Many times, the issue comes up that American Corporation do not pay their fair share of taxes. The corporate tax rate is 35% on profits in the US, the profits themselves are then again taxed by the individuals who earn those profits. Most corporations pay a lower percentage than this, often a MUCH lower percentage.

There are quite a few "loopholes" that some corporations take full advantage of. These loopholes are actually tax incentives that promote certain corporate activities (capital investment, R&D, etc.).

Here are a few articles that I found that demonstrate the numbers and concepts involved:
Corporate Taxes in the 1990s

Taxing U.S. Corporations

Here is a Senator's view of corporate flight:


There is a balancing act between taxes being fair with respect to personal income tax, and tax rates which are too high in comparison to overseas tax rates.

The questions for debate :

Do you feel that the corporate tax rate is fair to the Average American?

Do you feel that the corporate tax rate contributes to "runaway corporations"?

Should the Federal Government do more or less to prevent "runaway corporations" which leave the country due to high tax rates?

I think it contributes a lot to runaways



I think they should do more to tax RUNAWAYS and they should fine them for trying to dodge taxes in the first place

In what ways? We need constructive responses so that we may have a real debate.

GA:

While your post is amazingly brief , it does shed a little light into the problems of this issue.

You think the tax rate is too high and is forcing companies into leaving.

YET, you want to punish these same companies for fleeing a system that you have admitted is stifling them.

Leaving the country is not "dodging" taxes, it is leaving the tax authority of the US. Think of it as deciding to move from New York City to New Hampshire to escape the high local taxes in NYC. You still do business there, you just no longer live there and now pay a lower tax rate.

As usual I dont have much time to reply, but I wanted to say this before I forgot it.



Corporations were granted personhood in the late 1800s, which means that they are required to pay taxes to the US, regardless of where they are banking. If my passport means anything (as it states, if a person who is a US citizen earns a certain amount of money in a forgien country, they may be obligated to pay taxes on it.) Is that a totally ridiculous notion?

When Ive had time to read the links, and do some research, hopefully Ill be back (I may also end up being overwhelmed and give up.)

It's my understanding that corporations have to pay taxes to whichever states they make money in. I work for a company that is originally incorporated in Colorado, but we do business in nine different states, and if we sell a hotel in any of those states, we have to pay taxes on the income from that particular transaction to the state the property is in, and then we pay taxes to the IRS on the combined income from all of the states. I don't know if this is just a real estate thing, though.

I think, if anything, that corporate taxation should be more like personal taxation.

Specifically, individuals pay taxes on their income, and companies pay taxes on their profits. Individuals cannot say that they don't have to pay taxes because they didn't end the year with more money than they started. But that, in essence, is what profits are, and so it's what companies do all the time.

The small and medium sized companies, that operate in one town or state, and so cannot easily up sticks and move to a lower tax regime without losing touch with their customer base, tend to be the ones that are the most diligent in paying their taxes.

But the corporations that make the most noise about moving jobs abroad to more "business friendly" tax regimes (usually, ones that require no taxation at all) are often also the multinationals who make use of transfers of capital between internal divisions based in tax havens and the ones operating in ordinary states, which makes it look as though the ones operating here aren't making very much profit, if any. And if a corporation isn't making a profit, because they have loaned or borrowed huge sums from another company based in Jersey (the UK island after which NJ was named - a tax haven), the Isle of Man, or the Seychelles (all low or zero-tax regimes), they won't be expected to pay any tax anyway.

Essentially, because corporate taxes are paid on profits, it is relatively easy for a multinational to structure themselves so that they rarely, if ever, post a profit at all, and so rarely, if ever, pay the domestic taxes they they say form a threat to domestic jobs.

For this reason, I would rather that corporate taxation were charged at a lower rate and based on turnover rather than profits. Providing that the rate was set sensibly nothing much would change for the small and medium sized companies, but it would, at a stroke, force the big multinationals to pay their way the same as everyone else does. For instance, 0.3 or 0.5% of turnover would be roughly equivalent to, or somewhat lower than, tax of 35% on the profits of a low margin business (2-4% net margin). Higher margin businesses would be positively benefited by such a change, provided of course that they pay any taxes currently.

Businesses that are only marginally profitable, or that make a loss, would have to start paying taxes where they don't currently have to. However, how are they so different from a individual with large debts? A person who goes bankrupt usually finds that the tax authorities are at the head of the queue to get paid off, yet a bankrupt business is excused taxation.

Oftentimes, a sole trader is worse off in this situation than a company because a sole trader will have to pay personal taxes on their income whether or not a profit is made, yet a sole trader (I'm talking of the legal entity, not the person) could easily be just as much of a wealth and employment creator as a small company.

I think the corporate tax rate has little effect on the “Average American”.



Very little. In the example given with Stanley Works they only left the country on paper not physically. With actual corporate flight wage differences would be a much bigger reason...production labor in China is about 50 cents an hour and here $15 per hour. If the US had no corporate taxation what so ever corporate flight would remain the same.



I really do not see how government can stop a corporation from leaving if they so wish. If you wanted to move to Russia because they have a 15% flat tax should government try to prevent you from leaving??? Don’t think so. However, if you wanted to live here and earn your income here than it is reasonable that you be taxed here even though your “official” residence and citizenship was in Russian.

An interesting take is Here.



You don't need to physically prevent someone from leaving. You want to foster an environment where businesses can compete. Corporate flight "on paper" is just as bad (or worse) than physical flight. Jobs are already overseas. If the corporate HQs leave as well, we will be in big trouble.

I think the threat of "runaway companies" is a bit of blackmail, frankly. I don't think that corporate tax rates are really driving that many from our shores. Major corporations can afford to evade these taxes and smaller companies can't afford to relocate.

I think the real problem is a bit of a vicious cycle. Because of the numerous loopholes - and because of massive, widespread white collar crime and corporate fraud - tax rates are way higher than they need to be. As usual, it is smaller companies which suffer the most. Large corporations can afford creative accountants, dedicated tax lawyers, and offshore banking and accounting, where smaller companies simply cannot. The smaller the company, the greater their tax burden. The less big business pays, the more corporate tax needs to be maintained or raised. I'd be astonished if there is any multi-national corporation in this country that pays anything close to 35%. I'd be equally astonished if there's a single mom 'n' pop business that pays anything less than about 32%.

If the major corporations actually started paying more of their share, rather than resorting to criminal accounting (at the same time ripping off their employees and, especially, their shareholders), corporate taxes could be lowered for everybody. Tighten up the loopholes and start to seriously crack down on corporate crime and taxes could be drastically reduced - with no loss of revenue. Lower taxes, less risk of flight. As a sorta bonus, this would stimulate competition.

I agree Wertz. That's why I suggested a switch to a fractional percentage of turnover rather than over a third of profits.

I'd be interested to know if anyone thinks that this idea might work (in making corporate tax both easier to administer, fairer, and unavoidable) or if not, why not. PM me if it's off-topic.

HERE is the libertarian take on "job exportation" courtesy of Walter E. Williams.


The current climate of business in the US, with its nasty combination of taxation and regulation, is creating an environment where businesses find it hard to operate.

Obviously there are companies - predominantly multinationals of course - that up-sticks to the Bahamas or wherever in order to avoid taxation in their country of origin. As Wertz points out, however, the myth is larger than the fact, as most major businesses are able to exploit the existing loopholes in the law without having to relocate their HQ to a foreign country.

Nevertheless, I think that this issue is symptomatic of the lack of accountability - in this case fiscal accountability - that multinational companies are constrained by. indeed, perhaps the term should be 'supra-nationals', since these businesses are able to operate largely above and beyond the monetary, environmental, social, and even political boundaries set by individual nations.

Perhaps what is required, therefore, is a series of international agreements and legislation that would serve to enforce accountability - in the payment of tax amongst other things - to the home nation. This would not serve to erode national soveriegnty, but would act in a manner analogous to that of a criminal extradition treaty. This would mean that, wherever they were based, they would be bound by and subject to the tax code of a given nation - presumably, their nation of origin, or biggest market etc.

JonBon


US Scrutinizes Bermuda Tax Shelters



So, in other words, it's a legal Tax loophole.

But don't worry. The U.S. treasury is on the job:



and so is Congress:

Corporate taxation is unequal. The owners of business should be taxed the same as all other people are taxed. This legal means to be taxed differently is unequal and ultimately unfair.

The solution is to eliminate corporate entities. The rationales, that I am aware of, for corporations are poor means to achieve them. Corporations have created classes of people who are treated differently. This is against an important principle of the United States, equal opportunity for all. Corporate taxation is another example of the inequality.