The U.S. Corporate Tax Isn’t That Weird

The article shamefully ignores history. Worldwide taxation used to be the norm, but has been abandoned by every other large industrial nation, most recently Japan and the UK. The US achieves the appearance of “normal” through myriads of Rube Goldberg contrivances. Along the way some pay far too little, others far too much. The author implies that territorial systems have equivalent complexities, but, I’m sorry, this just isn’t true. No. Double Irish with a Dutch Twist is uniquely American. Right up there with the 2nd Amendment and our lack of affordable health care.

And few things in this world are more idiotic than extending the worldwide tax paradigm to personal income. It forces the IRS into attack mode against many ordinary foreign households with an American family member. Most infamous are penalties levied against a middle class American spouse of foreign breadwinner whose retirement plan doesn’t satisfy byzantine US rules.

Yes it is complex; But why bother to Refute any of the misguided comments of the Republicans?

Just like the owners (The "1%") American Corporations have had their lobbyists and lawmakers write a tax code that allows the large enterprises to avoid paying for the government services and infrastructure they are dependent on for their very existence.

If you want to do business in this country (and EVERYONE does at that level), a corporation (Like say GM or Microsoft) ought to pay a fair share of the tax to keep the Government operating.

They haven't been, Corporate tax revenue represents 9% of federal revenue, vs 30% or so in the 60's; This in a time of record corporate profits.

The Government does not have a spending problem, it has a revenue problem deliberately created by the Republicans.

Read between the lies to find the simplistic Christie message: taxes are bad and I will cut taxes. He's trying to say to the rich and powerful, "I'm your guy (why do think Ken Langone loves me?)".

Christie is not attacking the current tax structure; he's attacking the fact that corporations and the 1% are taxed at all.

Christie and his cohorts are for the good old days when it comes to social issues. But not when it comes to taxation.

Coroporate tax rates used to be much higher during the "good old days," http://tinyurl.com/79zf3nm

VAT may be something to consider. The relative merits and demerits of VAT are discussed here: http://tinyurl.com/lrv3xtv

Luxembourg with it's very low corporate tax rate seems to be a major center of business according to companies like Amazon and Google. Apple seems to prefer Ireland. That's what you get with territorial taxation, every nation racing to the bottom.

Meanwhile the countries that the profits were made in such as the UK, Germany, etc. get diddle.

The simple solution is the US taxes Google, Amazon, Apple, etc. for their full profits but allows them to deduct foreign taxes paid. Avoidance schemes like Luxembourg don't work then because the deduction is almost nothing.

In the end this is a win for most countries as the UK might get more money as hiding it from them only gives it to the US.

The U.S. is the only country without a value added tax (VAT) ... and that is very weird. If we adopted just a 4% VAT (the lowest in the world) we could have an 8% flat C corporation rate. The revenue would be sufficient to eliminate the job killing payroll tax for businesses that causes jobs to go overseas. With an 8% corporate income tax there would be no need for deferral of taxes on the profits of foreign subsidiaries and no need for a territorial tax system.
Christie and the other Republicans must stop playing games. They don't want real tax reform and simply want to eliminate any taxes on returns to financial investment and exports. The public and news reporters must stop being fooled. See TaxNetWealth.com for the Heritage Foundation spin on taxes.

Isn't it funny that Gov. Christie, of all people, would be pontificating about corporate taxation?

Isn't he the same Gov. Christie that just gave Exxon a multi-billion-dollar free pass on the environmental devastation they unleashed on New Jersey over several decades?

How can he keep a straight face and claim that corporations in the USA need a "fairer" tax system, when they are the recipients of endless subsidies, bailouts, discounts and giveaways, all courtesy of the American Individual Taxpayers?

The name of the game is shift - make it, earn it there but shift the profits somewhere else. Both worldwide and territorial are flawed because of the ability to shift earned profits in one country to another country. There is only one solution and that is worldwide combined reporting (aka unitary taxation). It has been approved at the state level by the US Supreme Court not once, not twice, but three times! First in 1983 in Container Corp. v. Franchise Tax Board (CA) and again in 1994 in Barclays Bank and Colgate-Palmolive v. FRanchise Tax Board (CA). The votes were 5-3 (Justice Stevens did not participate), 7-2, and 9-0, respectively.

However, most states have adopted the restricted water's edge method that excludes "overseas business organizations" - foreign affiliates. Why? Margaret Thatcher. She more than any other person is responsible for the water's edge method - better called watered-down or skim milk combined reporting. Thatcher, protector of Britain's many tax havens, the most under the control of a single country, pressured Reagan after the Container decision to pressure the worldwide states to back off. The water's edge method favors foreign corporations in the US because the US profits that they shift overseas are NOT REPATRIATED. "We point that the water's edge method was adopted for the benefit of foreign businesses." Caterpillar v. New Hampshire Department of Revenue.

The water's edge method is proBritish and unAmerican. No wonder Thatcher was knighted.

http://www.ifs.org.uk/docs/ETPF_Liu_280414.pdf

"The Effects of UK's {2009} Switch to Territoriality on Domestic and Outbound Investment"

In this article there is a table on page 2 showing the ever growing:
"Number of Countries with a Territorial Tax System among 34 Current OECD Member Countries 1891-2011"

If Governor Christie is aware of tax implications ANYWHERE, why have his NJ budgets never balanced and why is his awareness of who comprises the middle class, so woefully uninformed? Bravado doesn't equal competence.

Without "worldwide taxation," the US would probably not get anything from these corporations. "Tax Evasion" is, no doubt, a department in each and every one of these businesses. I assume the rule is intended to discourage US companies from leaving the US entirely.

The US tax code has a primary provision stating that business transactions must have an underlying commercial or business purpose that should guide management's reason to engage in the transaction. Thus, transactions designed only to reduce a tax burden would be disallowed in general as lacking a necessary business purpose. European countries have recently criticized Google, Facebook, and Microsoft, for examples, for extracting corporate revenues from these countries' citizens without paying a sufficient portion of this revenue as taxes that can act to protect the country's ability to regenerate its infrastructure, to continue to attract such IT jobs-producing investments. By locating valuable IT patents and copyrights in tax haven countries, these companies shift disproportionate amounts of revenue from prosperous, higher taxing countries to tax haven countries. Similar methods are used with transfer pricing schemes between countries where a company has multiple sites. Higher costs and the resulting lower profit margins are assigned to goods produced in higher taxing countries; while lower costs and higher margins are assigned to these goods as they flow to tax haven countries. With global commerce centers and the related demand in flux, inversion mergers are currently being used to help position corporate HQ's in countries with greater access to high growth markets, such as China and India. Thus, more big pharma HQ's shift back to Europe from the US. [Th 5/14 4:32p]

Corporate taxation is a little too complicated for the others running for the Republican nomination, so we are going to have to deal with Chris Christie for now.

But credit to him for at least addressing some of our domestic issues. His rivals, mindful that the US economy is doing well, are focusing on foreign affairs.

Here's an idea: If corporations want to be "people" for political purposes, make them "people" for tax purposes. Allow only the same deductions that I get as an individual. No depreciation, no routine expenses, no labor, no interest except for the mortgage on the headquarters, no foreign exemptions not available to me as an individual. I suggest this radical idea with my tongue only partly in my cheek.

This territorial tax system issue is a red herring: To one reader's point, US multinationals are adept at managing foreign tax credits and repatriations in ways that achieve a "de facto" territorial tax system. Also, if the US went territorial, US multinationals' deductions related to the generation of foreign source income would have to be disallowed such that there may not be a net improvement in the effective tax rate. So the territorial tax system is in the "be careful what you ask for category" for multinationals in the know.

If Christie wants to sincerely promote meaningful tax reform, he should aim at fixing the reduced capital gains tax rate loophole on carried interest. The 15% tax rate on capital gains was meant to benefit those who have cash capital at risk which generally does not include the recipients of carried interest. The fact that neither party has moved on this is disgraceful and corrupt.

Seriously you are going to compare US Global business interests with countries such as Greece and Poland???

The fact is that ALL of our major economic competitors use a territorial tax system, except China.

We need to create a system that encourages US corpoations to repatriate their profits and to reinvest in the US. Our current system does exactly the opposit. Then we need to create a nominal corporate tax on all income, similar to what some of our competitor nations do.

Our tax system is so convoluted that it forces companies to do things that are wasteful and not in the long-term interests of the US. Our high corporate tax rate and bizzare system of tax loopholes create a complicated and wastefull system. It is in desperate need of revision.

Mr Barro should be ashamed of his missuse of the facts, truly pathetic.

We all know that corporate America simply keeps its money offshore paying no tax at all. This would be the starting point in any article or postcard as the case may be on off shore tax policy. Next would probably be the forgiveness programs the government has created and how about mention of the estimated dollar amount of money warehoused offshore.

These Times cropped postcard snapshot little nothings that upon examination are worthless drive me crazy. Either cover your topic or keep quite. These things are basically anti informative.

Two corrections
1 typo
By exporting rights to patents, trade secrets, and other intellectual property to palm island no-tax subsidiaries of countries with territorial taxation (yes it requires two levels, which is ignored in most articles and comments), all the income due to US innovation, education, and infrastructure escapes both EU, Australian, and US taxation.

The valuable intellectual exports are hard to value, and the US revenue agents pretty much have to take the valuation assigned by the companies and their tax consultants at face value. When Obama brags about American innovation surpassing that of many other countries, he ignores that it is being exported wellnigh tax-free, while the resulting products that are imported freely from overseas. After several years of analysis. based on many cases, I conclude that the system cannot by fixed by either lower or higher taxes, but only by abolishing corporate taxes altogether, which does away with double taxation, and will allow full taxation of dividends and capital gains. That shift will take care of the majority of the loss from the low revenue already collected from corporations, and make the load on US-based corporations equal to that of multinationals that manipulate valuations of intellectual capital.

2. Mr Barro is wrong: Ireland was practicing territorial taxation, and is now gradually levying a small rate (6%) on income from IP. Nimble multinational will shift residence of rights.

reaylward identifies the problem well.
By exporting rights to patents, trade secrets, and other intellectual property to palm island no-tax subsidiaries of countries with territorial taxation (yes it requires two levels, which is ignored in most articles and comments), all the income due to US innovation, education, and infrastructure escapes both EU, Australian, and US taxation.

The valuable intellectual exports are hard to value, and the US revenue agents pretty much have to take the valuation assigned by the comanies and their tax consultants at face value. When Obama brags about American innovation surpassing that of many other countries, he ignores that it is being exported wellnigh tax-free, while tangible products that are the results are being imported tax-free as well from oversees. After several years of analysis. based on many cases, I have come to a conclusion that the system cannot by fixed by either lower or higher taxes, but only bu abolishing corporate taxes altogether and instead abolishing corporate taxes altogether, which does away with double taxation, and will allow full taxation of dividends and capital gains. That shift will take care of the majority of the loss from the low revenue already collected from corporations, and make the load on US-based corporations equal to that of multinationals that manipulate valuations of intellectual capital.

I would like to see a corporate tax rate of zero percent. In exchange, lets put the individual rates back where they were in 1951, as adjusted for inflation.

The tax debate goes around in circles more often than electrons circle the nuclei of atoms.

Taxing income is fundamentally flawed, whether it's corporate income or individual taxpayer income. As long as we tax income, we'll be in trouble. Why? Because to tax income, Congress has to "define" taxable income. And the process of defining taxable income is where the trouble lies, since Congress and tax lobbyists of all stripes are locked lovingly and profitably in the dance of definition.

The U.S. needs to dump the federal income tax system and the IRS, and replace them with a simple, transparent flat tax on consumption (not income), that has provisions which protect the poor and middle class from the naturally negative aspects of a consumption tax. The Fair Tax Act (HR 25, S155) accomplishes all those things.

Opposition to the Fair Tax -- or any system that is simple, transparent and avoids taxing income -- is tremendous. The Republicans who sponsor the Fair Tax Act don't really want to see it passed (otherwise, why hasn't it ever been moved from the Ways and Means Committee to the floor for a vote?). Enacting the Fair Tax would strip Congress of tremendous bargaining power over tax legislation.

But, the Fair Tax would be a tremendous benefit for the nation. Let's just give up all discussion of "revising" the federal income tax system. It ain't going to happen. The only solution is a drastic change to simplicity and transparency.

High corporate tax rates create incentives for companies to re-invest income into productive uses: infrastructure, expansion, hiring, R&D, capital upgrades (all with dynamic multiplier effects). Low corporate tax rates stimulate savings and payments to affluent executives and investors (resulting in very little multiplier effect).

Higher corporate tax rates are "job-creators." Lowering taxes is bad for the economy.

With credits for foreign tax payments, multinationals are NOT paying double taxes. If they didn't pay taxes over there and brought the profits back to the US and were taxed, that's being taxed only once. Would Christie want such profits to be entirely un-taxed, providing an economic lift in the foreign economy (in respect of economic activities generating the profits) and virtually none at all in the US?

Apparantly Mr. Christie would like to take a tax write-off for that fortune he was reported to have spent on stadium food so he would like to change the tax laws.

I always hear moaning about corporate taxes, but nothing about individual taxes which are not fair to expatriate Americans.

Does Mr Christie and other elected officials of his ilk want reform? Their proposals seem to be aimed more at tweaking the system to profit their cronies and thereby themselves.

Many of these "tax havens" are also "legal havens" with unidentifiable company ownership or representation and no attempt to prevent money-laundering, illegal investment... These include a number of US states whose legislatures apparently find an interest in promoting anonymous companies - Who benefits from the “crime”? Is it commercial or personal interest?

When Barro writes that "foreign profits" aren't taxed in the U.S., what Barro means is "foreign source income" isn't taxed in the U.S. What is foreign source income? If a company manufactures a product in another country, that's foreign source income. What if a company puts a patent in a file drawer located in another country and allocates much of it's income to the file drawer, is that foreign source income?

This on top of Christie's plan to reduce the corporate rate to 28%, and copying other aspects of Romney's plan.

Corporate and individual tax rates should be restored to what they were in the much-vaunted, bucolic, idolized '50s under GOP'er Eisenhower.

Corporate taxes and higher rates on the CEO/hedge fund class fund infrastructure investments like Positive Train Control for Amtrak.

The United States and in particular some foolish states: Delaware, Nevada, Wy., and Florida have no rules on setting up shell companies. These legal entities can be used to park corporate assets like income producing patent in tax havens like Cayman Islands or Bermuda.

If Christie really wanted to reform the tax code he should be calling for regulations on sheel companies and tax havens.