How various tech companies bypass paying US and UK tax rates.

And, its all legal . . .

Click for ginormous graphic

Source: Focus

Category: Digital Media, Taxes and Policy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

44 Responses to “Bypassing US Taxes”

  1. Tim says:

    This is outrageous. Does congress know about this? – hard to believe they don’t. We need this money, and they owe it to us. Is there any systematic way to identify all of the culprits, and change the laws?

  2. obsvr-1 says:

    yep, the MNC are one of the biggest problems, may be the biggest, that we face today … shift revenue overseas (tax evasion), shift production and labor overseas (exploit WW cheap labor and tax heavens), draw excessive executive bonuses, exec exploit tax loopholes and park their money overseas. Pay for lobbyists, campaign contibutions (bribes); sit on the business round table all contributing and continuing the raping and pillaging of the US. All of these MNCs want to have the freedoms, protections and legal certainty of the US, but they are the first to create (lobby, political influence) and exploit tax loopholes and dodges.

    * Instead of creating some tax holiday to repatriate excess corporate cash, the tax code should be permanently modified such that every year a MNC has to consolidate and repatriate their earnings and pay taxes (the tax rate can be adjusted for consideration to taxes paid at the income source).
    * Eliminate offshore tax shelters (already underway, but complete the task).
    * Any business that is either incorporated or has subsidiaries in the Caymens or other tax dodge heavens should be at the top of the audit list and made to comply with tax laws
    * Put tariffs in place for imports … if a MNC wants or needs to have presence or build a factory in a foreign market to service that market no problem, but no products should be able to be imported from those resources.

  3. DL says:

    There are those (on the political left) who just want to tax those evil corporations as much as possible.

    The first question is, could a bill get through the U.S. Senate which increases taxes on those companies which keep most of their profits offshore? I see that as unlikely; and if such a bill could get through, the next question would be, how long would it be before new loopholes sprang up. I think the answer there is “not very”.

    But just suppose, as a far-fetched hypothetical matter, the Senate actually did, in effect, punish multinational companies for being domiciled in the U.S. The next question would be, why should those companies remain domiciled in the U.S.? As I see, it, under that hypothetical scenario, they would be better off just becoming domiciled in another country, although they could still continue most of their operations here in the U.S.

    And if they did that in large numbers, I fail to see how U.S. citizens would be better off as a result.

  4. Google out doing more no evil I see

  5. bergsten says:

    About twenty years ago I worked for a startup company that setup this sort of stuff.

    There were more sets of books than there were employees!

    Aside from the Irish/Bermuda business, there was some other Netherlands-related European dodge too — I forget the details.

    What I DO remember is about $1M of the investor’s money went to the attorneys and accountants that set this all up, and the poor Chairman had to live six months out of the year in Monaco (he complained that someone’s yacht blocked his view).

    Lest some IRS type is reading this, said company burnt through about $50M, produced pretty much nothing (certainly nothing anywhere close to the word “income”), and went bust about eighteen years ago.

    (There were also forged signatures on the Bankruptcy paperwork — they were ahead of their time — but that’s another story…)

  6. DL says:

    In the event of a Republican sweep in 2012 (and I’m not predicting that), the government would let the multinational corporations bring back all their foreign earnings, subject to a 5% tax.

    Could bring in $700B, by some accounts.

  7. bergsten says:

    Maybe we should be invading Bermuda and the Caymans instead of Iran?

  8. wally says:

    ” The next question would be, why should those companies remain domiciled in the U.S.?”

    I think you are missing the point. Who cares if they are ‘domiciled’ in the US? Since they aren’t paying their way here anyway, it makes no difference. They might as well be domiciled in Liberia.
    They’s still do business here no matter what – because that’s where the money is.

  9. DL says:

    Wally @ 4:51

    My point would be that, over the long run, the IRS can really only effectively tax those transactions that actually occur here in the U.S.

    According to one school of thought, the best course of action is to make the tax environment here in the U.S. as favorable as possible (to say nothing of the regulatory environment).

  10. gordo365 says:

    It does matter if they are domiciled in US – since many/most of their employees are educated by a tax-funded public school system. They use tax funded infrastructure. They benefit from tax funded “rule of law”. etc.

    Should these companies be considered unpatriotic if they short change the USA in pursuit of profits?

  11. DL says:

    gordo365,

    You’re making a morality/fairness argument.

    I’m primarily interested in the consequences of a given tax regime (whether fair or unfair).

  12. rip says:

    Where’s Halliburton?

    One fact is “American” corporations exert far more influence over our government than they should. They just bought the last election.

    The second fact is there are no major “American” corporations. Look at their revenue streams and their tax havens.

    So why are these global corporations allowed to buy election results that should be left up the voters in the respective districts?

    @DL: Agree totally. Just keep them off our lawns and out of our supposed “democratic” elections.

    We’d be better off not having them own our government.

  13. Rescission says:

    They do this for the same reason wealthy people are moving out of New York to Florida.
    And the same reason many are migrating to Central America and Australia.
    You fool yourself when you set tax rates and ignore the impact on human behavior.

    Cut the damn taxes and businesses will stay and keep their profits here.
    And its not YOUR money Tim.
    America is no longer the most business friendly country my friends.

  14. zcarter says:

    The comment about this practice providing 26% of Google earnings for 2009, and the potential share price reset from $600 to $100 is kind of interesting.

    If that is true, then the government grabbing these taxes could have some unintended consequences. The major US stock indices are full of these MNCs and would get similarly reset at any given P/E multiple. A lot of capital gains taxes and wealth effect spending would disappear. Would the government end up with more tax collected, or less, if they closed these loopholes?

  15. ubnutsagain says:

    The OUTRAGE of it all !!! How DARE anyone take steps to minimize their taxes !!!!

    But then again, the vast majority of taxpayers also take steps to minimize their taxes. I sure do … don’t you?

    There ain’t a damned thing wrong with it. The legal manner in which MNCs move their income around the world has been an integral part of the Internal Revenue Code for decades.

    Each and every one of those MNCs has their annual tax returns audited by IRS. IRS has specially trained foreign source income auditors who use specially developed audit programs to assure that MNCs stay within the bounds of the law. In addition to the income deferral provisions that allow MNCs to use their foreign sourced income to finance and develop their foreign business operations, there is a major provision in the Internal Revenue Code known as Section 482 that addresses the requirement for arms length pricing among substantive controlled entities. IRS has substantial power to deny benefits if what a MNC is doing is just a sham.

    The real problem here is our Dear Electeds who repeatedly ignore the unbelievably complex tax law they and/or their predecessors created, and who allow it to continue as the abomination it is. The problem of beneficial tax provisions exists within a plethora of Internal Revenue Code provisions, not just those discussed in this thread.

    Rather than yelling at or about the MNCs who are simply applying the law to their advantage, go talk to your Congressman and Senator. They have the power to replace the current system with something sensible … but then that would require Dear Electeds who are sensible people, I suppose.

  16. jritzema says:

    http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-shows-how-60-billion-u-s-revenue-lost-to-tax-loopholes.html

    No mention in the graphic of the “Dutch Sandwich” which Bloomberg referenced in this story a few weeks ago. Why do these all sound like porn titles? Probably due to sexually frustrated tax accountants.

  17. snapwizard says:

    Obviously these companies have the army of legal architects, tax engineers and accounting analysts to optimize the tax payout. The losers are the small companies that can not afford these schemes and pay relatively larger percentage of their income in taxes. I think it was Mish who alluded to it. We dont need to tax these companies but what we really need is a level playing field.

  18. philipat says:

    This methodology was copied from Big Pharma, which has been succesfully evading taxes for decades in a similar way.

    I have been opining consistently herein that the biggest problem in the US is MNC’s. “Globalisation” has been very kind to MNC’s who can push jobs overseas, thereby creating record profit margins, then keep the profits out of the US using various of these tax mechanisms, then paying lobbyists to ensure the law is not changed. The system is totally corrupt and broken in the United Corporatocracy of America.

    Almost HALF of Americans don’t pay Federal Income tax. When O pushes the figure over 50%, who do you suppose these folks with vote for? With half the population and most Corporations paying little or no Federal taxes, this leaves the entrepreneurial and managerialclasses (The top 10% already pay 80% of all Federal taxes) to pay for everything. IMHO, this is NOT a sustainable model.

    How about a VAT system (Instead of Sales taxes) which will allow a very accurate identification of revenues. Then, with a “deeemed” rate of EBITDA by industry, apply a Corporate AMT?

    I totally agree with Barry on this issue, it’s now we the people versus MNC’s.

  19. philipat says:

    PS. SIngapore is a newer favourite location due to extended tax holidays and banking secrecy. As a result of which most of the Big Pharma and Big Tech Companies now manufacture in SIngapore. Coincidence? Hmmm………….

  20. ubnutsagain says:

    philipat: “The system is totally corrupt and broken …”

    ——

    The Internal Revenue Code as it relates to income taxes is a travesty. Attempts have been made to get Congress to do something about it, but they won’t.

    The reason: It’s a great big cookie jar for Members of Congress, particularly those on the House Ways & Means and Senate Finance committees. Why do you think they tinker with it every year? Why do you think they have never straightened out the Alternative Minimum Tax debacle?

    Easy … political contributions … also known as “scratch my back and I’ll scratch yours”. The exchange of dollars for value is easy to quantify as opposed to many other benefits derived from contributions.

    But beware VAT. It’s a non-transparent hidden tax that is collected out of sight of the people. When Congressional spending gets out of control (which is always, because it’s hasn’t been “under control” for years), all Congress has to do is jigger with the VAT rate and voila … multi-billions of revenue will be generated with little or no transparency. At least now, we know by April 15th of each year if we’ve been screwed or not.

  21. willid3 says:

    not sure why any one thinks we need to lower the corporate tax rate . thats already been done. almost every year BW has a story on corporate taxes paid. and unless a corporation stubs it’s toe on some thing. almost none of them pay much if any taxes. not just once in a couple of years. but every one of them.
    and we tried to bribe them to bring their over seas profits home, and that was sold as a job creator. it didn’t create much if any jobs. so thats more hoax than any thing else. we also had the great destruction of any and all regulations. either but eliminating the,. or by just not enforcing any of them.
    and how did that work out?
    we had this handy dandy recession.
    we have incomes for consumers collapsing even faster than that have before.
    we had to rescue the to big to fail or face a depression greater than the one in the 30s.
    and the president who decided to do that? isn’t the current one, its was the previous one.
    and the reason a lot of folks don’t pay income tax? they don’t even make enough to do much more than subsist. at best.
    but corporations who make billions (per their announcements to stock holders) also pay 0 in income tax.

  22. philipat says:

    @ubnutsagain

    Disagree, actually quite the opposite, VAT creates total transparency because, as an input/output tax, to achieve maximum offset of inputs, Companies are forced to decalre outputs, hence revenues, accurately. With accurate revenues, it doesn’t take much of an accountant to calculate, on an industry specific basis, what tax payments should be. And if not, why not, aka “Follow the money”.

    I completely agree with you about a corrupt Congress. I noted the “Lobbyists” in my earlier mail and for the sake of brevity intended this comment to imply this, on the basis that a Corporate lobbyist cannot Tango alone.

  23. victor says:

    I quickly scanned the comments and I’ve noticed but a few ones that went to the heart of the “problem”. So, here comes mine, directly from Econ 101: Corporations don’t really pay taxes; first they employ gimmicks such as this one, second they simply pass the remainder on to the user of the goods/services they make/provide in the form of higher prices one way or another. So, eliminate or at least reduce the corporate tax here (fat chance, please don’t laugh, although it’s higher than France’s) and voila! problem solved.

  24. osbjmg says:

    Tim – the infographic isn’t that big, you could read down into all few hundred words of text and mostly pictures and see the excerpt regarding the Obama administration looking into this since February.

    How about the real fix – lowering the tax here so this isn’t advantageous?

    I like the term “Government Losses” – as if the government is meant to accumulate gains. This all has a simple fix, and I don’t understand why it’s so hard to balance a budget. Stop spending. Bam. It works in my house, but the government likes to continually worry about how to get more. I like a raise as much as the next guy, but I can affect my spending more easily.

  25. Adam says:

    Crazy Eddie did the same thing, and ended up in prison for it. Enjoy this podcast from NPR’s planet money:

    http://www.npr.org/blogs/money/2009/08/into_the_mind_of_a_financial_c.html

  26. Jojo says:

    Many who want corporations to pay no taxes are missing the big picture. So okay let’s make corporate taxes zero.

    Now, how does the USA make up the loss of whatever taxes corporations DID pay? Cutting spending is a pipe dream. Not going to happen. You have to accept that in your heart.

    Which means that the taxes of everyone else would have to be increased to make up the difference that was collected from corporations. Y’all good with that?

    Taxing corporations is merely a way to spread the tax bill. Yes, the people who buy from products have the corporations taxes added to the cost of the product anyway. But since the tax cost is buried in the price of products/services bought, they are effectively hidden.

    Can you imagine the brouhaha that would arise if those corporate taxes had to made up by individuals and small businesses that file as individuals?

  27. Jojo says:

    This was the original Businessweek story that this chart is based on from a few weeks ago:
    ============
    BusinessWeek
    Technology
    October 21, 2010

    The Tax Haven That’s Saving Google Billions
    Google uses a complicated structure to send most of its overseas profits to tax havens, keeping its corporate rate at a super-low 2.4 percent

    By Jesse Drucker

    The heart of Google’s (GOOG) international operations is a silvery glass office building in central Dublin, a block from the city’s Grand Canal. In 2009 the office, which houses roughly 2,000 Google employees, was credited with 88 percent of the search juggernaut’s $12.5 billion in sales outside the U.S. Most of the profits, however, went to the tax haven of Bermuda.

    To reduce its overseas tax bill, Google uses a complicated legal structure that has saved it $3.1 billion since 2007 and boosted last year’s overall earnings by 26 percent. While many multinationals use similar structures, Google has managed to lower its overseas tax rate more than its peers in the technology sector. Its rate since 2007 has been 2.4 percent. According to company disclosures, Apple (AAPL), Oracle (ORCL), Microsoft (MSFT), and IBM (IBM)–which together with Google make up the top five technology companies by market capitalization–reported tax rates between 4.5 percent and 25.8 percent on their overseas earnings from 2007 to 2009. “It’s remarkable that Google’s effective rate is that low,” says Martin A. Sullivan, a tax economist who formerly worked for the U.S. Treasury Dept. “This company operates throughout the world mostly in high-tax countries where the average corporate rate is well over 20 percent.” The corporate tax rate in the U.K., Google’s second-largest market after the U.S., is 28 percent.

    In Bermuda there’s no corporate income tax at all. Google’s profits travel to the island’s white sands via a convoluted route known to tax lawyers as the “Double Irish” and the “Dutch Sandwich.” In Google’s case, it generally works like this: When a company in Europe, the Middle East, or Africa purchases a search ad through Google, it sends the money to Google Ireland. The Irish government taxes corporate profits at 12.5 percent, but Google mostly escapes that tax because its earnings don’t stay in the Dublin office, which reported a pretax profit of less than 1 percent of revenues in 2008.

    The bottom line: Google has built a complicated international structure that sends most of its overseas profits to the tax haven of Bermuda.

    http://www.businessweek.com/magazine/content/10_44/b4201043146825.htm

  28. miamiocean says:

    In Florida, 3/4 of the corporations in the state pay zero tax. Nada. Of the 1/4 that do pay taxes, about 80% of those are companies with less than 50 employees. The large corporations pay nothing or next to nothing towards the U.S. infrastructure. It is the small companies that get taxed to near death in Florida. So much for the Republican mantra about supporting small business. It amazes me that it is ok with some that corporations pay as little as possible, and they never acknowledge that this means the rest of us, including small businesses, end up supporting the country’s infrastructure.

    Microsoft, Apple, Walmart, all those big companies started out as small companies. The idea that giving back millions to millionaires will create jobs is a crock and a scam.

  29. jad714 says:

    In doing this, you are certainly not helping minimize our US deficit. Why don’t you just pay taxes here and be a freaking citizen like everyone else?

    http://www.philstockworld.com

  30. Neil C Denver says:

    This is why we need to reinstate considerably higher taxes for the billionaires who own these companies. If a pauper like me had to pay 50% taxes during the Reagan era, why can’t these hyper-wealthy pay as much.

  31. deaner66 says:

    This is horseshit. If the corporate tax was only 5%, then Google would still be doing this and claiming their tax liabilities were too high. Maybe this is legal, but it is completely unethical. Why should these companies have a right to dock themselves here? There simply has to be a way to make these companies pay their fair share.

    And don’t give me this crap that other countries have lower rates, so they can go there. All this is, is a race to the bottom, country by country.

    Shame, shame, shame.

  32. Tim says:

    Hey…I guess (we) should just personally incorporate ourselves as LLC’s and do the same thing! Double Ireland…here I come!

  33. VennData says:

    US corporations are as feckless at tax slipperiness as Greeks citizens.

    All the Chamber of Commerce calls for “repatriating” that cash offshore with another tax cut is the result of this. Bush and his cronies allowed them to get away with it in 2004, setting the stage for the corporations to EXPECT it.

    If you paid taxes on your foreign earnings, you don’t owe taxes on repatriation. All those wonderful US corporations helping to foot the bill for keeping the world free don’t mention they never paid taxes on all that “cash.”

    So please don’t let the GOP advertising confuse you: the MARGINAL tax rate that is on the books is no where near the EFFECTIVE tax rate that the corporations pay. Ever wonder why we have a $10T plus debt? … oh but you’ll just sit their listening to the GOP advertising …and their hour-long infomercial, Fox News.

  34. BuffaloBill says:

    The last time I looked, the IRS Code was around 14,000 pages excluding the 3,000 or 4,000 pages written by Congress. Frankly, the entire tax code has become counterproductive, a travesty of common sense and a slap in the face of “free markets.” Decades into this activity, I’m sure most of us would agree, our tax system begs to be simplified and rewritten to generate revenue and not to play favorites.

    Don’t hold your breath – just encourage your children to major in accounting and then head to law school.

  35. ubnutsagain says:

    @ philipat

    It appears we’re looking at VAT’s transparency from two entirely different angles. If I understand yours correctly, transparency is defined as being from an “inside” perspective. That is, using inside input/output data, macro industry-specific data can be used to determine industry-level VAT.

    However, as we all know, businesses will simply pass their VAT burden on to the next buyer, and ultimately the end consumer. The economic burden defined by the tax will be buried in the cost of everything, yet no-one – except a few crazed accountants – will be able to tell how much of he pays for his own purchases constitutes VAT.

    Yet it will be the populace – the voting public – that will be effectively paying the VAT, and virtually none of them will know what the VAT burden really is. That’s why I say it’s not transparent.

    VAT is a variation of the sales tax, but is levied during the production cycle(s). With today’s very transparent sales taxes, every time we buy something we know how much tax is involved. It’s printed right there on the receipt. With VAT we won’t know because it’s not transparent.

    Over time, and knowing how effectively we humans lose sight of “out-of-sight-out-of-mind” conditions, voters will be uninformed and will become conditioned to just paying for their purchases, ignorant of the true tax burden they pay. When that occurs, along will come the Dear Electeds who can easily ratchet up the VAT rate a fraction or two and literally generate billions of dollars, a buck a day from consumers who won’t know any better.

    One other point: Historically, we have had a progressive tax rate income tax system. In theory, I believe that is a fair system. It is now unfair, however, because our Dear Electeds have bought millions of votes by eliminating income tax on some 50% of the taxpayers, a gross distortion of the progressive rate system.

    Under VAT, there are millions of low income folks of all types who will have an immediate and significant increase in their cost of living (measured by the VAT), well above their current total COL plus income taxes. Thus, VAT will wind up stiffing those who are least able to bear it, while the wealthy will, in all likelihood, gain a net reduction to their current COL plus income taxes.

    Be careful what you wish for. VAT is not the answer to our ridiculous Federal income tax system.

  36. miamiocean says:

    Corporations were originally chartered by legislatures (prior to the American colonies) and their specific purpose was to serve the public good, not investors. It was written into the incorporation documents. Really. This was the private-public partnership bargain made for corporations to exist and for the privilege of making a profit – instead of all profits going to say, the King. At some point in time, a new bargain was struck which included alleviating corporation officers and investors from individual responsibility, however the original concept of serving the public good remained explicitly in the incorporation documents. Further down the road of development, corporations became the domain of anyone willing to invest their time and money and the idea of serving the public good was dropped, while the notion of exemption of personal responsibility was retained. Legislators were no longer required to establish a corporation and anyone could do so legally.

    Then the Supreme Court decided that corporations had all the rights and privileges of citizens, but none of the responsibilities, completing the bastardization of the original concept of corporations into an entity which is beholden only to itself and its investors. Small, individually-owned businesses primarily were what the Founders thought of as the “free market”. Today corporations are included in the sweeping description of the “free market” when in fact they are not representative of such and they have unfair advantages in the market which destroys the entire concept of the “free market”.

    History is unfortunately either not taught in schools or it is so warped by various political agendas, that it is essentially useless in providing context. The present day version of corporations is not what this country started with and should be re-examined in light of the inability of their officers to see themselves as anything other than a chartered profit-making machine. I would characterize them as incorporated locusts at this point. Completely amoral eating machines which decimate every local resource to their personal benefit before moving on to find new resources to feed upon.

    There are those who think this is a good thing because their personal wealth is a result of investing in these eating machines. They defend the corporate right to exploit people and resources with absolutely no knowledge of the historical context of corporations and how their role in society was warped to provide for the continuation of the oligarchy. Common sense and a sense of community has been stripped from business transactions. This isn’t a liberal or a conservative problem, it is everyone’s problem that the present concept of corporations has established a government sanctioned and legal form of exploitation of every citizen and community resource in the U.S. without any individual responsibility for the destruction of community that follows. The unions at one point had provided some counterweight, however that has been effectively destroyed as well whether you want to believe it or not. I have no problem with businesses making a profit because governments can not, and should not, do everything. I do have a problem with the present design and regulation of corporations which has been warped from its original conception.

  37. NeutralObserver says:

    We could do the reverse of what Brazil is doing. We could put a 6% tax on all money transfers going outside the country. This would also help our trade balance probem without enacting formal import taxes. Of course we need to make the obligatory statement that this currency export tax (let’s call it the CET) would have other unforeseen effects.

  38. obsvr-1 says:

    @miamiocean — right on, if the corporations, financial business and the MNCs would go back to supporting a common good, moral base, ethical behavior and priority on protecting, supporting and enhancing the societal good and country loyalty, then we would see a shift back to a well regarded capitalistic system. Capitalism is under assault by greed and unregulated “free market” hyperbole that allows for systemic fraud and criminal behavior.

  39. formerlawyer says:

    ubnutsagain:

    “That is, using inside input/output data, macro industry-specific data can be used to determine industry-level VAT.”

    I am not so sure that this understanding of VAT is correct.

    To the best of my recollection, VAT works by applying to all goods and services (there may be some exceptions ie. for food). For example, logging company sells logs to pulp mill and charges a 5% VAT tax. Paper company turns the logs into paper and adds the 5% VAT. Paper company remits the net tax ie. the VAT it was charged on its products minus the VAT charged on the inputs (logs, fuel etc.). Lawfirns buy paper, record the 5% VAT that they were charged and then provide legal services which similarly attract a 5% VAT. The Lawfirm remits the difference between what it charged in VAT and the VAT on the various inputs (including paper costs) that the Lawfirm was charged.

    VAT will be charged on any and all qualifying good or service by all providers and not on an estimated industry wide basis.

    All of this involves considerable paperwork. As you have noted, it is also strikingly regressive with low income earners bearing a disproportionate burden at least on a percentage of income basis.

  40. obsvr-1 says:

    scraping the tax code and the IRS in favor of a consumption tax (with adjustments for poverty level, under privileged) would be a reform worth fighting for (www.fairtax.org).

    The extra revenue captured from the tax loopholes, tax evasion, tax avoidance, tax fraud, underground / black market as well as the redirection of time and money spent on tax accounting, tax preparation etc towards more productive use of time would be a huge benefit.

  41. obsvr-1 says:

    the last sentence is equally applicable to MNCs

    “When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes… Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”
    – Napoleon Bonaparte, 1815

  42. philipat says:

    @formerlawyer

    “As you have noted, it is also strikingly regressive with low income earners bearing a disproportionate burden at least on a percentage of income basis.”

    Please explain how this is any different to existing sales taxes? The fact is that lower income folks spend a higher proprtion of their income compared to higher income folks who can save more. In either system, Sales tax or VAT, the only way around that would be to create a progressive system with a means test, establishing an income level over/under which consumption taxes would apply? More socialism!!

  43. philipat says:

    @ubnutsagain

    If you would read my posts again, I was NOT proposing changing Federal Income taxes for VAT, although that could be done, when the regressive arguement would apply.

    Instead, what I actually proposed was replacing existing SALES taxes with VAT. The regressive arguement is no longer relevant unless you believe that the regressive nature of existing sales taxes is wrong. The fact is,lower income folks spend more and save less. Even in socialist Europe, however, there is no means testing on either sales taxes or VAT. They apply universally.

    The experience with VAT internationally has been that it forces Corporations to be transparent with revenues, from which taxes can be better estimated. My point was that US MNC’s DO NOT PAT US taxes at anything like the rate they should. WIth a VAT system, the taxes could be assessed by industry as percentage based on REVENUE such that all the Transfer pricing/Tax avaoidance etc. would be circumvented.

  44. [...] prevent income from having to be reported on U.S. corporate tax returns.  The Big Picture has an infographic that will learn [...]