needs to think twice, when it turns out that one’s libertarian tax simplifications turn out to require all sorts of people to do a ton of things they didn’t have to do before the “simplification.”

    1. the problem with abolishing corporation tax is that corporations will then retain all their profit for as long as possible (with the full support of their shareholders)
    2. so you then need a retained profits tax, which turns out to be horribly fiddly and complicated, because you then have to have rules about how much the company “needs” for expansion, pay rises, whatever, on which the tax authority will be entitled to argue
    3. so in a bold stroke you abolish the retained profits tax, by
    4. forcing corporations to disgorge all their profits

    We have now arrived at a cure that is far worse than the disease. We have failed to get rid of all the fuss and fiddling and wastage of clever people’s time entailed by a tax on corporate profits – cos we’ve still got all this profit computing going on; and we’ve layered on top a system of forcing corporations to disgorge cash they were planning to use for business purposes, enabling 15,000 shareholders to waste time filling in dividends in their tax returns, then we have an expensive and time consuming capital call to get the money back again for those aforementioned business purposes. This is the sort of solution that Gordon Brown would have come up with.

    A dividends paid deduction may not get rid of corporate income tax, and has all sorts of territoriality, tax exempt shareholder and other complications, but it falls well short of being as Heath Robinson as forcing corporations to pay out all their profits. If shareholders are worried about corporations retaining too much profit, they can vote to change the dividend policy, or change the directors. We do not need to go back to the earliest days of joint stock companies when the company was dissolved after each venture.

  • Tedd

    Lee:

    I think you’re grossly overestimating how much profit corporations would retain with no corporate tax. My corporation is in a country with a fairly low corporate tax rate, so I already retain some profit in my corporation as a means of deferring taxes. And, yes, if the tax rate went lower (or to zero) I would probably try to retain a bit more. But I still have to pay some dividend and, in a bad year, some of that retained profit might be needed to offset losses. It’s never going to just keep growing and growing.

  • Lee Moore

    Sure, Tedd, if there’s no way of avoiding tax on distribution, then after a while corporations will distribute a bit. But usually there’s some way of avoiding it, or some of it. Shareholder moves to another jurisdiction, then pay dividend. Sell shares to someone else in a lower tax bracket (charity, pension fund, insurance company, foreigner, grandchild etc) then pay dividend. Buy yourself a corporate jet. Buyback shares. Takeover another company. Wait a decade or so, until the commies lose an election. And so on.

    Look at big US multinationals – they keep squillions of cash overseas, because if they paid them as dividends back to the US they’d pay 35% tax on them. So they wait it out, either making foreign acquisitions, or simply waiting for another George W Bush to give them a special one time only 5% repatriation rate. It’s a great mistake to assume that taxpayers are incapable of imagining possible future changes in tax policy. And for small companies, if your shareholder (ie you) is faced with a 50% tax on dividends, then it’s pretty easy to come up with the conclusion that the dividend can wait a bit. After all – why does the family need a holiday in Hawaii this year. Wouldn’t it make more sense to organise a company strategy session in Hawaii instead, paid with pre tax dollars ? And that new car ? We can figure out a way of doing that on expenses too.

  • Sloppy thinking, what of tort?

    Yes what about tort? Indeed your remark is so sloppy I have no idea what you mean. Currently what do you think the situation is?

  • Lee Moore

    P de H : “Yes what about tort?”

    I think he was referring to this :

    “If people want to do business under limited liability… or not… that should be a matter between them and their customers.”

    Tort is when you acquire a liability to people who aren’t your customers, eg by harming them or their property without ever entering into a voluntary interaction with them. Such folk don’t agree to your company’s limited liability in respect of its tortious acts, it’s imposed by the state.

  • Mr Ed

    Perry, if Company X professes limited liability and harms me in tort, a wrong not arising in contract, then I see n reason why company X (let’s face it, the owners and directors of X shielding assets behind the legal fiction 0f X) should have limited liability.

    Your statement was an outright rejection of the abolition of limited liability. You did not address this issue.

  • It is really very very easy… hence my final phrase:

    Currently what do you think the situation is?

    The fact a company can have ‘limited liability’ with its customers does not absolve the directors of said company of liability for the consequences of their actions to third parties just because they are operating through a fictional ‘person’. Therefore the notion that the only way for torts to be remedied is the abolition of limited liability companies is a non sequitur. Sloppy thinking even.

  • Mr Ed

    Perry,

    Your argument is misconceived, as Arden LJ says at paragraph 69 in the only reasoned judgment, McFarlane and Moses LJJ concurring:

    I would emphatically reject any suggestion that this court is in any way concerned with what is usually referred to as piercing the corporate veil.

    And paragraph 80 wholly disposes of your proposition:

    In summary, this case demonstrates that in appropriate circumstances the law may impose on a parent company responsibility for the health and safety of its subsidiary’s employees. Those circumstances include a situation where, as in the present case, (1) the businesses of the parent and subsidiary are in a relevant respect the same; (2) the parent has, or ought to have, superior knowledge on some relevant aspect of health and safety in the particular industry; (3) the subsidiary’s system of work is unsafe as the parent company knew, or ought to have known; and (4) the parent knew or ought to have foreseen that the subsidiary or its employees would rely on its using that superior knowledge for the employees’ protection. For the purposes of (4) it is not necessary to show that the parent is in the practice of intervening in the health and safety policies of the subsidiary. The court will look at the relationship between the companies more widely. The court may find that element (4) is established where the evidence shows that the parent has a practice of intervening in the trading operations of the subsidiary, for example production and funding issues.

    The question of the liability of directors for a company’s torts is a completely different issue. Your argument is not even wrong, it is wholly unsupported by the case you cite.

  • Midwesterner

    Limited liability is why we live in such pathologically regulated states.

    Here is an example. In a pre-regulatory state, an investor with a lot of personal assets decides to start a limited liability trucking company to haul gravel. He buys the cheapest truck he can buy on the used market. Its brakes are marginal, the fuel tanks leak and the tires are bald. To drive it, he finds a driver with a drinking problem who will work for low wages and no contract.

    One day the truck plows into a traffic backup at highway speed at great loss of life. All the investor loses from his now bankrupt trucking company is his truck and its cargo. Thank you limited liability, the investor made a lot of money before losing that minimally valuable truck and cargo. Spin the wheel again.

    To solve this problem, instead of putting the investor’s skin in the game – instead of motivating him to buy insurance and meet the demands of a underwriter who would assume his liability – politicians give us the regulatory state with myriad volumes of rules and regulations (with criminal penalties) on operating a trucking company.

    Does it need to be said that harm caused by any action cannot be made to magically disappear? All limits on liability that are not voluntarily contractually arranged between the two parties are a simple redistribution of some private peoples’ assets (the lives and vehicles of those killed by the runaway truck) to other people who hide behind the power of the state to avoid the burden for their actions (the trucking company owner).

    The choices are limited. We can either we abandon the concept of limited liability for tort – doing so with the expectation that investors will insure the risks they take, or we can give power to politically selected people to run our businesses for us via regulation and absolve any conduct that falls within the regulations, or we can criminalize all accidents if even the slightest violation of the minutia of regulatory detritus can be found. And even if no accident occurs.

    I know which I prefer.

    From the link:

    [The court] “held that Cape plc owed Mr Chandler a duty of care, applying the threefold test (foreseeability, proximity and fairness)”


    “foreseeability, proximity and fairness”
    !! Is the power to make these determinations really something we want to give to any politically powered apparatus?

  • So Ed. your contention is no torts have been remedied since the practice of limited liability started arising in the 15th century? Your statement seems to be torts cannot be addressed without the outright abolition of limited liability

  • Tedd

    Lee:

    Look at big US multinationals – they keep squillions of cash overseas, because if they paid them as dividends back to the US they’d pay 35% tax on them.

    How is that not the opposite of what you previously argued, that lower taxes would motivate corporations to retain profits?

  • Mr Ed

    So Ed. your contention is no torts have been remedied since the practice of limited liability started arising in the 15th century? Your statement seems to be torts cannot be addressed without the outright abolition of limited liability

    No it is not my contention, that might be your take on my contention, but it seems to me that you are addressing what you think I am saying, and then extrapolating. My post at 6.36 am puts my point, with an ‘n’ for a ‘no’ typo.

  • In that case, how is my aversion to the state abolishing doing business with limited liability an indication of ‘sloppy thinking’ because of torts? If torts have indeed been resolving in spite of limited liability companies sometimes being involved…

  • Lee Moore

    Me : “Look at big US multinationals – they keep squillions of cash overseas, because if they paid them as dividends back to the US they’d pay 35% tax on them.”

    Tedd : “How is that not the opposite of what you previously argued, that lower taxes would motivate corporations to retain profits?”

    Cos the lower taxes we were talking about were low (or no) taxes on the corporation, not lower taxes on the shareholders of the corporation. The overseas subsidiaries of the multinational corporations are based in places with very low tax rates (this is not an accident) and so they pay very low taxes on their profits. But their shareholders (the US corporations of which they are subsidiaries) face high taxes on dividends (35% or so.) Hence the subsidiaries do not distribute their profits, they keep ‘em. They are waiting for George W Bush’s third term, when the shareholder will face low taxes on the distribution. Low taxes on shareholders do not motivate corporations to retain profits. Low taxes on corporations plus high taxes on shareholders is what motivates corporations to retain profits.

  • Mr Ed

    Perry, you said

    Abolish Limited Liability.

    Terrible idea.

    and then qualified that with:

    If people want to do business under limited liability… or not… that should be a matter between them and their customers.

    Which is immaterial in respect of tort, so why would the abolition of limited liability be terrible? Abolishing limited liability would not prevent a liquidated damages clause in a contract being effective as of itself, so as to limit compensation for breach of contract to a particular amount. There is no need for the law to create the device of limited liability, and its abolition ought not, I submit, be described as a terrible idea. It is, in fact, undoing a rule of law, whether created by statute or precedent, that is capable of creating great injustice and damage to property rights.

  • Which is immaterial in respect of tort, so why would the abolition of limited liability be terrible?

    To state the obvious, the advantages of limited liability have very little to do with tort. So again, if I want to contract with someone else on a limited liability basis, I think it is a terrible idea for the state to say we cannot enter into that contractual relationship.

  • Mr Ed

    It is the state that has created limited liability in the first place.

  • No, it would be more accurate to say the state has effectively nationalised it. It is rather like saying the state has created contract. Not it has not.

  • Paul Marks

    Some people here seem to have the idea that in a limited liability entity (say a Church or a union or a trading company) individuals can not be sued for negligent choices (as with Midwesterner’s story – of the evil truck owner).

    Actually this is all untrue.

    If an individual has made a judgement that has hit you – you CAN sue them (as an individual)NOT just the company (or Church, or union, or association – or other “bodies corporate”).

  • Mr Ed

    It can prove immensely difficult to sue an individual for a tort if that individual was acting in, say, the course of employment.

    1. The tort may be multi-factorial.
    2. The individual may be a man of straw.

    It would be a nonsense to sue a milkman employed by a large dairy company if his milk float caused a massive accident on a motorway and those wronged only had the individual, earning perhaps £20k to sue.

  • Mr Ed

    Or to put it more bluntly:

    Company Y has arranged its affairs by skimping on maintenance so that its aircraft falls out of the sky onto a refinery, igniting a huge blaze. Company Y says to the refinery owner ‘Sue the pilot, he crashed the ‘plane, not us’. The refinery owner says ‘He’s dead, and you didn’t maintain the aircraft to an airworthy standard, this is your firm’s responsibility’.

  • Paul Marks

    No the state did not create the idea of limited liability in the first place.

    It was present in both Church Law (often used by merchants) and private Law Merchant, even in the Middle Ages.

    I have already said this (and other things that people are also ignoring).

    And I am not going to spend my entire life on the internet.

  • Julie near Chicago

    But Paul — what would you do with your life instead? After all, there is only the Internet. To quote Miss Sayers, IIRC (which admittedly is unlikely, going on form to date):

    “We shall only know what is of overmastering importance when it has overmastered us.”

    Clearly we exist to serve the Net, and not the other way around. (As proof, see the documentary The Matrix.)

  • Nick (Blame FrenchMEN) Gray

    Regional, I do not believe in your freedom to hit me without me being allowed to hit back. i do not believe that anyone should be able to state their opinions as solid facts. I do not believe that the word ‘Freedom’ means exactly the same thing to all people under all circumstances, so you are wrong- you will need to explain what you mean by the word, and this would then be your ideology.

  • Nick (Blame FrenchMEN) Gray

    P.S. Regional has not made any such claims, this is being used for the sake of examples only! Though I do think that Regional should tell us what political freedom means to him, as words often mean different things to different people.

  • Paul Marks

    Of course Julie!

  • Paul Marks

    It should be remembered that when profits are paid to shareholders they are taxed.

    This was not originally true – in 1909 (when the Federal Corporation Tax was established) there was no Federal income tax (and hardly any States had State income taxes).

    However, since 1913 the American government has taxed income – therefore Corporation Tax (established in 1909) is (as Milton Friedman was fond of pointing out) DOUBLE taxation.

    However, if people in the United States (and outside it) simply wish to make war on American companies (as even some libertarians seem to wish to do) – then Canada is open for business.

    Canada is just over the border – and can not be described as “small” or an “island tax haven in the sun”.

    Alternatively there is Australia, New Zealand, Ireland, the United Kingdom (and on and on) most countries in the world do not have the Hollywood view that companies (“corporations”) are the handmaidens of Satan and should be destroyed.

    The United States does have cheaper electricity (a very important consideration for manufacturing industry) – but the Obama Administration (specifically the EPA) is intent on destroying this advantage – and all other advantages to basing a company in the United States.

    However, the recent decision by the Second Circuit Court of Appeals may (if upheld by the Supreme Court) have the effect of loosening the ties of the States – as it holds that only States that choose to have State Health Exchanges may (under the “Affordable Healthcare Act”) have Federal taxpayer money for the subsidy of medical cover under Obamacare.

    This ruling would have the effect (IF UPHELD) of concentrating people who want these subsidies in certain States (those States which have State Exchanges) thus making the (eventual) breakup of the United States more likely.

    However, presently the subsidies keep being paid (even in the Federal exchanges), so the United States continues to head to bankruptcy – which will also lead to the long term tendency to the break up of the United States.

  • Mr Ed

    Meanwhile, local councils in England seek to impose a tax on supermarkets, so that money ‘re-circulates’ in local communities, it’s not theft you see.

    I’m opposed to retrospective legislation to criminalise those working for public bodies calling for new taxes, but could the common law offence of misconduct in public office apply? After all, the Civil War was fought over starting taxes.

    Perhaps a tax on those individuals who propose new taxes? 10% of assets forfeited, or £100,000 if higher.

  • Paul Marks

    Mr Ed perhaps the Duke of Wellington was correct about the 1835 Act.

    Still at least that Act only meant that people who actually paid the local tax got a vote to elect the people who decided how high the tax was (although that does seem a rather oddly indirect process).

  • Laird

    Paul, are you saying that Canada and Australia permit corporations a tax deduction for dividends paid? Because that’s the only way for us to avoid the double tax; US shareholders will still have to pay income tax on any dividends received.

    A small quibble: that recent court decision on the Obamacare subsidies was in the DC Circuit, not the 2nd Circuit. Which is actually important because the DC Circuit is where most litigation concerning federal government activities occurs, and is generally considered the second most important court in the nation (behind only the Supreme Court). Also, it should be noted that on the very same day the 4th Circuit issued a completely contrary decision.

  • Lee Moore

    “are you saying that Canada and Australia permit corporations a tax deduction for dividends paid? Because that’s the only way for us to avoid the double tax; US shareholders will still have to pay income tax on any dividends received”

    It’s certainly not the only way to avoid double tax. Aside from a corporate deduction for dividends paid, you can

    (a) exempt the corporation and tax the shareholder or
    (b) tax the corporation and exempt the shareholder or
    (c ) give the shareholder a credit for taxes paid by the corporation

    The US currently does a watered down version of (b). Corporate shareholders get an exemption on all or some of dividends received; individual shareholders get a lower than usual tax rate on dividends. (Method (c ) is applied to foreign dividends received.) The UK used to do a version of (c ), it now does (b) while pretending still to do (c ).

    Each method has its complications. (a) and (b) have the advantages of simplification – you only have one set of paperwork. But you have major avoidance problems with, particularly, the foreign angle. (c ) is very complicated and often collapses into a credit for notional rather than actual corporate tax paid, which is really a version of (b ). But it’s more robust against avoidance. A dividends paid deduction is probably more robust than (a) or (b) but also has significant avoidance problems with the foreign angle.

  • Paul Marks

    No Laird – I am saying there was no double tax between 1909 and 1913.

    Because the Federal Corporation Tax came in 1909 and the Federal Income Tax came in 1913.

    As for Canada and Australia – neither taxes money that business enterprises make overseas that has ALREADY BEEN TAXED there.

    That is one of the reasons that American companies do not bring their profits home – because the profits would be taxed again.

    And the rate of Corporate Tax Rate is lower in both Canada and Australia anyway.

    People talk of the American tax code being full of loopholes (and it is) – but they do not seem to understand that taking advantage of those loopholes itself imposes costs.

    A business based in (for example) New Zealand does not have to spend lots of its time (and money) adapting its operations to try and take advantage of X, Y, Z, loopholes.

    The United States is the largest economy in the world – and has been since 1890 (when it became a larger economy than Britain – although hardly anyone noticed at the time).

    However, there is a limit to how much folly any economy (no matter how big) can take.

    Indeed if one takes the share of world economic output as a guide – the United States actually peaked as long ago as 1948 (when it was about half of world economic output).

    The United States has been in relative decline for more than 60 years – and the break into absolute (not just relative) decline is likely to be sudden.

    For example the bursting of the current Credit Bubble (it must happen eventually – I am astonished it has not already happened).

    Presently a lot of big companies only base themselves in the United States to take advantage of all that lovely funny money from the Federal Reserve – what if that suddenly went very wrong?

    As for manufacturing – one of the few reasons that stays in the United States is (relatively) cheap electricity. The very thing that Obama’s EPA regulations are designed to DESTROY.

    Of course he also wants to unionise the Right-To-Work States – that would destroy American manufacturing even if he failed to destroy the coal powered electricity industry.

    Think about it….

    How many manufacturing business enterprises would stay in South Carolina if it became a union State, and if electricity prices “necessarily sky rocketed”?

    Any advance on NONE?