Only if iShares (ITOT, expense ratio 0.03%) and Schwab (SCHB, expense ratio 0.03%) are next.
Those two funds have fees even lower than Vanguard Total Stock Market ETF (0.05% expense ratio).
I believe dandarc was being sarcastic, but your point is moot
It's not an apples to apples comparison, Schwab and Blackrock offers those as loss leaders to get people in the door because Vanguard structured their companies unfairly, giving their shareholders a benefit to avoid paying taxes (the investors/owners eventually pay taxes upon sale if in a taxable account, but during the time frame where Vanguard avoided taking a market profit on its services because the investors in the funds ARE the owners of Vanguard, it's helping those investors evade taxes. Of course, in a retirement account, you are completely evading taxes). It'd be different if Vanguard either 1) set up as an exempt "not-for-profit" organization, but this would require them to disclose executive compensation (ever ask yourself why Vanguard didn't set themselves up this way if they really wanted to operate at break-even?), or 2) structured their companies so that the funds and the fund manager were not related companies, and thus the fund manager would be charging a "market" rate in order to cover compensation to its managers (last I looked, about 1/3 of Vanguard's assets under management are not actually index funds, but actively managed funds).
You can argue that it's moral for Vanguard to artifically charge a lower expense ratio so the Company doesn't have to pay taxes, thus passing that advantage to its investors/owners, but the law is the law, and transfer pricing exists for a reason. There's all this outrage amongst the public when Corporations refuse to bring international earnings back into the US and be subject to double taxation, but Vanguard's "halo" effect seems to make it immune to criticism when it comes to tax evasion.
I don't think it is a halo effect at all - I think the fact is the whistle-blower case was simple cash-grab that failed miserably because the case had no merit. I know it was dismissed because of ethical misconduct by the whistle-blower, but Vanguard has been operating openly with this structure for over 40 years. Surely if the IRS thought it could win on these grounds, it would have tried by now, yes? We're talking billions of dollars here, after all.
Keep in mind the transfer pricing rules are there to ensure the proper amount of income tax is being paid on profit that actually happens, not to enforce any rules for a competitive (anti-competetive? we are talking about dictating higher prices here) marketplace. So they are generally applied in the case of multi-national corporation where artificial price levels are used to off-shore profits to lower-tax jurisdictions. So the classic example is: our company would have made $100M in profit in the US, but our Irish subsidiary is charging us $80M extra for parts that we could have bought on the open market for a much lower price, so we only made $20M in the US and we made $80M in Ireland. Or sometimes to transfer profits from a for-profit subsidiary to a non-profit parent. But Vanguard Group is not doing either of those things.
What Vanguard Group is accused of doing is not transferring profits to an off-shore subsidiary or non-profit, but to pass-through entities - The Vanguard Mutual Funds. Which means the supposed profit that Vanguard Group is not earning because of it's low prices is ultimately taxed - as the income of the investors in the Vanguard Mutual funds. It is as if a bunch of us Mustachian IT-contractors formed a C-Corp to handle the paperwork and billing and other odds-and ends for us to cut out the middle-men who are, in our opinion, charging too much for their services. Any profit our C-Corp didn't earn is more profit that our Individual S-Corps did earn - the fees paid to the C-Corp are expenses to our business after all, so if those expenses are lower, our individual earnings are higher. And we'll pay tax on those increased earnings in our individual S-Corps as the income is passed through to the owners of the S-Corps. If the IRS can dictate a price to Vanguard, it can also dictate a price to our billing Co-Op.
I think a lot of the "Vanguard is doing something wrong" opinion's that are out there come from the idea that mutual funds are tax-exempt entities - they are not. They are pass-through entities - taxes are paid on the income the mutual funds earn, just not by the mutual funds themselves. Also the idea that the the transfer-pricing rules are there to somehow even the playing field and dictate that certain brokers and advisers charge more for their services is absurd.
