[acslater00]

There is a really important lesson from all of this, and it is not that Apple is wrong for rationally exploiting global tax laws to avoid paying US taxes.

The fact that California has no tax jurisdiction in Nevada, and that the US has no tax jurisdiction in Ireland, is an unassailable fact of life. Tax laws are subject to regulatory competition like many other things, and ignoring that -- insisting that this is an issue of morality or fairness -- is silly.

If the US had a globally competitive corporate tax rate (say 15%), it would make most of these tactics irrelevant. There's no need to shelter income in Ireland if they have the same tax rates. Because of the reduced sheltering, such a reform would probably raise revenue on net. But even if it didn't, it would have many ancillary benefits, such as repatriating many billions of dollars in corporate profits and increasing the degree to which they are deployed in the US, which would far exceed the costs.

Even better would be to reduce corporate income tax to 0% and increase dividend and capital gains rates to personal-income-tax levels to make up for it. The main reason dividend income is treated preferentially in the US is that corporate profits are already being taxed (in theory). Those multi-level nature of the US tax code creates unnecessary loopholes, as well as costs and confusion. Counter-intuitively, eliminating the corporate income tax would make it much easier to tax corporate income, because those profits necessarily flow back to investors either in the form of dividends or capital gains. If you are a resident of the US (and california) and you own 1 apple share, you pay taxes on your share of Apple's income. Even better, it would be progressive. Rich people pay more, poorer people pay less.

Simple, right?

[TheEzEzz]

> If the US had a globally competitive corporate tax rate (say 15%), it would make most of these tactics irrelevant.

Until Ireland further lowers its taxes. Your argument leads to a race to the bottom.

The problem with only taxing dividends is that corporations only pay out a small portion of their profits in dividends. I may theoretically be a billionaire in my holdings, but I only need a million in dividends per year to live my preferred lifestyle. Thus I only pay tax on the million dollars instead of on my billions. You can try and get at the money via capital gains, but what if the bulk of the money is being held by a foreign company, with only a small amounts to pay dividends to the owners filtering into the main company?

[yummyfajitas]

Ireland can't lower it's taxes to the point of unprofitability, so it will lower it's taxes until revenues raised == cost of services + small margin. That's a good thing.

Don't complain that others provide the same service at lower cost, try to innovate and outcompete them.

[yequalsx]

Well Bush II lowered taxes to the point of unprofitability (I assume you are speaking from a national governmental view). Governments engage in deficit spending and some foolishly lowers taxes at the behest of its monied interests.

You appear to assign to the government of Ireland some sort of rationality and ignore things like regulatory capture and corruption. Your belief that a government will only lower until "revenues raised == cost of services + small margin" is not rooted in fact.

[yummyfajitas]

You are referring to all government services and all revenue collected. I'm referring solely to services provided to corporations and revenue collected from corporations.

I fully agree that the losses from the War on Iraqis/SS/medicare/etc don't outweigh the profits made by taxing Apple/etc and providing them with a few cheap services (corporate registration, enforcement of contracts, etc). That's a separate issue.

Regulatory competition helps - if the profitable people/businesses flee from corruption/inefficiency, then those wasteful programs will eventually run out of money.

The existence of corruption and regulatory capture is all the more reason to have regulatory competition. If California is captured by corrupt special interests (e.g., prison guard unions), corporations can purchase corporate registration and contract enforcement from states which offer a better value.

[yequalsx]

I fully agree that the losses from the War on Iraqis/SS/medicare/etc don't outweigh the profits made by taxing Apple/etc and providing them with a few cheap services (corporate registration, enforcement of contracts, etc). That's a separate issue.

Ironic that you mention SS and Medicare. Two programs designed to help companies out (and people too). Do the cheap services include a road system? Do they include an education system capable of producing adequate workers? Do they include protection from enemies? These things are not cheap. And it is especially helpful to be located in a country with great influence that helps smooth things in other countries.

I think you don't understand what regulatory capture is. When an industry has capture the regulators that is a good thing from the perspective of that industry. Regulatory capture is what oligopolies want. It's the good kind of corruption from their perspective. Large companies don't flee from corrupt societies. They use that corruption to their advantage. Obviously there are counterexamples to this but overall the gist is correct.

[yummyfajitas]

The cheap services do indeed include a road system, which tends to be paid for by property taxes in a given locality. Apple pays for CA roads in proportion to the land they own in CA. Their works also pay for roads via gas taxes, and charge Apple commensurately.

Why should Apple be taxed on profits earned in Ireland to pay for CA roads?

As for protection from enemies, we should simply stop defending Ireland. Then Ireland will be forced to defend itself (from Iraq, I suppose) and charge corporations commensurately.

[protomyth]

"Well Bush II lowered taxes to the point of unprofitability"

The US has been running up the debt for many years http://en.wikipedia.org/wiki/History_of_the_United_States_pu...

[yequalsx]

What you say is true. What I said is true too. Both statements are true. Bush II tax cuts are a very large portion of the current deficient that we have. Taxes are currently at a 50 year low as a percent of GDP. Bush II taxes greatly increased the deficit. Other tax cuts have too. I was just giving an example of the statement that I responded to being false.

[protomyth]

If they repealed all the Bush era tax cuts, the deficit would still be growing at a higher rate than before. Obama has run up the deficit at a faster pace (approaching double) than Bush and those tax cuts aren't even the major part of it.

The biggest problem is the lack of a passed federal budget in over a 1,000 days. This is causing a lot of budget increasing in a time when we cannot afford it. What the media and politicians (from both sides) chose to concentrate on is emotion grabbing (good for votes and ratings), systemic issues with how the government is being run are boring and not emphasized.

Low taxes don't kill budgets (check right after WWII when they had to drop), it is runaway spending. Income from taxes of all sorts has averaged 19% GDP, spending above that is the problem.

[greedo]

Or, one could say that increased spending despite decreased revenue has lead to an increase in the deficit.

It would be one thing if spending had been static during all the tax cuts; it's quite different in reality.

[lemming]

One thing to bear in mind is that for these really big companies, the huge attraction of Ireland is not the low corporate tax rate, it's that profits can be easily and legally sent to Holland, from where they can be sent to the Caribbean. I've seen similar stories from Google and Ikea, I believe they both pay low single digit tax rates on their non-US income due to this arrangement; in Ikea's case this is nearly all of it. It's really difficult to compete with that.

[forrestthewoods]

To me that implies that our current tax methodology is fundamentally wrong. In a global system with value placed on intellectual property and virtual goods, rather than manufactured products, the current tax design seems irreparably broken.

I don't know nearly enough about taxes or economics to propose a solution. Would a VAT tax at a lower rate be more consistent than a higher corporate income tax that may or may not be avoided depending on the corporation? Europeans seem to hate the VAT tax but I'm not sure if that stems from a high tax rate or the concept of the tax itself.

[toyg]

Jeebus Chrysler, VAT is the most regressive tax ever invented, please do not even mention it as a solution to anything. It's a flat (!) tax on non-avoidable consumption that is fundamentally unrelated to real wealth; it doesn't touch capital activity or in-activity, which means that rich people (whose wealth is sheltered as business capital on paper) simply don't pay it. It was a terrible gimmick invented by European governments to raise taxes on low-income individuals without telling them.

I hate to say this, but the only solution I can see to rise of worldwide corporations is... worldwide government, exactly like the answer to the rise of "national companies" in the XIX century was the creation of national governments of similar size. We can discuss about implementation details (the current arrangements -- going through WTO, WMF, UN etc -- are ineffective, opaque and/or fundamentally corrupt), but I don't see how else we could ever get out of this mess.

[Klinky]

Don't complain that others provide the same service at lower cost, try to innovate and outcompete them.

This is assuming that others are providing the exact same services for lesser cost. Right now on the front page of HN there is a story about a cheap iPod charger that can burn your house down or kill you because of the corner cutting done to make it so cheap.

[BCM43]

But that won't work if some very small country lowers it's tax to 1%. The US can't compete with that.

[ajkessler]

Why not? (Honest question.)

We have states that have no personal income tax. Not surprisingly, these states are doing fine because they raise revenue other ways.

[JamesLeonis]

Income tax only accounts for some of the taxes a state can take in. Property and sales tax are also forms states use to collect income, and they happen to be regressive in most cases.

If you look at the CFED chart [2], those nine states [1] with no income tax make up the top 9 slots where the bottom 20% pay many times more in taxes than the top 1% (as a percentage of income), from 3.8 times (Tennessee) to a whopping 6.7 times (Washington).

[1] http://www.irs.gov/efile/article/0,,id=130684,00.html

[2] http://scorecard.assetsandopportunity.org/2012/measure/tax-b...

[yummyfajitas]

...states [1] with no income tax make up the top 9 slots where the bottom 20% pay many times more in taxes than the top 1%...

By itself, this statistic is meaningless. A state with a progressive tax system but lower rates of inequality will score poorly on this metric than a state with higher inequality but an identical tax system.

I.e., you might be showing Tennessee has a regressive tax system, or you might be showing Tennessee has low inequality. Without more details we cannot determine this.

[Drbble]

Note that welfare benefits can cancel out a lot of taxes and restore the progressive effect.

[meric]

You can charge sales taxes. A company can't avoid those if they want to sell things to the country.

[acslater00]

That's great. If apple makes $1b, if the bulk of the money is held by a foreign SUBSIDIARY, my stock will go up, and I will pay capital gains. If they give it to me as a dividend, I will pay taxes on that. If they reinvest it in the company and the investment makes money, my stock will go up even more. And if they reinvest it in the company and squander it all, no taxes will be collected on the income, but they won't be able to write the loss off anything either.

The only thing that truly captures the vagaries of 'where money is held' is the stock price. Wall Street don't care if that money is in New York or Guatemala, if Apple has it it's making the stock go up.

[byrneseyeview]

The value of your stock is the net present value of the future dividends you should expect. If you put a billion dollars in cash on a rocket and launch it into space, the value of that billion dollars is not one billion. It's near zero, depending on the odds and cost of recovering the currency.

[jarek]

Wall Street does care about there the money is. That is why tech companies have spent huge sums lobbying for a repatriation amnesty.

[yummyfajitas]

Tech companies want repatriation amnesty so they can invest the money in the US. I have no idea why we want to prevent them from doing this.

[FireBeyond]

So they can invest -some- of the money in the US.

And pay salaries, bonuses and dividends with the rest - without paying the appropriate corporate income tax rate first. That's why.

[yummyfajitas]

The profits were earned in Ireland. Why is the "appropriate" corporate income tax owed to the US greater than zero?

Should Guinness also pay the US taxes for profits earned in Ireland?

[rmc]

Until Ireland further lowers its taxes.

Unlikely. Ireland is currently in an IMF/ECB bailout programme, and will be for a few more years. Financial policy decisions cannot be made by the Irish government, and must be approved by the IMF/ECB. Recent budget changes (e.g. a change to VAT rate) were discussed in the German parliament before the Irish parliament.

[jacquesm]

Of course it is an issue of morality. I could choose to avoid paying taxes in the society that I'm a part of. It would be in my economic interest to do so.

But it is morally wrong because it is that same society that enables me to make my money in the first place.

Simple, right?

[forrestthewoods]

That doesn't make any sense at all. Tax avoidance is perfectly legal. Tax evasion is not. Playing within the rules created by society is not morally wrong. Every deduction you take on your personal income taxes falls under tax avoidance which you can't possibly be describing as morally wrong.

"The legal right of an individual to decrease the amount of what would otherwise be his taxes or altogether avoid them, by means which the law permits, cannot be doubted." - US Supreme Court

[dagw]

Legal and Moral are two, at best, loosely coupled concepts. Just because something is perfectly legal doesn't make it moral. Or for that matter just because something is illegal doesn't necessarily make it immoral.

[hej]

> Playing within the rules created by society is not morally wrong.

There are people who honestly believe that? It’s not that simple, it really isn’t.

I, for example, think there are many immoral but legal things and I want it to stay that way. The law is not supposed to perfectly mirror our morality, that would be a clusterfuck, tyranny, and otherwise a really bad idea. (For example: I think not tipping in the restaurant is immoral. I, however, never ever want that to become a law. Just one example.)

In short: Just because it’s legal, doesn’t mean it’s right. Just because it’s not right, doesn’t mean it should be illegal.

[philwelch]

Taxes are purely a construct of law though. The only reason it's immoral not to pay taxes is because it's immoral to break the law, at least if the law is just. But we're not talking about people breaking the law, we're talking about people obeying the law.

Think of it this way: if you can get an effective tax rate of x% by doing this and y% by doing that, and x < y, what's the moral difference between doing what you need to do to pay x% and the government changing the tax rate so you pay x% either way? It's not a question of what's the most moral percentage to pay in tax, it's a question of whether or not you're defying the law, which you aren't in either case. If the government lowered the tax rate to x% and you decided to cut out the middleman and just pay it, no one would howl at you to voluntarily pay more. So why do people howl at you for obeying other laws that allow you to effectively lower your effective tax rate to the same amount?

[starwed]

The reason it is immoral to pay taxes is that you are still benefiting from the existence of the government but putting the burden of supporting it on others.

You personally may agree or disagree with this, but that's what someone probably means when they say it is immoral to avoid paying taxes, even if it is perfectly legal. Taxes are part of the general social contract of our society, and aggressively finding ways to avoid paying them tends to a tragedy of the commons type situation.

[jakeonthemove]

You're thinking at country level. If you expand the thought to global level, the supposed immorality disappears - in this case, the taxes are just paid in another country, at a lower rate, but it still helps a part of society...

[AlisdairO]

> The only reason it's immoral not to pay taxes is because it's immoral to break the law, at least if the law is just

Surely it's also immoral because it's moral to contribute to the society you benefit from, particularly when the laws are constructed to attempt to make you do so, even when there are loopholes?

[philwelch]

If it had to do with contributing to the society around you, surely it would be the same obligation regardless of the tax laws, wouldn't it? Yet no one voluntarily pays more than the tax rate, and nearly everyone takes all the deductions and tax credits they can.

[hej]

No, it’s not necessarily immoral to break the law. There is it again, the error to try and map morality to laws perfectly.

Whether or not not paying taxes is immoral (by abusing obvious loopholes) is different from the law.

[bmelton]

The best way I can visualize it is like playing a game of poker.

Bluffing is misrepresenting what you have to fool your opponent into something you don't, or more commonly, something better than you actually have. There are a variety of ways to bluff, with either betting patterns or by outright lying verbally. There are different rules in different casinos that determine whether or not you're allowed to talk about your hand, so exactly how you perform your bluffs may be limited.

Regardless, you should bluff, at least occasionally. The person who never bluffs is likely limited in the amount of money they can make as everyone will fold to the always truthful player.

Ignoring the societal questionability of poker on the whole, some poker players consider bluffing to be immoral. Generally, and certainly the people who recently fell for a bluff might feel so more strongly than those who just successfully bluffed but, and this is important, bluffing is within the rules of the game.

So long as you're not breaking the rules, there is no penalty for being clever.

[hej]

That was a nice explanation of why what’s moral doesn’t map to what's legal. I’m not sure what your point is, though.

[robatsu]

I agree with the SCOTUS sentiment, but in other related areas, strict adherence to the law with the underlying intent to remain legal but avoid the spirit of the law has been cracked down upon.

In the case of cash transactions, with the 10k reporting limits, people are now routinely prosecuted for "structuring" their >10k transactions into a series of <10k transactions, even when it is clearly demonstrated that there is no underlying criminal activity. There have been cases where it is just cantankerous believers in privacy being prosecuted.

For my part, I'm on the side of the tax avoiders & believers in privacy, but it wouldn't surprise me to see the government's views/regulations on tax avoidance come around to their current policies on currency controls.

[foxit]

It's simple, but there are a lot of people who do not understand this. They don't realize the taxes from the system that funded childhood educations and college tuitions to result in an employable, knowledgeable, creative mass of first-world dwellers should be paid back into through taxes on the profits of the companies in their sphere.

There is a singular lack of realization about the societies in which we live, possibly because it does feel like every man for himself most days. The societal web that makes us interdependent and upon which we rely without knowing it isn't as apparent.

Addendum: there's a lot of confusion about the differences between something being legal and something being moral/ethical in the responses to this post. Legal too often simply means exploiting loopholes.

[Zak]

I'm not sure it's that simple. I live in the US. The vast majority of the US Federal budget goes to the military, income redistribution (welfare) and insurance programs (social security, medicare). I do not believe most of those expenditures enable me to make money, and I think a significant segment is actively harmful. I also feel that I don't have a meaningful say in how that money is used because the political system is broken.

Given those conditions, I don't feel there's anything immoral about doing everything legal to pay less in taxes. I suspect things are different where you live.

[hnwh]

Exactly.. lets first talk about the morality and ethics behind the govt. spending MY hard-earned dollars to go bomb brown people in the middle of the desert for 20 STRAIGHT YEARS.

[Drbble]

Your tax dollars don't pay for that. The government onflatess the currency via borrowing, so everyone's dollars pay for that.

[ianterrell]

I'm not saying I agree with all of it in practice, but there's a strong argument against your thoughts here, especially in principle.

The military keeps foreigners from invading/suicide bombing and thus creates stability which lets you make money. Social safety nets including welfare, social security, etc, create the same sort of stability since there's less of a likelihood a starving person or angry elderly woman will rob you, etc, etc.

[byrneseyeview]

Right, but they may not be the most effective means to do so. If I mow your lawn, then break into your house to steal $20, I might justify that on the grounds that your mowed lawn is worth $20. But in most sensible economic relationships, we do things in the opposite order: figure out if the service is worth the cost, and then perform it in exchange for payment.

[Zak]

I'm not saying having a military isn't valuable. I'm saying the US spends more on its military than the next ten countries put together and maintains a foreign policy of intervening in affairs of other countries and regions. I do not believe these things are necessary to defend the country, and may actually endanger us by creating new enemies.

I'm not saying social safety nets aren't valuable. I'm saying that the current implementation does little to encourage or help people who use them to move on to something productive. I'm also saying that social security is an unsustainable pyramid scheme and that medicare is both inefficient and a poor allocation of resources.

I don't necessarily have solutions in mind for the latter problems; they're hard problems and not in a field with which I have experience. What I am saying is that I don't feel obligated to pay any more in taxes than I have to when on the order of 90% of the money will go toward things that I believe aren't constructive.

[fecklessyouth]

Thoreau came to the same conclusion. "I don't support war, so I'm not going to pay taxes." This, however, isn't a tenable practice for society as a whole.

[byrneseyeview]

If I live off of my savings, and generate no taxable income, am I also immoral for driving on roads? What if I work part-time, but pay less in taxes than the average person? Once you have a theory that it's morally wrong for people not to pay taxes given that they benefit from the government, you run into the problem that the most effective tax avoidance scheme, by far, is to not have anything taxable.

Oddly enough, New York has implemented an effective Henry George-esque tax system: to merely exist in the city, you have to live in fairly pricey real estate, and the taxes your landlord pays are effectively passed through to you by market rents. Other places have much cheaper real estate, so they don't have the same dynamic.

[wdewind]

If you can draw clear lines at what a society is, sure.

[noonespecial]

I think part of the problem is that the loopholes are for sale. Their original existence may be accidental, but their continuing existence is not.

[jandrewrogers]

Short-term capital gains are already taxed at income rates. Long-term capital gains are lower in part because they are not inflation protected, which can substantially discount the real returns. Having a lower tax rate is simpler than computing inflation-adjusted returns for every long-term transaction. For example, if you buy an asset for $500k and sell it for $600k ten years later, you actually lost money after adjusting for inflation but you still have to pay taxes on the $100k capital gain.

Another factor is that long-term capital gains taxes are much less efficient than income taxes in terms of adverse impact on the economy. If you need to raise additional revenue, it is better for economic growth to take it from income (or sales) than capital gains.

[Drbble]

That's silly. The government does lots of inflation adjustments andbracketing and phaseouts in financial programs already. And "long term" starts at two years, where inflation is just barely relevant.

[jandrewrogers]

That is factually incorrect. In US dollars, investments lose 2-3% of their value annually due to inflation, compounded for multi-year investments. In most cases, there are no adjustments for that in the US tax code. For long term investments this has a large, material impact on the expected return on investment. Any accountant worth a damn can figure this out for you and anyone investing takes it into consideration. This includes investors in startups.

Investing in startups returns a couple points over investing in boring things like corporate debt and startups have higher risk. Unless you think more social good comes from investment in corporate debt than startups, it would be foolish to incentivize everyone to ignore startups because the risk adjusted returns are better elsewhere. I accept that some people think investing in startups is a waste of money but I would prefer that our tax code does not force that to be the case.

[jusben1369]

That's really not the reason short term and long term are taxed differently. It's based on a perceived notion that we want to reward long term investment as a preferable activity over shorter term speculation.

[jandrewrogers]

I agree, this is partly the case. There are a number of incentives in the capital gains tax code beyond the well-known ones that are structured very much for the benefit of long-term investments in smaller companies. There is no rational tax basis for this benefit except to benefit small companies.

The argument about inflation adjusted returns is really the baseline case. Most investors account for it. However, they also adjust for risk as well. I would prefer investments in tech startups to be attractive, net, after accounting for the tax code relative to boring investments like debt instruments.

[protomyth]

Uhm... the other problem increasing taxes on capital gains is that most Americans in the under 50 crowd are going to use those for retirement.

[_delirium]

Capital gains in retirement accounts are tax-sheltered (in a Roth IRA, completely tax-exempt). And it's a serious exaggeration to say that "most" Americans are going to use capital-gains for retirement. For the vast majority of Americans, capital gains are a negligible proportion of their total income. Raising capital gains rates and using the proceeds to lower regular income tax rates (to bring the two tax rates closer together) would lower many more people's taxes than the reverse would.

[acslater00]

The actual appreciation of their investments would be higher if you eliminated corporate income tax. And you would still get to defer payment until you sell the actual investment.

Properly designed, it all evens out.

[protomyth]

The problem is "defer payment until you sell the actual investment." which is when I have no other income coming in. This isn't going to be a rich person's problem, it effects pretty much everyone under 50.

[jarek]

Specific interests being mentioned in a tax policy discussion? Unheard of!

[protomyth]

I take your meaning, but I am not looking for a interest group tax deduction. I am really wondering about what all of us need out of a tax system. It is more about when is it ok to tax and when is it just moving money around (SS and Unemployment are two I can think of off the top of my head).

I admit to being in the flat-rate tax camp with exclusions for one time capital gains (selling stock not dividends) and estate tax. I also wish they just gave a large basic deduction ($15K or $20K) and had everyone file as individuals.

[jack7890]

Are you like an internet economist or something?