"Over and over again courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant."
- Commissioner v. Newman, 159 F.2d 848, 851 (2d Cir. 1947)
I don't hate Nike or Amazon for paying no tax. I hate our tax laws for making it possible to do so legally. The previous administration spent tremendous energy cutting taxes for corporations and when they actually take advantage of that fact it's a bunch of shocked pikachus.
True, but it must be emphasized that that tax is tax being paid _by individuals_. It is simply withheld by the corporation as a convenience. The monies are earned by the individual and paid by the individual.
Corporations have no moral right to claim that as 'tax paid' in these discussions.
A person earning $X for a company that pays corporate tax would have the same individual tax liability as an individual earning $X for a company that does not pay corporate tax.
Corporations are merely shared collectives owned by groups of individuals, who pay taxes on it's earnings when they receive dividends or sell their shares.
That's true in principle, but many of the shareholders of US corporations never pay those taxes in practice, either because they're not US residents or because they avoid capital gains taxes through tax-advantaged accounts, trusts, non-US shell corporations and SPVs, etc.
To preempt one likely response to this: no, it's not appropriate for a non-US-resident shareholder of Amazon to not pay any US tax on their share of Amazon's pre-tax profit. Amazon is leveraging US-taxpayer-funded resources, including roads, the electrical grid, the military (which protects Amazon's buildings and shipping routes), arguably the educational system, etc. to generate profit, and anyone with a claim to a portion of that profit should have to help pay for those resources.
First of all, if you want foreigners to pay U.S. income taxes when they invest capital in the U.S., I have to ask, why do we want to discourage foreign investment in the US? Amazon pays sales/gas taxes for much of what you mentioned, and it's U.S. investors, who also pay income and property taxes for the rest.
Second of all, U.S. citizens absolutely do pay taxes on investment earnings. If you hold stocks in a tax deferred IRA, you pay your taxes when you take distributions and at full income tax rates, no capital gains or dividend tax breaks. That's true of any tax deferred account.
Anyone "shielding" taxes in a "non-US shell corporation" is committing tax fraud.
The best solution to that is to eliminate the extra layers of taxes on investing in the U.S, in one way by eliminating corporate income taxes or allowing corporations to deduct dividends as expenses. Then the benefits of hiding your investment earnings become far less, and not proportionate to the risks.
This isn't entirely true. There are payroll taxes levied directly against the corporation, for example social security which is 6.2% by employee and 6.2% by employer
Theoretically, yes. But much like sales tax, employer payroll tax is passed on to the employee. Unlike sales tax however, this cut isn't as transparent due to the salary itself being preemptively calculated in such a way as to offset the cost to the employer. In other words, the "true" gross income could, all things being equal, be upto 6.2% greater then what one is getting.
I feel like there is too much outrage fueled by a complete misunderstanding of how our tax system works right now.
If corporations are taxed then there is effectively double taxation. Corporations can only spend the money on business expenses, such as paying people. However when people are paid they are being taxed already.
So our current tax system taxes a corporation if they have excess money they sit on. If they spend the money on productive uses it doesn’t get taxed, but then the people who receive the money get taxed.
So the headline is extremely disingenuous because if Nike had $0 taxable income it’s only because they shifted the taxable income to the CEO’s pay.
> If corporations are taxed then there is effectively double taxation.
Not really. Corporate profits are taxed, not revenue. Taxes aren't figured until salaries are already paid.
> ... if Nike had $0 taxable income it’s only because they shifted the taxable income to the CEO’s pay.
I'm sure it's a lot more complicated than that. Companies aren't avoiding tax by giving all excess revenue to their CEO as compensation. That wouldn't really make sense at all.
> Not really. Corporate profits are taxed, not revenue. Taxes aren't figured until salaries are already paid.
We're saying the same thing here. My point is that double taxation is avoided by figuring the taxes after salaries are paid out, which ideally would be brought to $0 because nobody wants to be double taxed.
> I'm sure it's a lot more complicated than that. Companies aren't avoiding tax by giving all excess revenue to their CEO as compensation. That wouldn't really make sense at all.
The CEO is just another employee. Obviously they don't just give the CEO all the extra taxable profit... Why do you think end-of-year bonuses are given out at end-of-year? Because there's taxable income on the balance sheet and if it doesn't get bonus'd to employees then it would be sent to the Trump/Biden/whomeever is president's administration as taxes. Nobody's going to give you bonus points for paying extra taxes, but if your employees get a nice bonus they might stick around or work harder at least.
I pay income tax, then I take some of the money leftover to buy food and pay sales tax. Was I double taxed? Where is the "complete misunderstanding"?
It often feels like HN threads on big company taxes revolve around the same patterns, the people that repeat ad nauseam "but if it's legal it's legal!" and the ones that bring up double taxation as if that is some sort of tax cheat code.
Getting rid of double taxation from corporations would essentially mean getting rid of business deductions. Which means that companies would have no extra incentives to spend their money on business expenses such hiring because they'd get taxed either ways. The corporate taxes are working fine and most companies aren't avoiding taxes so much as being incentivized to spend their profits on hiring or giving out pay raises. Think of it is coerced minimum wage increases in lieu of corporate income taxation.
Double taxation on income and then on your food is just extra tax revenue, and nobody's going to stop eating because of it, though you might eat less expensive. Some places do indeed do not have taxes on basic food.
> I feel like there is too much outrage fueled by a complete misunderstanding of how our tax system works right now.
Honestly, there is no benefit in fixing that because everyone is a useful idiot perpetuating the status quo and not even realizing it.
The best populist uprising starts off with this observation and ends with salaried workers getting a slightly higher tax and never touching the rich who obtain goods and services very differently.
The framing always starts about "the rich" and gets deflected towards the top 5% of wage earners who will become masqueraded as "the rich". Everyone involved will agree for two reasons: 1) it's the best they'll get from Congress and they feel like they're "doing the thing" and participating, 2) because they are wage earners and that's the only form of taxation they can relate to or even really somewhat know about.
For example, in a thread like this, someone will quote some flawed study about diminishing returns of an undefined form of "happiness" after making $75,000 a year, and then someone will talk about cost of living disparities as if that's an insightful addition to the conversation (wow, complex topic there, Champ), and all of this is being used for wage earners to fight amongst themselves about why they shouldn't have any feelings for the person that got a six-figure salary, when that new target wasn't even the person that their angst was originally directed towards.
Yeah, and in my opinion the level of happiness doesn't start diminishing until after $150k. I would straight lose my shit if I had to live on $75 k again.
> All of the wages that Nike and Amazon pay are taxed though.
That labor income is taxed particularly heavily (compared to generic income, which in turn is taxed extra compared to capital income) is another, and bigger, problem, yes.
It doesn’t mitigate the fact that effectively untaxed corporate returns amount to potentially infinite deferral of taxes on capital accumulation on top of the low rates paid when capital gains are realized.
Corporate retained profits that aren’t passed through to owners for tax purposes should be taxed, with no sheltering or protection, at the maximum marginal personal income tax rate, corporate distributions should be deductible expenses, and capital distributions and gains should be taxed as normal income to the recipient (but, to fairly treat long term gains—as well as irregular non-capital income—asset basis values should be adjusted for inflation and there should be provisions for optional advance recognition of income for tax purposes and optional deferred recognition over a period of years for windfalls. And “payroll taxes” shouldn’t be separate from personal inncome taxes; all incone regardless of source should be taxed for the programs they support and be counted for eligibility purposes (for social security specifically, additional bend points at and points beyond the current maximum should be adopted instead of the income and benefit caps.)
One could argue Amazon's success is based largely on the unfair sales tax advantage it had over brick-and-mortar retailers. Brick-and-mortar retailers were compelled to pay sales tax under the penalty of law, while Amazon had a built in 6-9% since it didn't have to collect sales tax.
I'm not saying that's the only reason Amazon is successful, but it absolutely played a role. My early shopping with Amazon was always of two varieties - to purchase things I couldn't find elsewhere or to save money on more expensive purchases. Only relatively recently has Amazon become the most convenient way to shop.
Their success is clearly based on actuating efficient communication within the company (AWS) and getting packages to the door ASAP without charging extra.
Their recent success, sure. Amazon was around a long time when it wasn’t the convenience and cloud computing king. It was with their retail growth and the investment dollars that brought they used to build what they’ve got.
I'd say the bulk of stock-based compensation these days is RSUs, and RSUs are treated as deferred income with income taxes due at settlement (either a liquidity event or on vesting). It's taxed exactly the same as income -- including Social Security and Medicare taxes.
The next most popular choice are NSOs, which are taxed as ordinary income when exercised on the difference between the strike price and the fair market value -- and you do in fact pay Social Security and Medicare taxes. Once you hold the stock, it's no longer compensation, it's an asset you've bought and paid for.
Third most popular are ISOs which do have some preferential treatment, although it's rare to be issued ISOs at anything other than a very early stage company, and at that point, you're likely to exercise early, and then once again, you've bought and paid for an asset and the it's no longer your compensation.
Founder shares are also assets and not compensation, and taxed as such, assuming you file your 83(b) election in a timely fashion.
I think it's fair to say that the rare issuance of ISOs notwithstanding, stock compensation is taxed as ordinary income and is exposed to social security and medicare taxes.
Finally -- and most importantly, IMO -- social security tax stops accruing after you've earned $142,800USD. Chances are if you're earning stock compensation in the Bay Area, that's covered by your base pay plus bonuses, if applicable.
Yes it's a very blatant hole that needs to / should be fixed. There's also no reason there should be a cut-off on FICA taxation as you scale up in income. The Democrats should target those easy taxation wins (if they can stop for a moment trying to get tax cut handouts for higher income persons in their coastal cities in the form of SALT deductions; pretty hilarious to watch the Dems argue in favor of raising taxes on nearly everything that moves while simultaneously arguing that people earning six figures desperately need a tax cut - solely because it's overwhelmingly for their voters in affluent blue cities).
There is a real reason FICA has a cap, because it's not an income tax. It's sole purpose is for a retirement & medical benefits program that was sold as fair to all when introduced. Forcing someone to pay 10X or 100X over their lifetime for the same benefits as someone else doesn't strike anyone as fair.
> Forcing someone to pay 10X or 100X over their lifetime for the same benefits as someone else doesn't strike anyone as fair.
Respectfully, I disagree, that's just progressive taxation and it's true of every other aspect of our tax system. Someone who pays 10X or 100X more taxes than me isn't getting 100X the value out of our roads, bridges, or the army.
It's fair IMO because of the marginal utility of money. If you make $50,000 per year, $10,000 means a lot. If you make $10M, $10K is a rounding error or a fun weekend in Vegas. A progressive tax system is IMO flat when plotted against the marginal utility of the value accrued. Think of it in terms of burgers. I require 3 burgers a day to live. I get paid 3. If you try and take 1, I go hungry. That burger is worth a lot to me. On the other hand if I get paid 10 burgers, and you try and take 1, it means nothing to me. That burger is worth a lot less because I'm already so full. Same is true in the abstract in terms of dollars.
Again, SS was designed to be a fairly funded retirement plan, where your contributions determined most of your payout. The amount of the contributions were designed to fund those payouts, and nothing more.
Of course we can remove the contribution cap, but now it's not a retirement plan funding mechanism, it's an income tax that has no justification for retirement plan funding.
You can easily reach the hard cap on future SS payments while earning barely more than the median pay in the US during your career. So every dollar you contribute above that earns you nothing. Someone who contributes 100x gets nothing for that.
Sure, but I also don’t imagine these companies are standing on the sidelines while tax laws are written, pleasantly surprised to see things working out in their favor once again.
Exactly. If we really think taxing corporate profits is a good idea, then let's direct our ire at our elected representatives for cutting corporate taxes and adding ways for companies to avoid paying tax.
Ultimately, though, I'm not sure taxing corporate profits is all that useful. Increasing income taxes for higher earners, giving the estate tax its teeth back, and possibly implementing a wealth tax, will likely give the same (or better) results, while eliminating so much of the waste that goes into creative accounting and keeping cash and income segregated in tax jurisdictions more favorable to the company.
On top of that, I would also be in favor of executive pay caps (expressed as a multiple of the average or median employee salary, or something), which could encourage companies to pay their employees better, or be stuck paying their executives worse. Incentives for reinvesting profits domestically could also help keep companies from hoarding cash.
The courts may say there's nothing sinister about it; that doesn't preclude me from saying so.
* Tax avoidance by regular people is overwhelmingly accomplished by doing things that tax law subsidizes because we think they're good - home ownership, saving for retirement, etc. Wealthy people and megacorps tend to avoid tax by moving revenue between countries, leveraging campaign donations to effect beneficial changes to the law, and dragging out tax cases to reach settlements.
* Giant corporations can and do avoid the entirety of their tax burden, but this option is not open to regular wage-earners, because an ad campaign for shoes is considered to be an "investment" and a parent feeding their children is not. Even in the best case (if we pretend that all of the activities used by megacorps to avoid tax are "good" in the sense of contributing to GDP) this has the effect of increasing the tax burden on individuals, because no matter how much Nike contributes to GDP it will never fix a pothole or build a fire station.
* Your complaint about misdirected anger (people being mad at Nike rather than the legislature) is at best a nitpick (most people understand this and are just speaking lazily) and at worst outright false (in that the main reason megacorps pay so little tax is because of lobbying and aggressive legal action by those same megacorps).
Bottom line is that these (tax avoidance by regular wage-earners like the one in the case you cited, and tax avoidance by Nike, Amazon, et al) are not equivalent, and conflating them can serve no purpose other than to justify the sins of the latter with the virtues of the former.
The disconnect here is that the tax laws are created by politicians in the pocket of these companies. You can say it's the laws and not companies, but the companies fought/paid for those laws.
So it's perfectly fine to hate those companies, just as it's perfectly fine to hate Intuit for lobbying to ensure we have a hard time filing our taxes.
I would like people to form co-ops to do the same. Everything in their life can be supplied by the company. Recently I found out about a movement called Anarcho Syndicalism, so I guess I'm an anarchist? I don't know, I just want to push things to the logical conclusion so we can have some positive change.
While I think our tax laws for corporations need adjustment I always take these headlines with a grain of salt.
Let's think about taxes in other areas that companies like nike generates:
1. Sales tax on goods sold
2. Income taxes on employees pay
3. Capital gain taxes on stock sold... At ever increasing prices because their earnings are higher.
All I'm saying is it's complicated. It's not a simple math. Lowering corporate taxes might stimulate growth and taxes in other areas.
It's always weird to me that people see this and get angry at Nike and not the politicians who made the laws.
Nike is a publicly traded company whose sole purpose of existence is to create profits for its shareholders.
The people who write the tax laws are democratically elected officials whose, at least on paper, sole purpose as an official is to create laws like tax laws that benefit their constituents.
And yet, people somehow see the problem here as Nike trying to do what's in their best interest and not the politician who made it totally legal for them to do what they are doing.
> whose sole purpose of existence is to create profits for its shareholders
How can you tell what its "purpose" is? For example, Nike's marketing suggests its purpose is manufacturing athletic equipment or promoting youth sports.
Nike isn't a person. It doesn't have feelings or opinions or thoughts . Its existence is summed up by legal contracts which are obligations between the shareholders and the corporation and those legal contracts obligate the corporation to act in a fiduciary manner to create returns on the investments.
IANAL but I don't think that's what a typical corporate charter actually requires. It's just an opinion some people have about what companies should do.
Because it's companies like Nike that lobby our politicians to create power/regulatory capture moats of laws.
I think it's obvious that runaway capitalism does not work, and we need something different,but as always once something has been done once it quickly becomes the status quo
Corporations should not pay income tax at all. It's a direct tax on savings and investment, which leads to slower growth and lower incomes for the country as a whole. S Corps and some other legally structured corporations (such as some LLCs, all "non-profits" and religious businesses) don't pay income taxes by design. Why should C corps be singled out to pay taxes on capital that could be reinvested?
If you really want a fair, progressive tax system, stop taxing corporations, and increase dividend and capital gains* tax rates back to ordinary income tax rates. Then for the first time the little old lady in retirement would pay low rates and the rich CEO would pay much higher rates.
Under the current system when the retiree in California living off $30k in annual retirement income gets a dividend a total of roughly 38% is lost to taxes (Federal Corporate Capital Gains, Federal Dividend tax, State Corporate Income Tax, & State Personal Income Tax). The CA CEO making a million dollars a year loses roughly 47% to taxes on that same dividend.
So that's what our progressive income tax system was intended for, to have the poorest paying 38% and the richest 47%? And all to discourage savings and investment?
*
Now you'd have to index capital gains for inflation if you reverted them to ordinary income tax rates. That's the reason we have a separate capital gains rate. Taxing someone on a 100% gain in their stock value when inflation was 100% during the same period would be taxing imaginary gains.
> Corporations should not pay income tax at all. It's a direct tax on savings and investment
No corporation pays (or has ever paid) a dollar of tax on money spent for investment in the business. Corporate taxes, by design, only affect those dollars the corporation has chosen NOT to invest in the business.
I invest $1M building a great new store for selling widgets. My first year I make a $1M profit. I want to build a second store, but I can't out of profits, because I only can net $700k because of state and federal corporate income taxes.
1) They can be reinvested back into the business.
2) They can be held by the business pending future investment opportunities.
3) They can be dividended back to the shareholders.
Taxing profits means less profits remain to reinvest (#1), and less remain to be held in (#2) bank accounts (which are lent out by banks for investments), and less can be dividended to investors (#3) which reduces investor returns and lower returns means less motivation to reinvest in businesses.
When a similar story came out about Amazon last year, it seemed that the main explanation is that this was due to increased employee compensation which in turn increased employee income tax (which is at a higher rate than corporate income tax). In theory this is better for all parties involved since employees are getting more income and govt gets more tax income, but the article was a bit short on details so I couldn’t tell if that was also happening here.
This is probably naive (and feel free to tell me why it is), but why have corporate tax at all? Why not only tax individual income? It seems much easier for corporations to dodge taxes by moving their domicile and such things. Much harder (or at least a lot more inconvenient)for individuals to move jurisdictions to dodge taxes or to have other complex avoidance strategies (particularly if the tax code were simplified).
This isn’t a naïve question at all. My suspicion is that corporate taxes exist because they are the only politically-palatable way to impose taxes on the middle class (also known as “where the money is”). However, legal avoidance has gotten so prevalent among larger corporations that the futility of taxing them is becoming more obvious. How that translates into “raise the corporate tax rate”, I couldn’t tell you.
The corporate tax exists as a policy lever to get companies to do things. It's unpalatable to actually spend money on solar power, but tax credits kinda work the same way. Lower risk in a sense, since there's no outlay if nobody does anything, at the cost of stupidly complex laws and exceptions.
It's not a uncommon school of thought that the corporate tax rate should be 0% the biggest issue is the concern that without taxes the hording of money inside the corporation would get crazy but Apple already does that so it might not be as big of an issue as people think.
Right, but isn't most of Apple's cash hoard held outside of the US's tax jurisdiction, under much more favorable tax regimes? Seems like that might be an argument for a 0% tax; at least if the US didn't tax corporate profits, more of that money might be kept in the US. It's not guaranteed that it would be spent (thus injecting money into the US economy), but at least it would be possible for that to happen.
Private companies don't have to be corporations at all. If investors don't like the "double-taxation" problem, then drop the incorporation and use a different entity. Of course, they would loose the benefits of incorporation (i.e. limited liability) -- clearly many investors find that benefit worth the tax cost.
We should keep corporate income tax 0% forever, and take the tax revenue via capital gains (or dividends) instead. That's a lot simpler, fairer, and stops funneling money into the lawyers devising corporate taxation strategies that make the tax useless in the first place.
If you'll look even remotely close to how CEO comp works, you'll see that it's not paid out as a wage at all and that those people don't pay even remotely close to tax rate of an average employed person.
I agree with the first sentence, but I don’t think the second sentence is good evidence. Most people in the top 1% of incomes are not CEOs of large corporations.
Article is missing a lot of information - Like why with a 21% rate companies didn't pay taxes, or , what was the 'tax rebate' for? Also it shows the stock price change as if the company get's that money. Companies only get the initial IPO money for shares sold.
Taxes are passed through to consumers anyway; Corporations don't pay taxes - they collect them from the customer.
By itself, it seems like a nonsequitor for the article to mention that the tax rate changed from 35% to 21%, since if 35% of X is $0, then 21% of X is still gonna be $0.
However the new benefit for companies is that when the lose money, instead of having to use the loss to offset future profits, they can also use it to offset past profits. Offsetting past income taxed at 35% (from before the Trump tax cuts) is more valuable than offsetting future income which in theory will be taxed at 21%.
A combination of the Trump corporate tax cut and rebates on past losses in the CARES act, as well as other existing rebates, are reducing taxes that many companies have to pay this year, in some cases all the way to a negative effective rate.
Increases in share prices have also pushed up CEO pay, since CEOs receive a lot of stock as part of their total comp.
Assuming that they're following the law assumes that they'll also stand through a proper IRS audit without any questionable financials. If you'd ever been close to any corporation, you'd know that that's a hellova assumption to make.
"Following the law" is something that's very fungible when you're rich.
Are you sure? When I read the article it seemed to make a big deal about how part of the reason the companies got tax rebates is that the CARES act let companies apply their negative profits retroactively for a tax rebate instead of having to carry them forward.
Oh man, they would have paid $8.5 billion in corporate income taxes.
That'll for sure plug the trillions extra we spent in the past 12 months, the $2 trillion laughble infrastructure plan that does nothing, our forever trillion dollar entitlement deficits and hundreds of billions in unnecessary military spending. We better immediately get on raising corporate income taxes on every business - which is what this article is ideologically timed to argue in favor of.
And then a lot more of our major corporations will flee the US, as they were beginning to prior to bringing the corporate income tax down to a sane level that is competitive. They'll take jobs and R&D with them, while making the rest of the world even more competitive; see: Medtronic (and Pfizer nearly joined them). So then you'll have to strap another layer of authoritarianism onto the increasingly unfree US and say that companies are no longer allowed to leave (de facto building walls to keep resources from fleeing bad policy and decades of wildly irrational spending).
The only place the US is going to find a lot more income tax, is from the middle class tax bracket and those above it. And that still won't come close to dealing with the deficits. Those brackets are where every other welfare state on the planet finds their income tax revenue, the US is one of the few exceptions that doesn't drown its middle class in taxes, and if we're going to do that we better give those people healthcare in exchange among other things (like nice infrastructure, high-speed rail, and so on). But we won't do that, we'll drown everyone in taxes and give them nothing further in return, we'll just keep running our worst-in-the-world welfare state instead, as we have been.
