Sunday, April 15

USA–highest tax rate and lower collection

USA has now got the highest tax rate in the world (39.2%). But with the gigantic mess that is the tax code, it only manages to get the businesses to pay at 29.2%. What a mess these politicians of both sides have done to such a brilliant economy. Go read the article.

Its pretty stupid. Because of this extraordinarily stupid state of affairs, a significant number of American companies are keeping their profits outside the country. go figure. Muppets. See here for an example:

Apple has $12 billion waiting offshore, Google has $17 billion and Microsoft, $29 billion.

Also see this post from HBR for a slightly contrarian view. First, this post says that Apple actually has more like 64 billion offshore. I quote

Google is famously good at this, using what Kleinbard and other tax lawyers call a "Double Irish Dutch Sandwich" to keep the tax rate on its foreign income in the low single digits. As Jesse Drucker of Bloomberg News detailed the practice in 2010, Google licenses foreign rights to its intellectual property to a Bermuda-based entity called Google Ireland Holdings, which in turn lets its Ireland-based subsidiary Google Ireland Ltd. use that intellectual property in exchange for billions of dollars in royalties a year. On the way, those royalties (generated mostly by selling advertising in Europe) pass through Google Netherlands Holdings to take advantage of quirks in Irish tax laws and European Union tax treaties that render them virtually tax free. Kleinbard calls this "stateless income," and argues that it's a huge issue that most discussions of corporate tax reform brush under the rug.

Kleinbard, who before going into academia in 2009 was a partner at the law firm Cleary Gottlieb Steen & Hamilton in New York and then chief of staff of Congress's Joint Committee on Taxation, got in touch with me after I quoted him in my post last week on the tax implications of Apple's vast overseas tax hoard. Apple argues that because the IRS would tax its overseas income at high rates if it brought that income back to the U.S., it has to keep the money (about $64 billion at the moment) overseas instead of handing it to shareholders. Kleinbard says there's definitely truth to this assertion, but that the most-discussed solution — switching the U.S. to a "territorial" corporate tax system that doesn't even try to tax overseas income — would make the problem of stateless income even worse.

I quote from this post.

a) If you tax something, you get less of it, b) taxes and regulations are always distortionary because people can change their behavior to avoid them, i.e. raising tax rates raises tax avoidance, c) incentives matter (as do disincentives), and d) the Laffer Curve accurately predicts the inverse relationship between tax rates and tax revenues at high marginal tax rates. 

Will anything happen? can I touch my toes? can I bend a watermelon into two?

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