May 21, 2013

"Apple used a 'complex web' of offshore entities — with no employees or physical offices..."

"... that allowed it to pay little or no taxes on tens of billions it earned overseas, according to a Senate investigation unveiled Monday."
While the practice of using foreign operations to avoid U.S. taxes is legal and common among multinationals, Apple’s scheme was unprecedented in its use of multiple affiliates that had no semblance of a physical presence, Senate staffers said.
Why wouldn't Apple do what is legal to avoid taxes?
“Apple claims to be the largest U.S. corporate taxpayer, but by sheer size and scale it is also among America’s largest tax avoiders,” [Senator John] McCain said.
Isn't that exactly what you would expect?

106 comments:

Jay said...

Why wouldn't Apple do what is legal to avoid taxes?

Because fair share you greedy 1% you!!!

Millionaires, billionaires, and corporate jets!!!!

Mark O said...

Well, yeah.

Kelly said...

From good liberals such as Steve Jobs along with the other techies, I would expect no less.

Jason said...

Evasion is illegal. Avoidance is legal. In fact, if you don't make a good faith effort to avoid as much unnecessary tax as you can, you can be sued for breach of fiduciary duties to shareholders.

Patrick said...

The US tax code, complex as it is, allows companies to do things that will save money, making the money they earn not subject to US taxes.

These idiots are surprised that companies do those things. Says about all you need to know.

Jason said...

Evasion is illegal. Avoidance is legal. In fact, if you don't make a good faith effort to avoid as much unnecessary tax as you can, you can be sued for breach of fiduciary duties to shareholders.

Curious George said...

Bless their heart.

Rae said...

This labyrinth of legal loopholes was signed into law by lobbying the legislature.


Yes, I have nothing substantive to say about it.

AprilApple said...

Note too that the ultra-large corporations are all Obama/corruptocrat supporters.
*Apple* *Google* etc...
Curious.

Glory be to Obama.

Gahrie said...

Did you hear about the new Apple Fridge?

It costs twice as much, and you can only shop at one chain of supermarkets, but it does take pictures.....

rehajm said...

It's tax avoidance, not tax evasion. Apple's management has a fiduciary obligation to avoid taxation.

Tell us what the rules are and we'll comply with them. The rulemakers hate that.

AJ Lynch said...

John McCain never fails to muscle his mealy mouth into an issue. He has been in Congress for over 30 years and acts as if he can't believe this stuff happens and he had nothing to do with it.

Matthew Sablan said...

I think the reason the Senate is investigating is because these may -not- be legal avoidance, if my reading is right. Of course Apple says it was legal; that doesn't mean it is.

AllenS said...

Don't worry about Apple, the IRS has it's hands full auditing the Tea Party.

AprilApple said...

Here's what democrats are doing in congress.

Tax-welfare benefits for illegal.

AprilApple said...

oops - in the Senate.

Jeff Teal said...

So many people to audit 501 and GOP donors so few to audit progressive supporters.

edutcher said...

Legal but unprecedented, son of fake but accurate.

dreams said...
This comment has been removed by the author.
dreams said...

This is an opportunity for the Dems to score populist points especially since Apple is significantly off its high and a lot of investors who bought at or near the high have losses and therefore more likely to be receptive to the Dem's demagoguery.

AprilApple said...

How pathetic can our government get?
Under democrats, pretty pathetic. Good thing for democrats, most Americans are really stupid.

Mitchell the Bat said...

There was some SCOTUS justice who wrote in an opinion or concurrence or something that a citizen has absolutely no duty to pay one cent more in taxes than can be legally avoided.

Maybe it was O'Connor.

In any event, I doubt she's the only one to have said as much.

drozz said...

i fully expect people to stop using apple products due to apple not paying its patriotic tithing.

won't you pledge to stop using apple, comrade?

MadisonMan said...

I guess a good question for a Senator is: If you don't like this avoidance of taxes, why don't you pass a law and close the loophole.

Posturing is so much easier than action.

CEO-MMP said...

Hmm. Simple, fair flat tax takes away much of the reason to do such things.

Heh. Apple. Is Algore still on the BOD there?

damikesc said...

Because fair share you greedy 1% you!!

Ironically, Apple was one of the few companies the Occupiers seemed to like a lot.

CEO-MMP said...

" drozz said...

i fully expect people to stop using apple products due to apple not paying its patriotic tithing.

won't you pledge to stop using apple, comrade?"

Oh hell no! I fully approve. And I might go out and get another iPad today as a small token of my appreciation for their efforts to give Barry, Harry and Nancy less money to waste.

MayBee said...

They will close this loophole by taking a bigger fair share from millionaires and billionaires making $100.000/year.

bpm4532 said...

Aren't most Apple customers Democrats? Hilarious adventures in self-loathing.

I'm sure it will only get funnier in coming days.

Peter said...

The real harm is all the unproductive, high-priced talent Apple had to hire to make this work-- the inevitable result of an absurdly complex tax code.

Matthew Sablan said...

Note, again, that at the moment, the Senate appears to think that Apple wasn't using tax loopholes, but was breaking the law. Apple may not have broken the laws, hence the investigation. It may turn out that Apple -did actually- break some laws (and in all likelihood, given the complexity of the tax code, there is probably some violation somewhere, intentional or not.)

traditionalguy said...

The Protection Racquet headquartered in DC is not pleased until it gets its skim.

So a few legs will need breaking. and perhaps a special foundation set The rule of law is so inefficient.

A massive new charitable foundation that hires the pols' friends and supporters would be a nice atonement too.

bpm4532 said...

Corporate tax rates are ludicrous. They should be zero and individuals pay on their share of the income when realized. At 35%, this penalizes the not-wealthy shareholder who is only trying to save for a house, college, or retirement.

AllenS said...

There are so many laws on the books that we're all guilty of something.

rehajm said...

I guess a good question for a Senator is: If you don't like this avoidance of taxes, why don't you pass a law and close the loophole.

This would be tricky. It would mean the United States would have to somehow justify taxing the activities of non US based corporations for commerce occurring outside the United States.

From the WSJ:

The units are beyond the reach of the Internal Revenue Service, which counts corporations as American if they are incorporated in the U.S.

But Irish tax law only considers companies residents of the small European country if they are managed and controlled there, and Apple manages them from the U.S.

Pettifogger said...

The previous commenters pointing out the distinction between tax avoidance and tax evasion are correct. Apple's actions are, insofar as I know, perfectly legal tax avoidance. Anyone who does not avoid taxes as best he can is a fool.

The news coverage and probably some of the politicians are trying to blur the distinction between tax avoidance and tax evasion. That may be good politics, which is certainly why the media engage in it, but it is terrible public policy.

Scott M said...

Shocked, yes, shocked I am that Apple would act in its own self-interest. Humans must be involved now that Saint Jobs has shuffled off.

Methadras said...

If I were Tim Cook, this is what I would say, "These are the tax laws on the books. We are simply following the law. You call them loopholes, we don't. Unless you are going to audit our books, and since no one has been indicted in their preparation or in their authentication, then we have broken zero tax laws. Have a nice day." I'd get up and walk out.

Seeing Red said...

hehehe, didn't Teddy Kennedy give some legal tax advantages to American companies if they located an office in Ireland? Microsoft was mentioned in an article long ago.

The EU's been bitching about/sniffing at Ireland's rates for a very long time.

I swear this goes back to the 80s/90s. This is seared, SEARED into my memory and seem to recall Ireland was in really poor straits, and they revamped their tax code.

They wanted artists, so I don't think artists paid taxes, looking at you, U2, and when they changed that in the oughts, U2 moved part of their biz to a lower-tax country.

If Apple only has to pull out the US & EU/Ireland tax code with proper cites, lolololol.

Seeing Red said...

Bonus points for pointing out if an inquisition senator/congressman cosponsored or voted yes to the legal code.

KLDAVIS said...

TL,DR summary:

"We created a ridiculously complex tax code with myriad loopholes and workarounds, but we didn't actually expect people to USE it."

Just another log on the fire of unintended consequences...burn the whole thing down.

Widmerpool said...

As others have noted, this goes on all the time and tax avoidance is perfectly legal, and what I would expect Apple to be doing were I a shareholder. On a smaller scale, I worked for a number of years for a company with manufacturing facilities all over the US, and we worked closely with our accountants to maximize the amount of "nowhere income" for state income tax purposes.

Also, this would not be such an issue if the US, like much of the Western world, adopted a territorial tax system.

rhhardin said...

Then there's the standard deduction loophole.

Aridog said...

rehajm said...

Tell us what the rules are and we'll comply with them. The rulemakers hate that.

Actually, what the rule-makers ask of mega-corps is what rules do you want and we'll write them. How's G.E. doing these days?

Jay said...

damikesc said...

Ironically, Apple was one of the few companies the Occupiers seemed to like a lot.


Ah yes, they were demanding that the government forgive their student loans while clutching iPhones and Ipads...

Aridog said...

AllenS said...

There are so many laws on the books that we're all guilty of something.

Including "rules" written from laws, if you are breathing today, did you secure your carbon tax credits for your CO2 emissions for today?

Larry J said...

Corporations and wealthy individuals bribe members of Congress to get special loopholes written into the tax code. That's why the tax code is such a lengthy and corrupt mess. Every time a politician talks about changing the tax code, the bribes flow in from people looking for an advantage. There's no other investment that pays 1/10th the return as bribing a member of Congress. A $100,000 bribe can return $100 million or more in the way of contracts and tax advantages. That's why good ideas like a flat tax will likely never happen. Congress will never willingly give up their bribery mechanism.

And yes, campaign contributions via lobbying, PACs and direct contributions are bribes. Congress just wrote the rules making them legal bribes, but they're bribes just the same.

Nonapod said...

After all the US government clearly knows better how to spend those billions than Apple does. Apple would just invest it, creating great products and jobs. Who wants that noise?

Brennan said...

It's too bad Tim Cook won't testify this way.

"F you Congress. We believe Apple can spend its capital better than you can spend it for us. No offense."

Brennan said...

Ironically, Apple was one of the few companies the Occupiers seemed to like a lot.

Every religion has its saints. Pay no attention to their misdeeds.

Jason said...

GE pays taxes, like the rest of them do. I still keep seeing people trying to claim that GE paid zero taxes on 8 billion in profits or some stupidity like that. These people are idiots.

Emil Blatz said...

This may be more like US DOJ v. Microsoft, the significant consequence of which was that Microsoft octupled its lobbying budget and contribution to politicians. If Apple is concentrated in CA, and elsewhere around the world, the Senators just wanna get some for their home states (and for their re-election committees.)

And if you dumped some loopholes and raised the effective tax rate for Apple and any like corporations, you might just find fewer jobs in CA, and a lot more offshore. So, this could really be viewed as AZ, and NY, and others vs. CA, which really couldn't affords to lose more Apple type incomes right now.

Nomennovum said...

1. Get rid of the corporate income tax.

2. Make the individual income tax a flat rate tax on gross income. Problem solved.

3. Never happen.

I Callahan said...

Make the individual income tax a flat rate tax on gross income. Problem solved.

See, this is the type of thinking where right-leaning folks fall into the same wishful thinking pattern that lefties do. A flat tax rate is one thing, and I agree with it, but there are a million caveats that most people don't bother to think about.

Say you own a business (a small business, where you are the sole proprietor). Which deductions are you allowed to deduct from gross income? Which ones are you NOT allowed? When you buy equipment, do you expense it, or depreciate it over its useful life?

Say you're an investor. How do you account for gains? Are they taxable at the difference between what you bought them for and what you sold them for? Is this amount indexed for inflation in that period (Say you bought them in 1967 and sold them this year, for example)?

The idea of putting a tax return on a postcard is laughably unrealistic. And I'm someone who also believes that taxes are much too high in this country.

It'll never happen because it makes no sense.

dreams said...

Rand Paul

"Frankly, I'm offended by the tone and tenor of this hearing," Paul said, laying into those who take issue with Apple's tax policies.

"Instead of Apple executives we should have brought in here a giant mirror," he added. "Congress should be on trial here for creating a byzantine tax code."

http://www.businessinsider.com/rand-paul-congress-not-apple-should-be-on-trial-for-taxes-2013-5

Nomennovum said...

It'll never happen because it makes no sense.

You give yourself too much credit for thinking you are smarter than everyone else, and you give everyone else too little credit for understanding the issue. If I intended to outline a perfectly workable plan for business taxation in 19 fucking words, I would qualify as insane. Do you think I attempted to do so or do you think I was simply trying to make a point?

ad hoc said...

The famous quote regarding taxes is from Learned Hand, although I can never remember it exactly, I found it -

"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands."

Anyone who doesn't like the tax code should look no further than those who wrote it.

cubanbob said...

Nomennovum said...

Your plan is perfectly logical and simple for individuals and as for taxing business income as others noted upthread is to eliminate the income tax on businesses and simply tax the shareholders, S Corp owners and non-profits and other tax exempts on the distribution.

What gets lost in all of these threads is the underlying fact that the tax code is something that it shouldn't be. It is a form of capital allocation and off the books government expenditures. What it should be is simply a revenue raising mechanism for the government and from there the onus should be on the political process on how to spend the funds. Unfunded mandates being a prime example.

mariner said...

Note too that the ultra-large corporations are all Obama/corruptocrat supporters.
*Apple* *Google* etc...

Let's not forget GE, which had paid NO income tax in the U.S. for years.

Jason said...

Mariner confirms my 9:41 comment.

Idiot.

I Callahan said...

A little touchy, Nomennovum?

How about trying to address the points I made, as CubanBob did.

Nomennovum said...

How about you address my point first, IC? I'm not even sure you understood it or read the whole 19 words of it.

Instead, your automatic assumption is that I don't understand the issues of taxation. That is foolish and arrogant.

Aridog said...

Jason said...

GE pays taxes, like the rest of them do.

Yes, for 2012 they did pay a 14.4% consolidated effective income-tax rate. Less than Warren Buffet's secretary, right?

How much did GE pay in 2010?

That said, tax avoidance is as American as Apple Pie, so to speak , and it should be...but let's not kid each other that the playing field is level or that Democrats don't pass out favors to their corporate sponsors as if it is only evil Republicans who do that.

Nomennovum said...

In case, I'm not being clear enough for you, IC. I have no interest in addressing your points. Zero. This is because you clearly chose to disregard my quite simple point in order to act like the smarty pants you think you are. I am not going to extend you the same courtesy you chose not to extend to me.

dreams said...

Rand Paul

"But if we had repatriation at 5 percent, then they would bring money home. Why don’t we just pass it? Instead it has to be revenue neutral, scored by the CBO – just pass it if it’s the right thing to do.

I would say what we really need to do is to apologize to Apple, compliment them for the job creation they are doing, and get about doing our job.

Look in the mirror and let’s make the tax code better, fairer, and more competitive world-wide. Money goes where it is welcome and currently our tax code makes money not welcome in our country."

http://www.powerlineblog.com/

Jason said...

Ha ha ha. Aridog thinks it matters what GE paid in the year he cherry picked. HAHAHAHAHAHA!!!

Heeeeere's your sign.

rehajm said...

How much did GE pay in 2010?

US tax code has a pesky 'loophole' whereby companies only pay taxes on earnings. Sometimes a company has operating losses so large it takes more than one tax reporting period before the companies earnings 'catch up' to the operating losses from previous periods. Such was the case with GE in 2010- it had operating earnings for the year, but they were not large enough to overcome losses from prior years.

Though the politicians who demagogued this issue hoping the public wouldn't notice are proud of you right now.

Jason said...

Ari,

Look up "net operating loss carry-forward" and get back to us.

That's the short answer to why every shithead who harps on GE's 2010 tax bill without understanding it or bothering to look at the financials is a fucking idiot.

Michael said...

They are not availing themselves of "loopholes," they are following the tax law. Does Congress think that there might be unintended consequences of their brilliance?

Michael said...

I Callahan: I think you misunderstand the flat tax. The idea is to eliminate the very considerations you enumerate. Gross revenue is all that is required for the first step in the calculation. Gross being total income. The flat tax rate would then be applied to the Gross Revenue with the product being the tax owed. No wringing of hands of expensed versus capitalized, no worrying about depreciation schedules or the deductibility of this or that. Flat. Tax. See?

Aridog said...

rehajm and jason ... wow, I am certainly awed by your tax expertise.

Note, I didn't ask why GE paid zip in 2010, because I knew why. Do you always answer a question with a question?

Do you want to discuss how GE Financial Services division generates losses in the US but profits overseas? That is the loss carry forward which you speak of, right?

Here, help you out.

Now just what was in error with the statement I made about 2012...the year I cherry picked you say?

You skipped my remark that tax avoidance was fine, right...? You're so busy thinking up your astounding riposte, right?

Now, back to facts...just what was your point about the fact GE pays taxes?

Marshal said...

Jason said...
GE pays taxes, like the rest of them do. I still keep seeing people trying to claim that GE paid zero taxes on 8 billion in profits or some stupidity like that. These people are idiots.


Much like the leftists claiming corporations received tax credits for offshoring jobs. It seems whenever the lefty propoganda machine includes the word "corporation" in any allegation the public loses even the most basic ability to think.

Probably a result of brainwashing. Nothing else explains the total lack of reason.

Marshal said...

Michael said...
I Callahan: I think you misunderstand the flat tax.


I think you're wrong Michael. Most proposals I've seen focus the flat tax on individuals. The most common flat tax rate I've seen is 15%. That would be 1.5 million on a revenue base of ten million, which is a reasonably successful family business size. That business may near zero now because the family takes the available cash flow in salary and pays individual income tax on it.

To summarize: ruinous.

Consider the effect on business consulting.

Sigivald said...

LarryJ said: And yes, campaign contributions via lobbying, PACs and direct contributions are bribes

So, what's the alternative?

How does anyone get any input in lawmaking, if it's all "bribes"?

(Remember that it's not icky corporations and "rich individuals", it's those horrible "Special Interests" that represent millions of Americans, like the AARP and NRA.

Money. Is. Speech.)

Michael said...

Marshal. I dont advocate the tax just pointing out how it works. Show me where I was wrong.

I Callahan said...

The idea is to eliminate the very considerations you enumerate. Gross revenue is all that is required for the first step in the calculation. Gross being total income. The flat tax rate would then be applied to the Gross Revenue with the product being the tax owed. No wringing of hands of expensed versus capitalized, no worrying about depreciation schedules or the deductibility of this or that. Flat. Tax. See?

Nove - this is an example of how to respond to a comment. And this comment is a PERFECT example of how most people have NO IDEA how the tax system works.

(By the way - I was not getting smarty-pants-ish to you, until you got bitchy at me. I was not intending to insult you, and any logical reading of my comment shows that)

That said Michael - let's compare a grocery store (where 95% of gross revenue is paid out in purchases and expenses), and a consultant (who may not pay 20% of gross revenue out in expenses).

Explain to me how it's fair that they both be taxed at the same rate?

Businesses HAVE to be taxed at their NET income. Otherwise any business that has low gross margins would go out of business, or you'd be paying $9 for a loaf of bread.

If we're talking about people with standard wages, then fine. But a tax return on a postcard would not apply to a business.

I Callahan said...

Correction:

Explain to me how a grocery store with $1,000,000 in gross revenue should be taxed at the same rate as a consulting firm with $1,000,000 in gross revenue.

Michael said...

Marshal. A flat tax would kill the tax advisory and preparation business and would devastate consultants who help steer taxpayers through the code. Further it would put many legions of Washington advocates. Whats not to like about those outcomes?

Big Mike said...

President Obama receives a $400,000 annual salary and paid only 18.4% in taxes last year. Is it really fair to complain that Apple takes advantage of tax loopholes?

Marshal said...

Michael said...
Marshal. I dont advocate the tax just pointing out how it works. Show me where I was wrong.


I think you're wrong about what is being proposed.

My pointing out the scale of negative impact was not to dispute the policy on its merits but to show those impacts are so overwhelming it's unlikely anyone is actually proposing a gross revenue tax.

Michael said...

I callahan. I am not an advocate of the flat tax, but was noting that you appeared to have misunderstood it. Now you raise the issue of "fairness" which is is not a concept that attaches itself comfortably to taxation.

I happen to think that people who make their "points" in all caps tend to be people with a screw loose so I think I will end by saying that I wish you well and hope that you, like me, pay as little as legally possible under the current tax code.

Michael said...

Marshal. I didnt realize anyone was proposing a flat tax at the current moment. I do agree, however, that there will be no major modification of the tax code. . There wont be a flat tax or any other simplified version of the code.

dreams said...

"Explain to me how a grocery store with $1,000,000 in gross revenue should be taxed at the same rate as a consulting firm with $1,000,000 in gross revenue

The profits on revenue is taxed not the revenue.

I Callahan said...

I happen to think that people who make their "points" in all caps tend to be people with a screw loose so I think I will end by saying that I wish you well and hope that you, like me, pay as little as legally possible under the current tax code.

Wow. Is it a full moon today? Everyone's acting like they've got a bug up their ass.

I understand how a flat tax works. Having been in the financial business for the past 27 years, I'm quite sure I know better than you. So please don't purport to tell me that 1, I don't understand, and 2, I've got a screw loose. You don't know me from Adam, I don't know you from Adam, so leave the personal bullshit at home. I've not said anything personal about anyone on this thread.

That said, a flat tax is a tax on income. But no one ever addresses what kind of income - gross, or net. And the politicians who like to campaign about post-card sized tax returns are being disingenuous with people, even if I agree with simplifying the tax system.

How is that even difficult to understand?

I Callahan said...

The profits on revenue is taxed not the revenue.

Exactly. Which although I'm being a bit long-winded, is the exact same point I tried to make to Michael, who got indignant when I pointed this out.

Steven said...

Tax capital gains as regular income, and end the corporate income tax. Individuals have a much harder time avoiding taxes than corporations and it would make US operations more attractive to corporations.

I Callahan said...

Steven,

I agree with you. Question: how do you tax cap-gains? Should they be indexed for inflation? If you bought a stock in 1967 for $1, and sold it this year for $100, should you pay tax on $99, or an index of that?

Methadras said...

Steven said...

Tax capital gains as regular income, and end the corporate income tax. Individuals have a much harder time avoiding taxes than corporations and it would make US operations more attractive to corporations.


Remove capital gains taxes completely. But I digress. There is no need for a complicated tax system. Have a corporate flat tax and then have an individual flat tax. Pay at the end of the year. Enact an appropriate percentage rate for both, then make it so that congress would require a 75% majority vote to raise or lower it. Done.

There may be some minor nuances put in like wanting to pay quarterly, simple things like that. But no deductions, no loopholes. If you really wanted to capture everyone, then impose a fair tax, but I'm not a fan of a federal sales tax personally.

Sam L. said...

As James Taranto writes 5 days a week, "Fox Butterfield, Is That You?"

Unknown said...

GE is worse in that regard. They don't pay anything.

I'd rather the tax rate be lowered and the loopholes firmly closed.

Larry J said...

Sigivald said...
LarryJ said: And yes, campaign contributions via lobbying, PACs and direct contributions are bribes

So, what's the alternative?

How does anyone get any input in lawmaking, if it's all "bribes"?


They are bribes just under a different name. Buying a politician is one of the best investments anyone can make.

The alternative (which will never happen) is to reduce the degree that the government controls everything. Big corruption is a natural outcome of big government. How do you think so many people go to DC as ordinary citizens and leave office as multi-millionares?

Nomennovum said...

Explain to me how a grocery store with $1,000,000 in gross revenue should be taxed at the same rate as a consulting firm with $1,000,000 in gross revenue.

IC, I bitch-slapped you because you used my comment to launch into exactly what you launched into. Your discussion is the perfect example what we cannot get tax simplification.

Yes, you are being a smarty pants.

The problem we are experiencing stems from a tax regime that is based on net income. The IRS spends at least 90% of its time having taxpayers justify their deductions. The solution is to get rid of the income tax (ha ha) or get rid of deductions (one ha). Let's assume away the former and concentrate on the latter. Getting rid of individual taxpayer deductions and instituting a flat tax is relatively simple, because individual taxation (especially the AMT) is fairly close to a flat tax anyway, when you exclude income generated from an operating business.

It's business income that you have an issue with. This is a complex situation, but it can be dealt with in a gross income-flat tax regime … but NOT in 19 words, you know what I mean, counselor?

One way to do this is to adopt a principle that income is only taxed once. A gross income tax regime like this resembles a VAT (value added tax) regime, where input VAT is credited against output VAT. With withholding done at the time of the transaction, there is effectively no difference between the two. I would get rid of capital gains tax and the estate tax (again and for the final time). The key to a gross income tax is that it is cash based, with a low rate, and income is taxed once. In this way, your grocery store and consulting businesses are treated equally.

I solved the IRS problem and your problem now. Happy?

Seeing Red said...

The Senate put out a paper which gets rid of the cap gains exemption on housing.

Michael said...

Nomennovem: Your VAT in/out example solves the deduction conundrum for businesses and is considered by many to be an elegant if not perfect answer to severing the Gordian knot. Capital gains, if eliminated, would become ordinary and dealt with as with earned income. No need to index that which is ordinary income since the concept of time devoted investment holds no more value than current income given the low rate expected on the flat tax approach.

The industry constructed around the current code would be destroyed, perhaps for the good, but it should be considered given how vast it is.

Nomennovum said...

Michael,

A cash-based VAT type tax regime solves a lot of problems. It is fair to all taxpayers. It is paid only when there is cash generated to pay it. It minimizes the role -- and therefore the power -- of the IRS (and government in general). The problem in countries where there is a VAT is that they usually also have a net income tax. We need to find a way to have one and not the other.

It is far more likely we will soon get a VAT and still retain the income tax.

Amartel said...

What about GE? Didn't they not pay taxes at all? Are any of their brass being questioned?

Nomennovum said...

What about GE? Didn't they not pay taxes at all? Are any of their brass being questioned?

I am sure the "brass" is questioned regularly by the IRS. They are a huge public company, so the Revenuers are likely a semi-permanent presence in their offices. If they are doing anything illegitimate, I am sure they will be caught.

I'd bet you $5,000 bucks they're not paying tax because of perfectly legal deductions (like net operating loss carryovers, etc.), proper tax credits, and well-crafted tax structuring. They ought to be doing these things, else the shareholders should throw out all the company's directors and officers for malfeasance.

Michael said...

GE probably has dozens of tax queries and appeals going on year in and year out. They are a gigantic enterprise involved in a host of complicated businesses. The IRS doesn't one day say, "Gee, these guys didn't pay taxes. Why don't we send a guy up to Connecticut to talk to the CEO." They, the IRS, are probably being asked for rulings by GE on an on-going basis and are in touch with the tax department and tax lawyers for GE on a daily basis.

Trust me, they each know what the other is doing.

David said...

The pols are offended that they are not getting enough money out of Apple. But they should not be, as Apple is now giving them the one thing they love more than cash: cheap publicity.

David said...

Companies like Apple are constantly under audit. Literally constantly. The IRS audit teams set up space in HQ and also move around to satellite offices, including overseas. The audit for one year (or set of years) is not even over before the next one starts. So you can bet that Apple has constant scrutiny of its practices by experienced and aggressive auditors.

Normally the power lies mostly with the IRS in audits. In Apple's case it's a fair fight, and you can expect that its a fair result.

So Apple is complying with the law. These are the laws that you wrote, Congress.

David said...

The lower creatures who are harassing the Tea Party would not have the remotest idea where to start in an audit of Apple.

Jason said...

Aridog,

the NY Times link you cited actually supports my position... that there was no net U.S. income to tax in 2010.

Not even libtards think you should tax income that does not exist (French libtards excepted, and imputed income from zero-coupon bonds notwithstanding).

As for GE's foreign profits, why on earth would the US be entitled to a cut of those? They aren't under current law, and they aren't under any kind of natural law, either.

The link you cited demonstrates that GE's income tax bill of zero that year was entirely proper.

So what's the problem? You're awfully free with other peoples' money.

Eric said...

Make the individual income tax a flat rate tax on gross income. Problem solved.

Nope. As I Callahan pointed out, what makes the tax code complicated isn't determining your tax rate. All you have to do is look at the table, fer Chrissake.

What makes it complicated is determining what counts as income and what doesn't. A flat tax does nothing to address that complication.

DEEBEE said...

Ann, let me tell you about the Senators. They are different from you and me.

Aridog said...

Jason ... you make assumptions of things I did not say, in order to bulwark your argument. You re-interpret the NYT graphics differently than their author. There really is no point in continuing any discussion.

Nomennovum said...

A cash-based VAT type tax regime solves a lot of problems. It is fair to all taxpayers. It is paid only when there is cash generated to pay it. ... The problem in countries where there is a VAT is that they usually also have a net income tax. We need to find a way to have one and not the other. ... It is far more likely we will soon get a VAT and still retain the income tax.

My experience with Michigan's "Single Business Tax" , a VAT, [now gone thank G-d] was that it essentially was a tax on labor input adding value, because labor costs of sale or expense was not a deductible item.

No, net earnings were not a criteria whether you paid tax, only adjusted gross revenue...the SBT in Michigan was due and payable even in loss years...e.g., fiscal periods when there were no net earnings. I wrote checks to pay it in those loss years....out of pocket.

No, there was no accounting on receipts for pass through credits for itemized VAT's paid by suppliers, as distinguished from materials input, nor was any detailed on receipts you generated on your sales. Michigan's SBT/VAT was unlike Canada's GST in this regard.

Yes, it is highly likely that legislative bodies grown addicted to tax revenue and seeking much more...it is likely they will add the VAT to the Income Tax and Payroll Tax. Michigan's SBT/VAT was designed and implemented by Republican Governor William Milliken, who also implemented Michigan's permanent Income Tax. We wound up with the VAT, Income Tax, and Sales Tax, simultaneously.

I am no tax expert per se, ...however, I do understand your 19 word flat tax idea as a starting point...not an end result. It fits my idea of the KISS principle.

However, please do not think that a VAT tax is the route to follow. It is every bit as corruptible as the current income tax system. In my small way, during my foray into the private sector, I have seen it and paid it. If someone from Michigan can show me where the SBT was segregated and detailed on receipts for purchases, I'll listen and learn. Don't think it will happen.

I'll leave to the tax experts to explain how to implement a flat tax on income without it being a VAT, as I experienced it, which does not require any income to be due.

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