The best way to think of the tax code is as an enormous legacy codebase whose authors were largely unaware of one another, often working at cross purposes, and subject to an ever changing set of requirements -- which requirements, importantly, are at <i>least</i> as much about social engineering as they are about raising money.<p>There is a constant tension between:<p>- backward compatibility ("we built our business around [tax provision]! you can't remove it now!"),<p>- expansion of the codebase to accommodate new requirements ("we must get more $activity; let's add a tax credit to incentivize it!")<p>- refactoring to better serve existing organizational goals ("we are leaking billions of dollars because of [loophole]! we have to close it now!")<p>This is why things like the "flat tax" or other simplification schemes are perennially floated, and also why they continue to get shot down: desires to simplify and refactor run into desires to support existing worfklows as well as current and anticipated future social goals, and they just can't get off the ground.<p>This is also why I end up posting basically the same thing in every tax thread, from the late great Martin Ginsburg, from whom I was lucky enough to take corporate tax: "<i>Everything</i> in the tax code is simultaneously a trap for the unwary, and an opportunity for the well-advised."<p>So your own interactions with the tax code should be considered similar to, say, an SAP deployment or something. Theoretically it's all documented and you can figure it out on your own, but in real life an expensive consultant will pay for herself over and over.
What a bunch of propaganda. The central theme of the article is that if Apple could repatriate its $200 Billion, it would have more money to invest and create more jobs. But this assumes that Apple is not investing as much as it would like.<p>There is no reason to believe that Apple feels it needs to invest more. And, if it did, it could borrow the money from its foreign subsidiaries and spend it without paying any taxes (and charge itself whatever it wanted in interest since it's borrowing from itself).<p>As the past 9 years since the Great Recession have shown, companies do not make investments just because they have more money. They invest for business reasons. It is true that Apple investors will be worth more if the money is repatriated, but more jobs?? not so much.
So if you're a US citizen or permanent resident or even just a tax resident (which includes working here on a temporary visa), the US taxes you on worldwide income. Any income from overseas needs to be reported (up to 3 times!) and taxed. With most countries you get credit for any taxes you paid in those countries. State taxes work the same in that you may have to file in more than one state and credit is given from taxes in one state to the others. This is actually all pretty sensible albeit tedious (particularly the part about reporting foreign assets and income).<p>Where it starts to go bonkers is for US citizens and PRs who live overseas. They still have to file taxes with the IRS for all worldwide income and report foreign assets and income as if they were present in the US. They get a certain amount of income (<$100k) each yeah exempted from US income taxes. Most countries do not do this.<p>My first problem is this: why exactly can't we treat companies the same way? I would be all for a 20% corporate tax rate if it meant a tax on worldwide income with credits for any taxes paid to foreign governments... exactly like individuals are treated. Why isn't this on the table? Is it that hard?<p>Second problem: in this world of multinationals and particularly when dealing with IP, companies seem to have free reign to book income in any country they like. Like any sales in the UK (and probably the EU as a whole) are reported to Irish subsidiaries.<p>To me this is fundamentally wrong. In other instances this is called transfer pricing and is illegal. For completeness, the classic case of transfer pricing is this:<p>Acme Inc buys a sofa from China for $200 in China and sells it in the US for $1000. That's $800 taxable profit right? Not so fast. Acme Inc instead forms a subsidiary in the Cayman Islands who buys that sofa from China for $200 and then sells it to the parent company for $990. Now only $10 is taxable in the US and $790 is taxed in the Cayman Islands at a zero or near-zero rate.<p>Now if that money is ever repatriated it's taxed. Thing is, it never is. Not until an ill-advised tax holiday and then the whole cycle repeats.<p>This brings me to the third problem: to get around the fact that all their money is offshore, companies borrow money in the US, which up until 1-2 years ago was at zero or near-zero levels. This debt covers their expenses and saves them from repatriating foreign profits and paying tax on them.<p>So why exactly don't we treat ever $1 borrow as repatriating $1 in foreign profits and tax it?<p>Now that would be true tax reform. Well, if we also got rid of the noticeably absent carried interest tax credit.<p>What a joke.
I recently read an excellent book on this subject: <a href="https://www.amazon.com/Fine-Mess-Global-Simpler-Efficient/dp/1594205515" rel="nofollow">https://www.amazon.com/Fine-Mess-Global-Simpler-Efficient/dp...</a><p>I was kind of amazed that a book about the tax system could be page turner -- it was very interesting!
The only actual argument this article makes is:<p><i>Multinationals could often put foreign cash to more profitable use in the U.S. by making acquisitions, building plants, paying special dividends or repurchasing stock.</i><p>But that quickly falls apart: First, Apple is in no way constrained by cash in its investments. And even financially weaker companies could still use foreign cash reserves as collateral to get credit at almost insignificantly low interest rates.<p>More importantly: investments can be expensed. If you hire employees, their wages reduce your profit, and therefore your tax burden. The corporate tax only applies to profit, not revenue. Apple could repatriate those $200 billion, hire ten million employees, and wouldn't pay a dime in taxes.<p>Other than that, it almost seems like an effort to use these corporations' tax-avoidance schemes as an argument to reward them. The logic in that is the same as striking murder from the criminal code to reduce crime
Many of the same people who get angry about the complex tax acrobatics used by big corporations also deride people like Rand Paul who have suggested a one page tax code.<p>But what about my deduction for this? What about the deduction for that? Hundreds of thousands of pages later, that's how you end up with loopholes that only the savvy/wealthy are able to find.<p>That's the kind of thinking that led to this mess. Like good developers, we should abstract the tax code to simply define the acceptable conditions for something to be deducted. Then, the Treasury can provide a list of 'standard' deductions somewhere that won't attract any extra scrutiny, and which will suffice for most purposes. Things like a minimum rent amount, minimum food expenses, etc.
FTA:
> But the U.S. code provides ample room for sheltering and avoiding taxes on foreign income, a major reason it needs an overhaul. The rules essentially divide foreign profits into three categories. One bucket of profits is more or less taxed at the full rate of 35%. On a second bucket, the multinational can defer paying the U.S. tax due. And a third category is excluded from all U.S. taxation, amounting to corporate America’s biggest loophole.<p>> Apple generates more foreign income that any other U.S. company. In FY’16, it booked $41.1 billion pre-tax profits outside the U.S., or 67% of the $61.4 billion total.<p>> It’s the third category that amounts to a big tax break, and explains why Apple’s effective rate is well below the statutory 35%.<p>> Once again, if Apple had faced the full 35% rate, it would have paid $21.46 billion in federal taxes (as well as another $990 million to the states). Instead, it paid $10.444 billion in cash, and accrued $5.241 billion in U.S. tax owed on foreign profits, but deferred to be paid later. That’s the total of $15.685 billion that it booked in tax expense on its income statement. The difference between that number and the approximately $21.5 billion it would have paid at the 35% rate is the almost $5.6 billion attributed “indefinitely invested foreign earnings under the GAAP rules.”
While we may all be free marketeers and capitalists here, I think we do have to recognize that large corporations have very different interests than workers, managers and small business owners. We should also recognize that Fortune is not going to print anything that's not in a large corporation's very best interests. I didn't read this article, but it would seem that by recognizing the source, and reading the title, we can decide not to bother with large corporation propaganda.