[riferguson]

Judge Learned Hand: "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."

[btmorex]

That may be true, but the simple fact is that it's a lot easier for a large corporation to minimize its taxes than it is for a small business or individual. For example, a company like apple can afford to pay 10 people full time to move around money and assets in order to minimize taxes. Those people will save Apple far more than it costs to employ them. A 5 person company not only can't match that effort, but if they tried they would find that the necessary expertise cost more than the actual tax savings would bring. That gives large corporations a pretty significant advantage in the marketplace.

[JabavuAdams]

Your example is just an economy of scale. The same could be said of engineering support infrastructure.

[jbooth]

The difference being the tax situation is created by laws, and engineering is governed by reality.

The laws shouldn't create a situation where big, slow-moving corporations get huge built-in advantages over smaller, more innovative companies (I know apple is more innovative than many big companies but stay with me here). Particularly, they shouldn't be getting those advantages by paying a bunch of blood-sucking lawyers and accountants to move money around and create nothing. The law should, if anything, be providing support for smaller businesses.

[dedward]

You mean smaller businesses that create fewer jobs?

[jbooth]

No, I mean the small businesses that have created almost all of the new jobs over the last 20 years. A few here and a few there. Some of them got really big.

Go check out bls.gov.

[zamfi]

Can you give a more specific link to the bureau of labor statistics?

Assuming you're using the typical "500 employees" definition of small business, US census data doesn't seem to bear you out. For the period 1988 to 2003, see table 2c here: http://www.census.gov/epcd/www/smallbus.html

The percentage of paid employees employed by organizations with 500+ employees increased in the period 1988 to 2004, to 49.1% - as the total number of employees has increased by 30%.

Are we looking at different things?

[Ryan-R]

I think the point he is trying to make is that the current tax laws favor big businesses because, let's face it, the government is run by those businesses.

[dedward]

While I'm not arguing the system is perfectly fair - those large corporations also create jobs, and pay a huge amount of tax in raw numbers. People look at the percentages and say "Ohh look how they cheat...." - but look at the raw figures, and see where the tax dollars are really coming from.

Joe average 9-5 worker doesn't create jobs, or employ hundreds or thousands of people, and he does get tax breaks for certain things in his everyday life (dependants, mortgage payments, whatever) - a large corporation occupies a completely different place in the economy, and can indeed take advantage of different things.

(joe average 9-5 worker, even if a staff of 10 tax wizards helpded him out, wouldn't be able to save much on his income tax legally - because his financial situation is simple)

[mikecane]

>>>Joe average 9-5 worker doesn't create jobs, or employ hundreds or thousands of people

And where would all the companies be that sell to Joe Average if Joe Average was out of work? How many of those jobs would vanish for all those other Joe Averages?

Joe Average also doesn't create books or movies or music -- but we depend on him to spend his money so those who do can keep doing so.

Spit on Joe Average and you are cutting your own throat.

[patrickk]

Big companies can employ tax specialists, attorneys and accountants, certainly, to do all these things - it's definitely an expense that a small company can't afford.

But small companies have advantages too - being nimble and able to innovate much quicker than big companies, to name just two. It's important to recognise these advantages and exploit them as well as possible.

Also it's worth bearing in mind that Apple was once a small company in a garage too. They had to grow big and become profitable before they could hire people to minimise their tax bill.

[jack7890]

Couldn't the differential tax rates for big corporations vs. individuals account for this?

An example with invented numbers: if the US Govt wants to tax corporations at 30% and individuals at 25%, but corporations are 10% better at avoiding taxes, than the actual corporate tax would be 33.33%.

[cjy]

But big companies also receive more scrutiny from regulators. The small business can take advantage of tax loopholes and is much less likely to be audited. There are always gray areas when it comes to taxes and small business don't have to spend as much energy/time defending themselves.

[dejb]

On the other hand a lot of very small business can often operate by 'cash in hand' which bypasses most taxation.

[megablast]

They are only avoiding some california taxes as well, at least according to the wiki page.

This is nowhere near as bad as IKEA, which is the largest charitable organisation in the world, pulling in billions of dollars a year, and paying out a million to help design new furniture.

[dcurtis]

Ikea is so good at not paying taxes that I would say the whole company is a tax evasion hack. The number of subsidiaries in random countries and crazy charities that make up the company is astounding.

See: http://en.wikipedia.org/wiki/IKEA#Corporate_structure

[smallblacksun]

Sounds like a money-laundering setup, honestly.

[zmmmmm]

That's interesting. I know little of US tax laws but in my country if an arrangement has no legitimate purpose other than to minimize tax then it can be seen as tax evasion and the tax department can choose to tax under an alternative regime that they decide matches its "true" nature. Similar to how if you claim to be a contractor but you do all your work for one company they can decide to treat you as an employee. Of course, it is fairly easy to work around, so this does not have a lot of teeth, but it still weeds out the most egregious tax avoidance schemes.

[URSpider94]

That's generally true in the USA, but the catch here is that the states are sovereign entities. Different states have different tax structures, in part to attract residents, business and investment.

[barrkel]

Yes, but in practice, this means that the middle classes pay most of the tax, since the poor don't earn enough, while the rich are able to afford different wealth structures that e.g. fall under capital appreciation, or are structured around shares of ownership and operated in a different state or country for tax reasons, etc.

In other words, the burden of funding of the state - the security, infrastructure and social consensus which is the foundation of all citizens' wealth - proportionately falls least on those that benefit from it most.

[ryanwaggoner]

Not true, the top 5% of earners in the US pay more than 50% of the taxes, and the top 10% pay almost 3/4ths of the taxes.

http://en.wikipedia.org/wiki/Taxation_in_the_United_States#T...

[jbooth]

Yeah, but they make more than 50% and more than 3/4 of the income, respectively.

Richer people pay lower taxes as a percentage of their income than the middle class. Much lower. It'd be lower even if they did it all by the book and didn't hire expensive accountants and use offshore accounts, tax havens and all of that. Once you add that stuff in it's significantly lower.

It's a bug, not a feature. Meanwhile, presumably you're not a multi-millionaire, and you're actually cheering for them to pay less off their income in taxes than you do. Pretty funny stuff.

[ryanwaggoner]

First, how do you know that I'm cheering for anything? I stated a simple fact. It doesn't mean that I approve of it. And my post was in response to this claim: Yes, but in practice, this means that the middle classes pay most of the tax

While "the rich" might pay a lower percentage of their income in taxes, it's just flat-out false that the middle class pay "most of the taxes." Whether this should or shouldn't be the case is a discussion for another day.

[jbooth]

Sorry for implying that, and you were correct on the semantics. The fuller explanation would have been more helpful, though.

[chrisbolt]

Yeah, but they make more than 50% and more than 3/4 of the income, respectively.

No, the linked Wikipedia page says:

the top 5% with gross income of $137,056 or more pay 57.1% (earning 33.4%)

[jbooth]

Well, the wikipedia cites the WSJ, which is behind a paywall. I suspect that they're either wrong or creatively fudging things.

After 100k your FICA payments taper off to nothing. That's money off the top, right into your pocket. Additionally, the capital gains taxes are only 15% compared to much higher for income. This means that the wealthy have a hugely advantageous tax situation.

Although, I thought that the bottom of the top 5% was higher than 137k. Another wiki here: http://en.wikipedia.org/wiki/Household_income_in_the_United_... puts it at 157k, which is probably high enough to tilt the math towards what I was saying. Certainly over 150-200k your tax burden as a % of income starts going down, due to the decreased FICA contribution and potentially a share of income from capital gains.

[anamax]

> After 100k your FICA payments taper off to nothing. That's money off the top, right into your pocket.

Since your SS benefits are also capped, it's unclear why you think that capping the taxes is wrong.

The folks who set up SS thought that the tax and payout cap was a good thing beause it kept rich people from caring about SS. If you uncap both taxes and payout, you end up paying Ross Perot $400k/year in retirement. If you uncap taxes but cap payout, rich people start caring about SS.

What is your alternative to capped payout and taxes?

FWIW, SS payouts are progressive - the less you contribute, the better your return.

[zamfi]

If your income comes from capital gains or creative accounting, yes.

But if you're a salaried worker earning over 150-200k, the percentage of your income going to federal income tax is greater as your income increases - more of your income falls into a higher bracket. (Also, FICA doesn't drop to nothing, it drops to 1.45% from 7.65%, saving you 6.2%.) See e.g. http://en.wikipedia.org/wiki/File:US_income_tax_2008.svg

You are assuming that as income rises above 150-200k, it takes forms that are taxed at a lower rate, not just "potentially".

[dedward]

Taking a wealthy friend as an example, and watching how many jobs he's created, how many charities he's created, and how many lives he's changed - plus the sheer raw numbers of dollars he paid in taxes on top of all that - I don't really care if the percentage is less than mine. I didn't create 500 jobs or donate hundreds of thousands of dollars to real-life charities every year.

EDIT: That doesn't mean I think the system is perfect or that people don't cheat, or that the wealthy are somehow innocent - money is power, and those with more money will exert more influence on how to keep more of it - that's natural.

[jbooth]

Yeah, and he did all of that because we have a society that enabled him to do it.

Good for him. Seriously. But if he doesn't feel obligated to pay back towards that society then he's either missing something inside or fell victim to a convienent ideology that told him it's good to be selfish.

Whatever happened to noblesse oblige?

Not to mention, of the millionaires I've met, most aren't entrepreneurs and didn't create any jobs, they just worked in finance.

EDIT: To add: If your friend has those millions and likes the society he earned it in, it's probably worth him paying back into it purely as an investment. If we actually funded infrastructure and education in this country, we might see better returns from them.

[ryanwaggoner]

Are you donating all the extra money you have to the IRS? Are you skipping all deductions, even if you're eligible for them? Why not?

Your argument is essentially that we have a duty to pay as much tax as possible. But this is predicated on the belief that paying taxes is the best way to benefit society with your resources. Obviously, this is a long-standing debate that we won't solve here, but I would argue that the government is a terrible, terrible steward of resources, and I'd much rather have the money in the hands of "the rich", who seem far more likely to invest it and create jobs and institutions that better society. And yes, enrich themselves along the way. I'm fine with that. A rising tide floats all boats.

Again, I find it humorous that people who get all worked up over someone minimizing their tax liability through tax avoidance (completely legal) seem really interested in raising tax revenue, as long as it's someone else's money. None of them are sending donation checks to the IRS, which seems the height of hypocrisy. You have shit you don't need and someone else needs shit you have, so why not donate the money and let the IRS help those poor folks out? If you truly believe the government is the best way to allocate limited resources, why wouldn't you do this?

[ju2tin]

I think the point here is that he "paid back toward society" by creating jobs and charities, not by forking over his money to the government for it to waste on inefficient pork-barrel projects and other ill-chosen boondoggles. Why do you apparently think we can only help society by giving money to the IRS?

[loewenskind]

Anecdotes don't prove anything. Plenty of rich people don't create any jobs (directly anyway) and if they are giving to charities it's usually for tax reasons and/or PR. If you had the money your rich friend has you almost certainly would have donated a similar amount to charity.

[barrkel]

I'm aware of this, and is actually the reason I included "proportionately" in my post, but I didn't have time to explain what I meant.

I would consider the vast majority of the top 10% to be middle class, however.

[adolph]

I suppose that if they are working hard at arranging it, that's better than avoiding taxes and then blaming things on TurboTax.

[hackinthebochs]

Isn't it so easy to outsource your moral thinking to others. You can justify almost anything that way!

[mturmon]

http://en.wikipedia.org/wiki/Race_to_the_bottom

[mturmon]

Why the downvotes? The linked page points to the judicial concept of the "Race to the Bottom" in which countries/states/counties competitively weaken their laws to attract investment.

[sumeetjain]

Doesn't this just beg the question of letter vs. spirit of the law?