Wealth Distribution – Evolution or Manipulation of Capitalism?

[TimG]

I make a huge chunk of cash overseas. In fact 98% of my income is from overseas. I am still responsible to pay taxes to Canada Revenue at a 48% rate. Americans are in the same boat, generally. They still have to fork over the cash.

Legally you are correct. My question was moral since your complaint was a moral one (because it is possible for corporations to legally stash money overseas). Simply restating the legal claim does not answer my question. Why is anyone - including you - morally obligated to pay taxes on income made outside of the country where you live.

So please explain why corporations can stash hundreds of billions of dollars offshore with no responsibility to pay taxes on it.

Why do corporations even pay taxes? Seems to me it makes more sense to up the tax rate on dividends and other transfers to individuals. Edited April 5, 2014 by TimG

[Icebound]

We have this facade of democracy that is supposed to protect the minorities from the power of the Majority.

The problem is that the minority is not the ones requiring protection. They are the ones with all the power.

The REAL power that they have... is that they have pretty much sole say on the worth of labour vs the worth of management. Oh yeah, there are little tweaks like minimum wage laws and the like, but these are small scraps in the big scheme of things.

So at one time management was 20 times labour, today it is 171 times.

2013 pay increases up 2.5 percent... CEO's up 52 percent.

This is basically theft, and if you want to know where it is going .... should it continue ... just read "Leverage: how cheap money will destroy the world", by Karl Denninger. (Although it primarily deals with the Stock Market, it has broader financial implication as well)

The scythes, axes, and pitchforks are already being sharpened.....

...

[eyeball]

So please explain why corporations can stash hundreds of billions of dollars offshore with no responsibility to pay taxes on it.

Influence, you've said it yourself.

I make a huge chunk of cash overseas. In fact 98% of my income is from overseas. I am still responsible to pay taxes to Canada Revenue at a 48% rate. Americans are in the same boat, generally. They still have to fork over the cash.

Obviously your chunk doesn't cut it like a billionaire's does.

What to do, what to do?

[Shady]

Such money is not "lost", as it never belonged to the "taxman" to begin with. It is not a "tax break"...such twisted logic would make for 100% tax rates as the baseline.

But that's the mindset of the statist. Any money you earn is of their good grace and it belongs to them. They decide how much you should be "allowed" to keep. And if they need more, who are you to question it.

They also don't understand that tax breaks are given for specific behaviour as incentives. Take research and technology tax breaks. All that means is that a company pays a lesser amount of taxes on money it uses for research, technology, and innovation for example.

[Shady]

Spin, spin, spin. The fact is if you have a tax rate of 90% and lower it to 35% that is a huge loss of income to the state. This was done repeatedly over the years with a result that the American state is near bankrupt from its obligations.

This is just not true. Aside from the absolute immorality of the state taking 90 cents of every dollar you earn, the assumptions that economic growth and business activity will remain the same under such punitive taxation is beyond absurd. Furthermore, the myth of the 90% tax rate is also absurd. Even when tax rates were that high, nobody paid anything close to that kind of percentage. Furthermore, regardless of tax rates, historically the US government collects between 18% - 23% of GDP in taxes. Once again, regardless of the tax rates. Furthermore, even when tax rates were lowered, historically the treasury still receives more revenue from greater economic growth, the problem is that spending is constantly outpacing revenue. Furthermore, even when taxes are raised, the government uses that money on new spending and new programs instead of on existing ones. In other words, there's more holes in your premise than Swiss cheese.

[bush_cheney2004]

...So please explain why corporations can stash hundreds of billions of dollars offshore with no responsibility to pay taxes on it. Please also explain why corporations whose headquarters and the great bulk of their employees are in the United States are permitted to buy a postal box in Bermuda or some other tax haven, and blithely state they are not American companies for tax purposes? If I tried to do that, or if an ordinary American tried to do that we'd go to jail.

Because they are legally permitted to avoid as much tax liability as possible, and to not do so, would be at a competitive disadvantage. Americans also do this in country by taking advantage of the most convoluted tax code in the world.

[bush_cheney2004]

Spin, spin, spin. The fact is if you have a tax rate of 90% and lower it to 35% that is a huge loss of income to the state. This was done repeatedly over the years with a result that the American state is near bankrupt from its obligations while corporations and the wealthy have tens of billions to play with, and hide tens of billions more overseas.

The American state did not have an income tax for all of its history, and rates were quite low at times. The Canadian state does exactly the same thing, with sizable debt at the federal and provincial level.

[Argus]

Legally you are correct. My question was moral since your complaint was a moral one (because it is possible for corporations to legally stash money overseas). Simply restating the legal claim does not answer my question. Why is anyone - including you - morally obligated to pay taxes on income made outside of the country where you live.

Because we live here. There is a theory of shared obligation, which requires we help to pay to sustain the services this society uses to hold itself together. That is why here in Canada, at least, if we go and live overseas, we're not required to pay taxes to the Canadian government during that time. I could go set myself up in a palace in some third world country, and the Canadian government would have no interest in my income.

Why do corporations even pay taxes? Seems to me it makes more sense to up the tax rate on dividends and other transfers to individuals.

Do corporations not benefit from the same societal fabric we do? Could they survive and prosper without law and order? Could they sell their services and wares in a land of chaos? To whom?

[TimG]

Because we live here.

Corporations don't "live" somewhere. They have offices used to conduct business. The offices often have no connection to where the company is incorporated (many US corporations are based in Delaware or Nevada for tax reasons). They have an interest in a government that maintains a civil society where ever they do business so if any social obligation exists it is the country where their customers are - not where their head office is. Your answer seems to confirm the muddled thinking that is behind the anti-corporate rhetoric.

Do corporations not benefit from the same societal fabric we do?

Tax their profits when they are transferred to individuals (i.e. get rid of the dividend tax credit). This ensures that that corporations contribute to the social well being of the society.

[Argus]

This is just not true. Aside from the absolute immorality of the state taking 90 cents of every dollar you earn, the assumptions that economic growth and business activity will remain the same under such punitive taxation is beyond absurd.

Well, now, I'm not a great economist like you are. But... it seems to me that for your belief to be shown to be true, nations like the US, with lower tax rates, would have to have better, healthier economies than nations with higher tax rates, like, say, Germany. That doesn't appear to be the case. In fact, a lot of societies with higher taxes appear to have a lot less poverty than the US does.

Furthermore, the myth of the 90% tax rate is also absurd. Even when tax rates were that high, nobody paid anything close to that kind of percentage.

There have always been tax loopholes. But just because you lower the taxes doesn't mean you do away with the loopholes.

That's why some giant American corporations actually pay no tax today, and why even though the maximum tax rate in the US was something like 35%, rich guys like, hmm, who comes to mind, Mitt Romney, only paid about 14%.

Furthermore, even when tax rates were lowered, historically the treasury still receives more revenue from greater economic growth,

Well, that's the theory anyway. The problem there comes a point where cutting taxes doesn't spur enough econmic growth to give you more income. That's why Bush's tax cuts didn't result in a flood of money into the treasury but an ever increasing deficit for his government.

Edited April 5, 2014 by Argus

[Argus]

Because they are legally permitted to avoid as much tax liability as possible,

And who decided they could do that but the politicians into whose pockets they poured money, in order to buy the tax code they wanted?

[Argus]

Corporations don't "live" somewhere. They have offices used to conduct business. The offices often have no connection to where the company is incorporated (many US corporations are based in Delaware or Nevada for tax reasons). They have an interest in a government that maintains a civil society where ever they do business so if any social obligation exists it is the country where their customers are - not where their head office is. Your answer seems to confirm the muddled thinking that is behind the anti-corporate rhetoric.

I don't see how it does. You've conceded their interest in heping maintain a civil society. As I've pointed out, I pay taxes here because I live here. These corporations live in the US, and ought to be paying their taxes there just like an ordinary American citizen. That doesn't preclude them paying taxes on their foreign operations wherever they operate, according to the tax rate in that nation, of course. But to be able to pretend their headquarters is a mailbox in an island state where they have no employees in order to avoid paying taxes is as absurd as the fact the government lets them do it.

Tax their profits when they are transferred to individuals (i.e. get rid of the dividend tax credit). This ensures that that corporations contribute to the social well being of the society.

Does it? Suppose they decide that instead of transferring all their profits to shareholders, they'll instead put them in developing new manufacturing facilities -- in China. How does that help maintain society in the US or Canada? For that matter, suppose the corporate owners are in another country, as is the case with many of the corporations in Canada. Your plan would allow them to pay no taxes while operating here, and instead to send the money to their corporate owner in the US or China or Germany.

[TimG]

But to be able to pretend their headquarters is a mailbox in an island state where they have no employees in order to avoid paying taxes is as absurd as the fact the government lets them do it.

Why? All it means is the non-resident taxation rules would apply where ever they do business (i.e. they pay tax on the operations within each country). This is fine because I started by saying corporations only have a moral obligation to pay taxes on the business they do in each country. There is no moral obligation to pay taxes on their worldwide profits just because their head office is in a particular country.

Does it? Suppose they decide that instead of transferring all their profits to shareholders, they'll instead put them in developing new manufacturing facilities -- in China.

There is absolutely nothing in the current regime that prevents them from doing the same since new facilities are tax deductible. It is a spurious argument. The owners want to get the profits out of the company because that is why they invested. The government would still get the money it expects.

For that matter, suppose the corporate owners are in another country, as is the case with many of the corporations in Canada.

Withholding taxes on dividends are done today. They would not go away. Foreign corporations operating in Canada are assessed taxes based on the business conducted in Canada. The income tax act already has a seperate category for these kinds of entities and that would not go away. Edited April 6, 2014 by TimG

[bush_cheney2004]

And who decided they could do that but the politicians into whose pockets they poured money, in order to buy the tax code they wanted?

Works the same way in Canada...so what ?

[Shady]

Your answer seems to confirm the muddled thinking that is behind the anti-corporate rhetoric.

Unfortunately that rhetoric works well with low information voters.

[Shady]

And who decided they could do that but the politicians into whose pockets they poured money, in order to buy the tax code they wanted?

Sounds like you're a supporter of the republican tax reform plan. Lower the corporate tax rate from 35% to 25% (ours is 18%) and eliminate all of the tax exemptions and loopholes.

[On Guard for Thee]

Sounds like you're a supporter of the republican tax reform plan. Lower the corporate tax rate from 35% to 25% (ours is 18%) and eliminate all of the tax exemptions and loopholes.

Oops, BC will be all over you for that. He still thinks we pay more tax up here.

[Shady]

Oops, BC will be all over you for that. He still thinks we pay more tax up here.

We do. Income taxes, sales taxes, fuel taxes are all higher. And then there's the GST.

[On Guard for Thee]

We do. Income taxes, sales taxes, fuel taxes are all higher. And then there's the GST.

Care to try and prove that?

[bush_cheney2004]

Care to try and prove that?

Go buy some gas....mine will be cheaper...and it came from...Alberta bitumen.

[On Guard for Thee]

Go buy some gas....mine will be cheaper...and it came from...Alberta bitumen.

Buying a tank of gas does not an economy describe.

[Moonlight Graham]

Wealth redistribution by government is only a band-aid solution to a fundamental problem. The way the capitalism system itself functions needs to be changed in order to properly address rising income inequality within countries.

Towards the beginning of industrial capitalism and the industrial revolution, the capitalist system was created & controlled by the rich business class in a way that most benefited them....and therefore they designed & perpetuated a system where business owners/shareholders have monopoly control on all profits made by their company, & workers are treated as productive assets, & obviously the result ever since has been that virtually all private companies/corporations keep all if not virtually all of those profits for themselves, distributing little if any of these profits to their workers beyond the minimum wages/benefits they can get away with paying them without workers leaving or revolting en mass (ie: pressuring politicians to force safety standards & other worker benefits, forming unions, or communism in extreme cases) . This monopoly must be removed, but it is currently how most of the global capitalist system functions.

But there's nothing inherent within capitalism or a market economy that says owners of the productive means within the company are required to have 100% control of all profits (besides government/taxes). Unions prove this, & unions have been fairly successful at re-balancing the control of profits & capital within companies.

Edited April 6, 2014 by Moonlight Graham

[TimG]

Unions prove this, & unions have been fairly successful at re-balancing the control of profits & capital within companies.

No they don't. All they have proven is when an industry faces little competition they can collude with the company to raise prices for the consumer. As soon as an industry faces real competition unionized companies cannot compete and unions have to either accept wage/benefit cuts or see their jobs disappear. Edited April 6, 2014 by TimG

[Argus]

Why? All it means is the non-resident taxation rules would apply where ever they do business (i.e. they pay tax on the operations within each country). This is fine because I started by saying corporations only have a moral obligation to pay taxes on the business they do in each country.

But you are ignoring the fact that ordinary people must pay taxes without regard to the origin of the money. Why should corporations be let off the hook?

There is absolutely nothing in the current regime that prevents them from doing the same since new facilities are tax deductible.

That's not entirely true. Many expenses are not tax deductible when they take place in foreign countries. And in any event, a corporation has to return some profit or its stock eventually goes down. There are exceptions, admittedly, but in the vast majority of cases, companies with low profits do not make for happy shareholders.

Foreign corporations operating in Canada are assessed taxes based on the business conducted in Canada. The income tax act already has a seperate category for these kinds of entities and that would not go away.

And yet you're stating corporations should not have to pay any taxes, so your point is moot. The Canadian government might be able to withhold taxes on dividends but there's nothing it can do about capital gains. Those would accure to foreign companies and be taxed there and not here.

[Argus]

Works the same way in Canada...so what ?

It doesn't work with the same level of corruption here because lobbyists, corporations and the like are unable to donate money to political parties.