Corporate vs Personal tax "loopholes" and morals

[Insanity]

I was listening to the Motley Fool podcast on the way home from work and there was a general discussion on the tax loophole that allowed(?) Medtronic to move its corporate headquarters out of the US after the most recent merger.

One of the presenters commented on how people argue that this is immoral.  That Medtronic is taking advantage of a huge hole in the tax code which allows companies to basically hide money in foreign countries if they are headquartered there (I am not sure if this is the right language, but bear with me).  Basically, the reason they do this is because it costs companies money to bring the money back in the US.  It is taxed in the country of origin and then again when it is brought in the US (though it sounds like it is more of a differential - again, I am not clear on the details).

He then followed up with: Is this any more immoral than a person using a tax deduction on money put in their 401K?

This is way off base.  I am getting a deduction on my 401K but at the same point I am eventually taking a burden (as there is the assumption the money is being invested for retirement) off of society at a later date.  Same thing with mortgage interest (home ownership tends to generate revenue for businesses due to home repairs and maintenance, property taxes are put toward education, etc).  I fail to see how this can even be remotely close to the same thing.

That isn't to say that the way the US Tax code works is right.  Just that this comparison is way off base. 

And truth be told, I do think companies that do that are being immoral because they aren't brining the profits back into the US and potentially hiring more individuals or paying dividends on stocks.

[FluxCapacitor]

Corporations don't have morals. Their sole purpose is to create value for share holders. There's no point in blaming corporations. Instead, blame the convoluted and overly complex tax codes that allow situations like this to occur.

[TreeTired]

Here is the difference,  and it is huge.

The corporation is taking advantage of an unintended consequence of the tax code.  They are exploiting an aspect of the law in a way that is legal, but probably was not the purpose of the original legislation.

In the case of a 401k,  excluding contributions from taxable income was exactly the design of the law, and the purpose was to encourage saving for retirement.  They wrote a financial incentive into the tax law to encourage people to save for retirement, so in doing that you are doing exactly what was intended by the law.

Having made that distinction, there are those that say an individual (or a corporation, because after all, they are people too)  should only pay taxes that they are legally obligated to pay, and in fact have a fiduciary responsibility to shareholders (and to senior management that want to be enriched)  to legally minimize their taxes paid.  So, in my opinion the burden rests on Congress to eliminate loopholes that allow anyone -  incorporated or unincorporated - to avoid paying taxes in a way that is not intended by the original legislation.

[MDM]

In something that might fit in Ripley's Believe It or Not, the 401k plans came as an unintended consequence.  See e.g. http://www.learnvest.com/knowledge-center/your-401k-when-it-was-invented-and-why/ and http://money.msn.com/retirement-plan/article.aspx?post=eb9632ff-1d35-44ad-bf77-349f8492a081.  Ted Benna ought never to have to buy his own drinks in any bar in America....

I don't know about the corporate code - that may very well have been an unintended consequence as well, although my suspicious nature leads me to think that was due to some well-funded lobbying....

But however they happened, once the law is the law then Learned Hand said it well:
  - "Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes."
  - "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."

[Insanity]

Again, even looking at the 401K plan, it isn't a loophole and the services provided by the plan is a benefit to society as a whole.  Even if it used the simple plans that Benna was expecting.  It was to take the management of the pensions away from the employer.  It would also put less of a burden on Social Security and future citizens.  The thing with the tax code is that it is based (or should be from what I understand) on two things: funding services that are necessary for the betterment of the country and giving discounts to those who provide funds through other means.

The companies that are moving headquarters outside aren't taking advantage of the tax code.  They are effectively leaving the nation they started in.

[Chuck]

A better example would be the IRA Conversion Ladder.

That is almost certainly an unintended consequence. One people here embrace, and why not? Fuck taxes. They are coercive and collected by force based upon a contract none of us signed, and as such they are morally ambiguous at BEST.

[FrugalSpendthrift]

The companies that are moving headquarters outside aren't taking advantage of the tax code.  They are effectively leaving the nation they started in.

What about a company that moves it's headquarters from one state to another for a tax credit?  Is that also immoral?  Is it immoral for a person to move to a state that doesn't have a state income tax?  Is it immoral for someone to move out of Philadelphia, and no longer pay the city income tax?  If a country, a state or even a city has shitty tax laws, then it drives people away.

FluxCapacitor has it right.  The problem is with the tax code, not the people and corporations that are legally using it to optimize their situation.

Again, even looking at the 401K plan,.....   It would also put less of a burden on Social Security and future citizens.

Your 401k doesn't put less burden on social security.  It's not like you will refuse social security benefits because you have other money to live off of.  You will probably decide to maximize your social security benefits by delaying the start date, because you have other funds to live off of, and that would put even more of a burden on social security.

[Schaefer Light]

I'm never going to feel bad about paying less in taxes.  And if you feel bad about it, then just give that money the govt. would have taken to a good charity.

[Sparkie]

He then followed up with: Is this any more immoral than a person using a tax deduction on money put in their 401K?

This is way off base.  I am getting a deduction on my 401K but at the same point I am eventually taking a burden (as there is the assumption the money is being invested for retirement) off of society at a later date.  Same thing with mortgage interest (home ownership tends to generate revenue for businesses due to home repairs and maintenance, property taxes are put toward education, etc).  I fail to see how this can even be remotely close to the same thing.

It isn't close to the same thing. Medtronics are assisting society with the creation and production of medical equipment to help those who are ill, whilst maximising their profits to reinvest into future growth and products, and to enable them to employ more people and provide a return to shareholders.

You on the other hand, are merely reducing your tax bill to enable you to save more, for your personal retirement.

Both are fine in my book. All tax is legalised theft of private citizen's money, under threat of force, by certain members of society who have deemed their views more important than mine.  Some gets spent on the good of society, so I'll pay it. Some gets wasted, so I'll avoid paying too much, legally, within the framework provided.

[Willbrewer]

In my opinion, any "loophole" in tax law was purposely put in place to benefit one or more individuals at the time of the law's writing. If you follow the letter of the law and it benefits you monetarily, whether you think it a loophole or not, you're not being immoral. You're being smart,

[FrugalUndercover]

If I was the tax adviser to the corporation, I would consider it immoral if I didn't advise them to take advantage of any loopholes.  By accepting payment I am obligated to act in the corporations best interest.  On a personal level I would also take advantage of any 401k benefits intended or not.  If shareholders have more money than the taxman try can still spend it morally, it just shifts the decision maker

[Insanity]

I think there is something to be said for legal vs moral.  To me, they can be in alignment, but they are just as likely not to be  For instance, I might be contractually safe to terminate someone without cause and without (or with limited) assistance, but that doesn't necessarily make it the moral thing to do. I was part of this.  The company which laid me off a year ago did not need to do what they did.  They knew I just had a child and provided medical coverage for a couple of months more than they legal had to.  It was the right thing to do.
 
Using the legal crutch for a decision is to say - I really don't have any ethical justification other than I can do it or it maximizes the return for some third party whom i really don't know if this is something they would agree with it or not.  If you are saying that "loopholes" allow you to maximize the benefits of you or the corporation, then your organizational values is money and not the social aspect of it.  I hear things like this and I now understand why minimum wage and unions are needed.   

Someone who says that "taxes" are theft doesn't understand the benefits that a government can and should provide.  That doesn't mean they do it well.  But let's look at the "globalization" of services.  Would all of this be feasible if it weren't for the efforts of the government and Darpa?  What about space travel?  Would all of that be feasible as quickly without the effects of NASA?  That isn't to say it wouldn't have happened.  And how about FedEx being able to ship?  Think it would happen with out the Interestate highway system?  Or a rail system.  Or the FAA providing safe air travel?

I am not saying the government is perfect or that tax money is not wasted on other things.  I just think it is foolish to say that taxes are theft.

And the whole idea of corporations moving to different areas.  Do you know how many tax abatements are given out for large corporations moving into cities?  Austin, Philadelphia, and numerous others give exceptions to large corporations because of the either the number of employees or perspective dollars from services.   

Now, if these corporations that are moving are providing more than fair and necessary severance packages for those who do not want to move or those who will lose jobs, then at least they are doing something.  But my guess is, if they are just looking to maximize the dollar value they are not.

[brewer12345]

Now, if these corporations that are moving are providing more than fair and necessary severance packages for those who do not want to move or those who will lose jobs, then at least they are doing something.  But my guess is, if they are just looking to maximize the dollar value they are not.

All very nice and well, at least when rainbows, unicorns and happy, dancing elves are of paramount concern.  In the real world, these corporations have shareholders (like me).  The management teams have a fiduciary duty to maximize returns over the long term.  If they do not, at the very least they will lose their jobs.

[warfreak2]

In my opinion, any "loophole" in tax law was purposely put in place to benefit one or more individuals at the time of the law's writing.

This is laughable. You might as well say that all security flaws in Internet Explorer were put there deliberately.

Any complex translation of human ideas into a formal language is going to have bugs, however noble the people writing it are.

[Sparkie]

 


Someone who says that "taxes" are theft doesn't understand the benefits that a government can and should provide.......

.....I am not saying the government is perfect or that tax money is not wasted on other things.  I just think it is foolish to say that taxes are theft.

You're conflating two issues. I understand perfectly well that some tax revenue benefits society. That has nothing to do with the fact it is theft. Just because I steal from you to help out homeless people doesn't mean it wasn't theft

When you have no choice but to hand over your wages, or else be fined, and if you refuse to pay the fines, run the risk of being locked up, by force if you don't comply, it is theft. If I did that to you - took your money, and if you refused, kidnapped you and locked you in my cellar until you did, it'd be illegal. Even if I used your wages for the good of society.

[PKFFW]

You're conflating two issues. I understand perfectly well that some tax revenue benefits society. That has nothing to do with the fact it is theft. Just because I steal from you to help out homeless people doesn't mean it wasn't theft

When you have no choice but to hand over your wages, or else be fined, and if you refuse to pay the fines, run the risk of being locked up, by force if you don't comply, it is theft. If I did that to you - took your money, and if you refused, kidnapped you and locked you in my cellar until you did, it'd be illegal. Even if I used your wages for the good of society.

What a load of bollocks.

Firstly, you do have a choice.  You can leave the country and go find another country where you wont need to pay tax.

Secondly, theft is the illegal removal of property from another.

Tax is not theft because by choosing to live in the society in which you do, you enter into a contract to abide by the laws of that society.  One such law is that you must pay tax.

It might make you feel better to refer to it as theft but it simply isn't true.

[warfreak2]

When you have no choice but to hand over your wages, or else be fined, and if you refuse to pay the fines, run the risk of being locked up, by force if you don't comply, it is theft. If I did that to you - took your money, and if you refused, kidnapped you and locked you in my cellar until you did, it'd be illegal. Even if I used your wages for the good of society.

Well, you have the choice not to make use of their money. The supermarket takes your money, too, and if you don't pay up there you also go to prison, but that's not theft either because you have the choice not to make use of their food.

Eating without using a supermarket may be easier than living without using fiat currency, but both are options if you think the price is too high. Otherwise, the supermarket's provision of food, and the government's provision of fiat currency must provide enough benefit to you that you're willing to pay for the service. Also, if you don't like how they're run, supermarkets and governments occasionally look at those paper slips you put in the suggestion box.

[Sparkie]

You're conflating two issues. I understand perfectly well that some tax revenue benefits society. That has nothing to do with the fact it is theft. Just because I steal from you to help out homeless people doesn't mean it wasn't theft

When you have no choice but to hand over your wages, or else be fined, and if you refuse to pay the fines, run the risk of being locked up, by force if you don't comply, it is theft. If I did that to you - took your money, and if you refused, kidnapped you and locked you in my cellar until you did, it'd be illegal. Even if I used your wages for the good of society.

What a load of bollocks.

Firstly, you do have a choice.  You can leave the country and go find another country where you wont need to pay tax.

Secondly, theft is the illegal removal of property from another.

Tax is not theft because by choosing to live in the society in which you do, you enter into a contract to abide by the laws of that society.  One such law is that you must pay tax.

It might make you feel better to refer to it as theft but it simply isn't true.

Which is why I said earlier its legalised theft.  I think you'll find if you look up the points of proof for the offence of theft, they'll apply to tax removal. It's just that the people wrote the law also absolved themselves from having to comply with it.

I'm not saying I'm not prepared to pay to to provide society with more benefits. Clearly I am because I live in a country that requires I do.  The only choice I have is to minimalise the amount

It might make you feel better to think you have a choice in whether you pay tax, but it simply isn't true.

[grantmeaname]

That Medtronic is taking advantage of a huge hole in the tax code which allows companies to basically hide money in foreign countries if they are headquartered there (I am not sure if this is the right language, but bear with me).  Basically, the reason they do this is because it costs companies money to bring the money back in the US.  It is taxed in the country of origin and then again when it is brought in the US (though it sounds like it is more of a differential - again, I am not clear on the details)

This is one of those times that "the details" are important, and you can't really evaluate the argument in a meaningful way without at least a little understanding of business taxation.

[dayjob]

"The details" are that the US has damn near the highest combined corporate tax rate in the world (and literally the highest in the developed world) and yet an incredibly low effective rate after incentives and credits. This means "playing the game", lobbying, mining for loopholes, and creating innovative new ownership structures and theories of tax treatment in the US are more essential to corporate profitability than anywhere else in the world. Given that, why wouldn't you get your firm the hell out if you could? You'll save piles of cash on tax accountants (hi!) and attorneys that don't really add value to the business so much as prevent it from being squandered needlessly, and you can invest in projects that you consider profitable rather than projects that you consider likely to win a tax incentive from the jurisdiction being invested in. If you could either jump through hoops and not run your business, or run your business and not jump through hoops, would you have much trouble choosing?

"The details" are that the US has this asinine concept of "worldwide income" which I just learned we share only with Eritrea. If you're British and consume no British services and you live and work in France, you don't owe British tax; not so with American individuals or 'American companies'. If you're American, your income from whatever source derived is by default taxable. It's backasswards and doesn't match the economics of an international world, where a cursory search of the most dyed in the wool American companies reveals they make two thirds of their revenue or more abroad. And that's to say nothing of its effects on American's willingness to emigrate and others' willingness to immigrate here. It's mitigated somewhat by tax treaties and the foreign earned income credit/exclusion, but that just adds to the compliance burden (detail #1) further.

"The details" are not that companies are finding the unintended consequences of tax law in the vast majority of cases, a reasonably good test that I see you came back to later in the thread. Take the patent box, which is pretty controversial over on this side of the pond. How could it possibly be an unintended consequence of the law that companies would relocate their intellectual property to Britain? That's the entire reason they lowered the tax rate on patent royalties! Financial Times describes Ireland's tax rate as "a pillar of Irish development policy"; not many pillars are erected by accident. Generous tax concessions are the exact same thing as declaring your country open for business! The government wants more savings for retirement and more hiring big businesses, so it puts provisions into the tax code to provide for both of them. It's not even an apples to apples comparison - there's just one apple.

[/dayjob]

The management teams have a fiduciary duty to maximize returns over the long term.

Nope nope nope nope nope. This idea needs to die out because it's bullshit.

[PKFFW]

Which is why I said earlier its legalised theft.  I think you'll find if you look up the points of proof for the offence of theft, they'll apply to tax removal. It's just that the people wrote the law also absolved themselves from having to comply with it.

There is no such thing as "legalised theft".  By definition, theft is illegal.  Therefore if what is being discussed is legal it can not be defined as theft.

I'm not saying I'm not prepared to pay to to provide society with more benefits. Clearly I am because I live in a country that requires I do.  The only choice I have is to minimalise the amount

It might make you feel better to think you have a choice in whether you pay tax, but it simply isn't true.

Of course you have a choice.
1:  Pay tax......consequence.......continue to enjoy the benefits of living within the USA as a free citizen.
2:  Don't pay tax....consequence.....pay fine or go to jail.
3:  Don't earn any income........consequence.......no tax owed but you have to fund your lifestyle without using money.
4:  Move to a place where no tax is collected......consequence.......you miss out on the living in the USA.

As they say, with rights come responsibilities.  You have the right to choose 2, 3 or 4 but you must also accept the responsibility of those choices.  You may not like the consequences of choices 2, 3 or 4 but that does not mean you do not have the right to make those choices.

[Sparkie]

Which is why I said earlier its legalised theft.  I think you'll find if you look up the points of proof for the offence of theft, they'll apply to tax removal. It's just that the people wrote the law also absolved themselves from having to comply with it.

There is no such thing as "legalised theft".  By definition, theft is illegal.  Therefore if what is being discussed is legal it can not be defined as theft.

I'm not saying I'm not prepared to pay to to provide society with more benefits. Clearly I am because I live in a country that requires I do.  The only choice I have is to minimalise the amount

It might make you feel better to think you have a choice in whether you pay tax, but it simply isn't true.

Of course you have a choice.
1:  Pay tax......consequence.......continue to enjoy the benefits of living within the USA as a free citizen.
2:  Don't pay tax....consequence.....pay fine or go to jail.
3:  Don't earn any income........consequence.......no tax owed but you have to fund your lifestyle without using money.
4:  Move to a place where no tax is collected......consequence.......you miss out on the living in the USA.

As they say, with rights come responsibilities.  You have the right to choose 2, 3 or 4 but you must also accept the responsibility of those choices.  You may not like the consequences of choices 2, 3 or 4 but that does not mean you do not have the right to make those choices.

1. Give me your some of your wages: consequence: I'll let you carry on living 'freely'
2. Don't give me your money: consequence: I'll remove your liberty
3. Don't earn any income: consequence: I'll leave you alone, but your life will be worse
4. Move away from me: consequence: I'll leave you alone, but you'll miss out on family etc.

I'll use your money for the good of society. But I'll choose how much you'll give me, not you. And I'll send the boys round to get it if you don't pay me and put you in the cellar til your family comes up with the money you 'owe' me.

You have the choice of 2,3, and 4. You might not like the consequences of those choices, but while I'm around that's the choices you've got. You don't have the right to not comply. Still feel like a 'free citizen' because if you do, I'll send you my bank details and you can start paying Monday.


*my 'threats' are obviously hypothetical to make my point.  :)

[warfreak2]

3. Don't earn any income: consequence: I'll leave you alone, but your life will be worse

This is pretty much the problem with your argument.

Don't go to the cinema. Consequence: you won't have to buy a cinema ticket, but your life will be worse.

Either you think the ticket is worth the price they're asking, or you don't. Neither way are they stealing anything from you. Also, it's not the cinema's responsibility to make sure you have acceptable alternative options if you don't accept the price.

[MDM]

Just an observation: PKFFW, you might want to review your suggestion/option that Sparkie leave the USA.  Based only on Sparkie's city, there's about a 56 to 1 chance the USA is not Sparkie's (current) home.  Looking at some other posts, it seems the odds are even better.... :)

And yes, one can substitute "the country in which one resides" for "USA" and the point is the same.

I do see Sparkie's point that, if it were anyone other than the government doing it, it would be theft.  Of course, by definition of law, because the government is doing it, it isn't theft - and I suspect all involved understand that.

[Sparkie]

Just an observation: PKFFW, you might want to review your suggestion/option that Sparkie leave the USA.  Based only on Sparkie's city, there's about a 56 to 1 chance the USA is not Sparkie's (current) home.  Looking at some other posts, it seems the odds are even better.... :)

And yes, one can substitute "the country in which one resides" for "USA" and the point is the same.

I do see Sparkie's point that, if it were anyone other than the government doing it, it would be theft.  Of course, by definition of law, because the government is doing it, it isn't theft - and I suspect all involved understand that.

I do. It isn't theft because the people legislating the taking of the money have made it not theft. Myl argument, is that in my country at least, I have to vote. It is compulsory. So, again with the threat of fines/ removal of liberty, I have to choose one bunch of politicians or another, who can keep legislating that I pay them money. Not really a choice.

Anyways, all a bit pointless arguing semantics.

[PKFFW]

1. Give me your some of your wages: consequence: I'll let you carry on living 'freely'
2. Don't give me your money: consequence: I'll remove your liberty
3. Don't earn any income: consequence: I'll leave you alone, but your life will be worse
4. Move away from me: consequence: I'll leave you alone, but you'll miss out on family etc.

Options 1 and 2 are you threatening to do something illegal to me, either implied or explicit.  Ergo, not the same and rather puerile attempts to conflate taxes with stand over tactics.

Options 3 and 4 are legitimate consequences of choices I could make with regards to tax.  So thank you for proving my point that you do indeed have a choice.

I'll use your money for the good of society. But I'll choose how much you'll give me, not you. And I'll send the boys round to get it if you don't pay me and put you in the cellar til your family comes up with the money you 'owe' me.

Any money you many receive from me through implied or explicit threats would be illegally gained and not money I "owe" you at all.  Not so with the tax office.

You have the choice of 2,3, and 4. You might not like the consequences of those choices, but while I'm around that's the choices you've got. You don't have the right to not comply. Still feel like a 'free citizen' because if you do, I'll send you my bank details and you can start paying Monday.


*my 'threats' are obviously hypothetical to make my point.  :)

Yes I do have the right to not comply since your insistence that I pay you X amount of money, with implied or explicit threats towards me should I not comply, is illegal.

And yes I do feel like a free citizen because I am under no obligation to acquiesce to your threats since I have never entered into a contract with you.  Not so with my decision to live in the society in which I live.

[Insanity]

That Medtronic is taking advantage of a huge hole in the tax code which allows companies to basically hide money in foreign countries if they are headquartered there (I am not sure if this is the right language, but bear with me).  Basically, the reason they do this is because it costs companies money to bring the money back in the US.  It is taxed in the country of origin and then again when it is brought in the US (though it sounds like it is more of a differential - again, I am not clear on the details)

This is one of those times that "the details" are important, and you can't really evaluate the argument in a meaningful way without at least a little understanding of business taxation.

[dayjob]

"The details" are that the US has damn near the highest combined corporate tax rate in the world (and literally the highest in the developed world) and yet an incredibly low effective rate after incentives and credits. This means "playing the game", lobbying, mining for loopholes, and creating innovative new ownership structures and theories of tax treatment in the US are more essential to corporate profitability than anywhere else in the world. Given that, why wouldn't you get your firm the hell out if you could? You'll save piles of cash on tax accountants (hi!) and attorneys that don't really add value to the business so much as prevent it from being squandered needlessly, and you can invest in projects that you consider profitable rather than projects that you consider likely to win a tax incentive from the jurisdiction being invested in. If you could either jump through hoops and not run your business, or run your business and not jump through hoops, would you have much trouble choosing?

"The details" are that the US has this asinine concept of "worldwide income" which I just learned we share only with Eritrea. If you're British and consume no British services and you live and work in France, you don't owe British tax; not so with American individuals or 'American companies'. If you're American, your income from whatever source derived is by default taxable. It's backasswards and doesn't match the economics of an international world, where a cursory search of the most dyed in the wool American companies reveals they make two thirds of their revenue or more abroad. And that's to say nothing of its effects on American's willingness to emigrate and others' willingness to immigrate here. It's mitigated somewhat by tax treaties and the foreign earned income credit/exclusion, but that just adds to the compliance burden (detail #1) further.

"The details" are not that companies are finding the unintended consequences of tax law in the vast majority of cases, a reasonably good test that I see you came back to later in the thread. Take the patent box, which is pretty controversial over on this side of the pond. How could it possibly be an unintended consequence of the law that companies would relocate their intellectual property to Britain? That's the entire reason they lowered the tax rate on patent royalties! Financial Times describes Ireland's tax rate as "a pillar of Irish development policy"; not many pillars are erected by accident. Generous tax concessions are the exact same thing as declaring your country open for business! The government wants more savings for retirement and more hiring big businesses, so it puts provisions into the tax code to provide for both of them. It's not even an apples to apples comparison - there's just one apple.

[/dayjob]

The management teams have a fiduciary duty to maximize returns over the long term.

Nope nope nope nope nope. This idea needs to die out because it's bullshit.

It still sounds like if I have cash outside the US, I am taxed in that country and then it is taxed again when brought in to the US.  Or am I still missing something? Stupid complex tax code.

We are now a global economic system, I get that.  And the tax code really does need to change to support that.  However, for all the services the people want the government to perform, it costs significantly more money to manage. The per capita rate can't possible be the same due to the diverse nature of the land, the scope of size and everything else.  Running interstates, managing railroads, the air, and innovation at a military level will cost significantly more than it will anywhere else.  Corporations that are run here or function here do need to pay their share.

Again, it comes down to a corporations beliefs and ethics.  Is it truly about the money or is it truly about the product and services.  And people who argue Medtronics is doing the best for their company.  Since mid 2011, the stock has doubled and pays a dividend.  You can't tell me the investors aren't happy with those numbers.

[Insanity]

 


Someone who says that "taxes" are theft doesn't understand the benefits that a government can and should provide.......

.....I am not saying the government is perfect or that tax money is not wasted on other things.  I just think it is foolish to say that taxes are theft.

You're conflating two issues. I understand perfectly well that some tax revenue benefits society. That has nothing to do with the fact it is theft. Just because I steal from you to help out homeless people doesn't mean it wasn't theft

When you have no choice but to hand over your wages, or else be fined, and if you refuse to pay the fines, run the risk of being locked up, by force if you don't comply, it is theft. If I did that to you - took your money, and if you refused, kidnapped you and locked you in my cellar until you did, it'd be illegal. Even if I used your wages for the good of society.

Okay, you have a choice to be part of a society or not be part of that society.  You don't get to enjoy the benefits of a society and not pay your fair share.  Any fraternity, society, honor society, or club will show you that.  Name one organization that you can enjoy the benefits from without providing some value (either work or monetary).

[PKFFW]

Just an observation: PKFFW, you might want to review your suggestion/option that Sparkie leave the USA.  Based only on Sparkie's city, there's about a 56 to 1 chance the USA is not Sparkie's (current) home.  Looking at some other posts, it seems the odds are even better.... :)

And yes, one can substitute "the country in which one resides" for "USA" and the point is the same.

Point taken.

I admit to not looking at the city mark often as many times people do not enter it anyway.  With the USA centric readership of this blog I do sometimes fail to remember that others also read it.  I shall be more diligent in my choice of phrase in future.

As you mention, the point is the same regardless.

I do see Sparkie's point that, if it were anyone other than the government doing it, it would be theft.  Of course, by definition of law, because the government is doing it, it isn't theft - and I suspect all involved understand that.

Actually no.

Sparkies point fails on the basis that one chooses to live in a society and by doing so enters into a contract with that society.  One obligation of that contract is that one must pay taxes.  The government enforcing its rights under the contract, through fines or imprisonment etc, is in no way illegal or akin to theft.

If you entered into a contract with a builder to build a house for a certain price and then you refused to pay that price, the builder would not be engaging in "legalised theft" if he enforced his rights under the contract.  Just because if a random stranger came up to you and threatened you with violence unless you paid him X amount of money then his actions would be theft this does not mean the builder is thieving from you by enforcing his contract.

[PKFFW]

I do. It isn't theft because the people legislating the taking of the money have made it not theft. Myl argument, is that in my country at least, I have to vote. It is compulsory. So, again with the threat of fines/ removal of liberty, I have to choose one bunch of politicians or another, who can keep legislating that I pay them money. Not really a choice.

Anyways, all a bit pointless arguing semantics.

It's not arguing semantics.  It's you using sophistry to claim something that is self evidently untrue.

[MDM]

Okay, you have a choice to be part of a society or not be part of that society.  You don't get to enjoy the benefits of a society and not pay your fair share.  Any fraternity, society, honor society, or club will show you that.  Name one organization that you can enjoy the benefits from without providing some value (either work or monetary).

Off the top of my head: most churches will cater to one's spiritual needs without demanding payment in return.

By "fair share", do you mean that everyone should pay the same amount of tax?

[MDM]

If you entered into a contract with a builder to build a house for a certain price and then you refused to pay that price, the builder would not be engaging in "legalised theft" if he enforced his rights under the contract.  Just because if a random stranger came up to you and threatened you with violence unless you paid him X amount of money then his actions would be theft this does not mean the builder is thieving from you by enforcing his contract.

If one enters into a contract with a builder, and then partway through the builder states that he and the subcontractors had voted to increase the price, that would not be considered fair, would it?

The idea that living somewhere implies agreement with all the particulars of some unspecified social contract seems to be...what's the word?...oh, yes: sophistry.  This is not the only thread where that idea has surfaced, so please take this as a generic disagreement and not a personal attack.

[PKFFW]

If one enters into a contract with a builder, and then partway through the builder states that he and the subcontractors had voted to increase the price, that would not be considered fair, would it?

If they did so within the bounds of the contract that would be fair.  Furthermore if you had the means within the contract to express your disapproval and to have their vote changed then that makes it even fairer.

However, that aside, I never said such a situation as you suggest was fair.  I simply said the government enforcing the social contract by taking tax is not the same thing as theft.

The idea that living somewhere implies agreement with all the particulars of some unspecified social contract seems to be...what's the word?...oh, yes: sophistry.  This is not the only thread where that idea has surfaced, so please take this as a generic disagreement and not a personal attack.

Could you please link to where I stated that living somewhere implies agreement with all the particulars of some unspecified social contract?  No?  That's probably because I didn't state any such thing.  I merely stated that one has an obligation to abide by the contract and that the government enforcing that contract by taking tax is not the same thing as theft.

If one does not agree with a certain particular one has a number of choices...
1:  Abide by the particular anyway
2:  Seek to change the particular
3:  Choose not to abide by the particular and be prepared to bear the consequences.

[MDM]

If they did so within the bounds of the contract that would be fair.  Furthermore if you had the means within the contract to express your disapproval and to have their vote changed then that makes it even fairer.
However, that aside, I never said such a situation as you suggest was fair.  I simply said the government enforcing the social contract by taking tax is not the same thing as theft.

Good that we can agree such a situation would be unfair - at least, I think we agree....  And yes, we all agree that, legally, tax is not theft.

Could you please link to where I stated that living somewhere implies agreement with all the particulars of some unspecified social contract?  No?  That's probably because I didn't state any such thing.  I merely stated that one has an obligation to abide by the contract and that the government enforcing that contract by taking tax is not the same thing as theft.

One quote is "Sparkies point fails on the basis that one chooses to live in a society and by doing so enters into a contract with that society."  The particulars of the contract you mention were unspecified.

I'll argue your side for a moment: one can say the laws are the contract, and those are indeed specified.  So if your argument is "agreement to obey the law is implied when one chooses to live in a society", I'll agree that's a reasonable perspective.

But then, what about when one considers a law unjust?  I guess that brings us full circle to the OP, so I'll just stop here and get off the merry-go-round....

[grantmeaname]

It still sounds like if I have cash outside the US, I am taxed in that country and then it is taxed again when brought in to the US.  Or am I still missing something? Stupid complex tax code.

Probably more than twice. Most countries have VAT, so companies will pay a little VAT as they transform their inputs (or a lot, depending on where in the chain they are). Then the foreign entity making the profit will pay a corporate tax on their income, then the American entity will pay a corporate tax on their income (the highest in the developed world unless they utilize their many incentives), then the American entity will distribute the cash to stockholders who pay at least 15% on the dividends (more if the dividends aren't qualifying). Anywhere else in the world, there's a small tax where the money is earned and possibly another small tax where the dividend is paid, so you're taking out the most expensive level of taxation.

We are now a global economic system, I get that.  And the tax code really does need to change to support that.  However, for all the services the people want the government to perform, it costs significantly more money to manage. The per capita rate can't possible be the same due to the diverse nature of the land, the scope of size and everything else.  Running interstates, managing railroads, the air, and innovation at a military level will cost significantly more than it will anywhere else.  Corporations that are run here or function here do need to pay their share.

If 80% of a country's net income comes from activities taking place entirely outside of the United States, why should US tax be due on all of it? That doesn't sound like a fair share to me. (Or, from the company's perspective, is it fair that for historical reasons like its founder's birthplace that it pay three times what its rivals do and have extra hoops to jump through every time it wants to reinvest profits from country A into assets in country B?) Besides, the US gets about the same revenue as the UK territorial system.

Again, it comes down to a corporations beliefs and ethics.  Is it truly about the money or is it truly about the product and services.

I don't know that I agree with this dichotomy. Look at product-focused companies like McLaren (first ever year in the black in more than two decades of existence despite supercars that rivals can only imitate) or Lotus (brilliant cars, excellent operational execution, and still stuck walking from institution to institution with a tin cup every eighteen months). You can't be financially agnostic/ignorant and still execute on whatever your product mission is any more than you can have no product mission and generate sustained profit from financial innovation (even the good kind). You absolutely need both, and the competence of your CFO, comptroller, and tax director help or harm the organizational mission just like any other key business function.

[totoro]

Tax is theft? I have no time for this entitled and, in my opinion, selfish point of view.  The laundry list of services you and all the folks around you receive in Australia for your tax dollars is pretty remarkable.  Same in canada. Taxes are a bargain.

[PKFFW]

Good that we can agree such a situation would be unfair - at least, I think we agree....  And yes, we all agree that, legally, tax is not theft.

Actually I said it would NOT be unfair if they did so within the bounds of the contract.

One quote is "Sparkies point fails on the basis that one chooses to live in a society and by doing so enters into a contract with that society."  The particulars of the contract you mention were unspecified.

Yes, and no where in that quote do I state that choosing to live in a place means one agrees with every and all particulars of the social contract as you suggested I did.

I'll argue your side for a moment: one can say the laws are the contract, and those are indeed specified.  So if your argument is "agreement to obey the law is implied when one chooses to live in a society", I'll agree that's a reasonable perspective.

Glad you agree.

But then, what about when one considers a law unjust?  I guess that brings us full circle to the OP, so I'll just stop here and get off the merry-go-round....

As I said, if one disagrees with any particular of the social contract, or to put it another way, believes a law is unjust, one has choices. 

1:  Obey the law anyway.
2:  Seek to change the law. 
3:  Disobey the law.

Choice 2 can be implemented in conjunction with either choice 1 or 3 as well.

None of that means the government taking tax is the same as theft.

[Travis]

I can't speak for the other countries represented in this thread, but in the US if Congress passes a law, it's the law. It's legal.  Pretty much the only way it is illegal is if the Supreme Court says so.  Whether we agree with the law is irrelevant. We vote for people to represent us to make those decisions on our behalf.  Income taxation is written into the Constitution.  It's the supreme law of the land. Tax payment is compulsory, and if you refuse to pay it then it's legally confiscated from you.  It's not theft.  These discussions about the social contract are injecting philosophy into a legal argument.  If you want to debate the insanity of our tax code and why people feel compelled to hide from it that's a separate and more productive discussion.

According to some estimates it costs the US $400 billion a year in actual costs and lost productivity in order to comply with the federal tax code in order to pay $3 trillion in taxes. The US also loses about $385 billion a year in unpaid taxes.  That's not businesses moving overseas, that's people and businesses hiding money or lying on their taxes.  That number only goes up every year.  Congress then increases taxes on everyone else to make up the shortfall.  The more they try to squeeze the more the unpaid figure goes up, the compliance costs (and IRS budget) go up, and the more loopholes and tax breaks get plugged into the 80,000 page tax code for people and businesses to find relief.  It's a system perpetually chasing its tail.

http://fairtax.org/PDF/WhatTheFederalTaxSystemIsCostingYou.pdf

[totoro]

Good that we can agree such a situation would be unfair - at least, I think we agree....  And yes, we all agree that, legally, tax is not theft.

Actually I said it would NOT be unfair if they did so within the bounds of the contract.

One quote is "Sparkies point fails on the basis that one chooses to live in a society and by doing so enters into a contract with that society."  The particulars of the contract you mention were unspecified.

Yes, and no where in that quote do I state that choosing to live in a place means one agrees with every and all particulars of the social contract as you suggested I did.

I'll argue your side for a moment: one can say the laws are the contract, and those are indeed specified.  So if your argument is "agreement to obey the law is implied when one chooses to live in a society", I'll agree that's a reasonable perspective.

Glad you agree.

But then, what about when one considers a law unjust?  I guess that brings us full circle to the OP, so I'll just stop here and get off the merry-go-round....

As I said, if one disagrees with any particular of the social contract, or to put it another way, believes a law is unjust, one has choices. 

1:  Obey the law anyway.
2:  Seek to change the law. 
3:  Disobey the law.

Choice 2 can be implemented in conjunction with either choice 1 or 3 as well.

None of that means the government taking tax is the same as theft.

I don't think that agreement to obey the law is required or implicit.  There is an explicit penalty for failing to comply with valid laws and a whole system set up to argue for change or alternate application of the law which is backed by society in general.

This means that not paying tax is tax evasion aka theft, which could possibly be defended through the court system and could be changed via legislation. 

Complaining does nothing.

[PKFFW]

I don't think that agreement to obey the law is required or implicit.  There is an explicit penalty for failing to comply with valid laws and a whole system set up to argue for change or alternate application of the law which is backed by society in general.

This means that not paying tax is tax evasion aka theft, which could possibly be defended through the court system and could be changed via legislation. 

Complaining does nothing.

Hence..........Choice 2:  Seek to change the law.

Maybe I should have been more precise and said there is an obligation to obey the law or be willing to suffer the consequences of not doing so.  Such consequences could include the necessity to spend time and money defending your actions through the courts.

And again, none of that means governments taking tax is the same as theft.

[totoro]

Agreed.

[RMcNab]

I don't think that agreement to obey the law is required or implicit.  There is an explicit penalty for failing to comply with valid laws and a whole system set up to argue for change or alternate application of the law which is backed by society in general.
[/quote]

This surprised me. It sounds like saying "it's only illegal if they catch me." Like when a  father on the soccer team I coached said the players should fake more injuries, claiming that it's only illegal if the ref issues a penalty for faking instead of a foul for hte injury.

I still maintain tha tthe act itself is wrong. That's why there are penalties for non-complience.

[Bob W]

Overall taxes at any level are immoral and enforced at the barrel of a gun.   Avoiding them is the only morally correct position.

That said,  I think there is too much discussion about the obvious taxes and not about the most insidious tax of them all --- that being the "inflation tax."   

Currently running anywhere from 4 to 6% the inflation tax seriously effects people who are FI or seeking FI as it essentially taxes every bit of ones assets.

MMM for example proclaims that his taxes are low and he is happy about them.   But his poor science neglects the inflation tax he pays.  I estimate his annual inflation tax at over 60K,  effectively negating his income from carpentry and his wife's real estate sales income.  He is in fact paying over 100% in income taxes.

For those who wish to dispute that inflation is a tax please Google former fed chairman Ben Bernake's quote on the "inflation tax,"  or former President Ronald Regan's quote about the "inflation tax." 

I'm not debating whether inflation is a tax.   I am pointing out that it is invisible to most people but is in fact the largest tax of all.  And it is damn hard to avoid in any manner!

[Daley]

Overall taxes at any level are immoral and enforced at the barrel of a gun.   Avoiding them is the only morally correct position.

Last time I checked, wage garnishment didn't happen at the end of a gun barrel... and nobody is forcing you at gunpoint to stay in this country.

You know what else is morally correct? Paying for services and social constructs that you utilize in your day to day life. How do you think those things get the necessary cooperation to occur and are paid for?

[Cpa Cat]

The only obligation that corporations and individuals have regarding the tax code is to follow the law.

The tax code is not written by philosophers, to ensure fairness and ethical treatment for all. The tax code is not an ethical creation. You can't approach it with concerns of morality. Right = follow the code. Wrong = break the law and don't follow the code.

BUT WAIT, you say. What about unintended consequences? Isn't it -wrong- to abuse "loopholes"?

No. If the IRS and the government wanted to close those loopholes, they would and could. And do, frequently. There are many tax court cases that involve abuse of loopholes that the taxpayer won - only to have the IRS do the ole reach around and push for a law change that makes the loophole illegal.

On the other hand, there are plenty of people who abuse loopholes and lose the legal argument in tax court. Loophole closed.

The fact that a loophole is not closed means that someone, somewhere is preventing that from happening because it serves some agenda.

You are under no ethical obligation in regards to taxes. You are under a legal obligation to pay what you owe. That is, you must pay what you legally owe - not what you ethically owe. I don't even know how you would measure what your ethical tax burden should be - and nor does the IRS, that is why the tax code exist, to remove the subjectivity of ethics and replace it with the objectivity of law.

[DoubleDown]

The only obligation that corporations and individuals have regarding the tax code is to follow the law.

The tax code is not written by philosophers, to ensure fairness and ethical treatment for all. The tax code is not an ethical creation. You can't approach it with concerns of morality. Right = follow the code. Wrong = break the law and don't follow the code.

BUT WAIT, you say. What about unintended consequences? Isn't it -wrong- to abuse "loopholes"?

No. If the IRS and the government wanted to close those loopholes, they would and could. And do, frequently. There are many tax court cases that involve abuse of loopholes that the taxpayer won - only to have the IRS do the ole reach around and push for a law change that makes the loophole illegal.

On the other hand, there are plenty of people who abuse loopholes and lose the legal argument in tax court. Loophole closed.

The fact that a loophole is not closed means that someone, somewhere is preventing that from happening because it serves some agenda.

You are under no ethical obligation in regards to taxes. You are under a legal obligation to pay what you owe. That is, you must pay what you legally owe - not what you ethically owe. I don't even know how you would measure what your ethical tax burden should be - and nor does the IRS, that is why the tax code exist, to remove the subjectivity of ethics and replace it with the objectivity of law.

Great post! I really like the reasoning in this argument.

[J Boogie]

I don't think its possible to put a dollar amount on what an individual OR a corporation is ethically obligated to pay their nation for the various services provided.

We're ethically obligated to honor our agreements, that's true - if a company can come up with smaller dollar amount than expected while still honoring their agreement, I don't think that's unethical.  You owe what you agreed to pay.

I think there's a far better argument to made for the ethics of keeping the wellbeing of the employees in mind when it comes to corporate decision making.