Quotulatiousness

June 16, 2013

Latest installment of the corporate tax crusade

Filed under: Britain, Business — Tags: , — Nicholas @ 10:16

In Forbes, Tim Worstall explains why a company that has paid full corporate taxes on its income has no further legal or moral obligation to pay more:

Read that through again: they’re saying that the company has already paid full corporation tax on that money. And we don’t tax dividends going to people in foreign countries. Whatever the tax rate is there, we simply don’t tax them. Because of course that’s up to the country where the money goes to to tax: it’s not actually something that is taxable in the UK. For, obviously, they’ve already paid the full corporation tax due.

But it does actually get better. Those dividends, paid out of post tax (and do please note, post tax) profits wouldn’t be subject to further corporation tax in the UK either:

    The general rule is that dividends paid by a UK company to another UK company out of post-tax profits are exempt from further taxation.

That the recipient corporation is in the British Virgin Islands thus makes not one whit or iota of difference to the amount of corporation tax payable. So this is all really a rather strange complaint. Perhaps the newspaper has just got caught up in the frenzied atmosphere over the subject.

[. . .]

As to why this story is being blown up allow me to offer some speculation. There’s a group of people who are quite vociferous in their demands that the corporate tax system must be radically changed. Richard Murphy (who just for complete disclosure, used to write here at Forbes) is one of the leading lights of that group. Various members of the loose knit group have been behind all sorts of claims about Vodafone, Boots, Starbucks, Google, Apple and a number of other companies. The problem with the claims is that none of them have really stuck. There’s been absolutely no finding of illegality anywhere.

The claim has thus moved onto, well, OK, so it’s not illegal: all of these companies are indeed obeying the law. But we still don’t think they’re paying enough tax. Therefore the law must be changed simply because we think they should be paying more tax. Which is, when you think about it, a fairly extreme claim. Companies should pay more tax because a group of 20 or so people demand that they should be doing so?

June 14, 2013

QotD: Tax avoidance

Filed under: Business, Law, Quotations — Tags: , — Nicholas @ 09:08

The claim that tax avoidance is immoral is an attack on the very notion of private property. It is, as it were, to say that all money belongs to society collectively, and “we” have an intention as to how much you get to use yourself and how much goes to the state, and if you avoid tax you end up using more of society’s collective money than it intended for you to use. Tax avoidance then becomes a kind of theft. But if my property is fundamentally mine, a tax is an impost, a legal requirement for me to surrender some of my property. Provided I do that, I have behaved perfectly properly. If the overall consequence is that I do not pay what would be regarded as a fair tax contribution, either tax law should be modified, or I could be persuaded that I had a moral duty to make an additional free-will tax contribution.

Andrew Lilico, “Companies have a moral duty to pay no more tax than legally required”, The Telegraph, 2013-06-14

June 10, 2013

Happy Tax Freedom Day

Filed under: Cancon, Economics, Government, Liberty — Tags: , — Nicholas @ 12:29

Today is the day that Canadians start earning money for themselves, having worked the year up to this point to pay for our various levels of government:

Tax Freedom Day, the day Canadian families have made enough money to pay off the total tax bill levied by all levels of government, falls on Monday, June 10 this year, according to the Fraser Institute’s annual calculations.

Tax Freedom Day arrives two days later than 2012 when it fell on June 8.

“Canadians are waiting an extra two days to celebrate Tax Freedom Day partly because governments across the country continue to increase taxes in an effort to make up for their overspending and deficits,” said Charles Lammam, Fraser Institute associate director of tax and budget policy and co-author of Canadians Celebrate Tax Freedom Day on June 10, 2013.

“What’s worse, some governments are relying on the most damaging types of tax increases including higher tax rates on personal income and investment, which will ultimately discourage economic growth.”

Among the tax increases announced so far are hikes to BC’s corporate income tax and top personal tax rate as well as its Medical Services Plan premiums; a new top income tax bracket in Quebec; increases to Manitoba’s Provincial Sales Tax and financial corporate capital tax; increases to New Brunswick’s corporate income tax and all four personal income tax rates; increased taxes on small businesses in PEI; cancellation of a corporate tax decrease in Saskatchewan; and increased Employment Insurance premiums federally.

Tax Freedom Day also comes later this year because Canada’s progressive tax system imposes a higher tax burden on families as their incomes increase.

You can use the Fraser Institute’s Personal Tax Freedom Day calculator to find your own tax freedom day here.

May 27, 2013

Toronto’s mass transit planners go for the wallet

Filed under: Cancon, Government — Tags: , , , — Nicholas @ 09:19

680 News is reporting on the latest attempt by Metrolinx to fund their mass transit pipe dreams:

Metrolinx is asking drivers to pay more to fund transit expansion across the Greater Toronto and Hamilton Area (GTHA).

The transportation agency handed over its funding report to Queen’s Park on Monday.

The 25-year, $50-billion Big Move plan includes:

  • 1 per cent increase to HST (generating $1.3 billion/year)
  • 5-cent/litre gas tax (generating $330 million/year)
  • Parking space levy (generating $350 million/year)
  • 15 per cent development charge

Metrolinx CEO Bruce McCuaig said that will generate $2 billion annually for the transit expansion plan.

“Metrolinx is recommending that we have dedicated funds,” he said.

“We are also recommending that these funds be placed into a transportation trust fund to create certainty that The Big Move projects are delivered and to provide the accountability and transparency GTHA residents demand and deserve.”

Someone really should do a version of “The Monorail Song” from The Simpsons for the light rail fan club in Toronto.

QotD: Two lessons from Calvin Coolidge

Filed under: Government, History, Quotations, USA — Tags: , — Nicholas @ 00:01

I managed to talk for more than 15 minutes, but I could have boiled my remarks down to these two points.

  1. Small government is the best way to achieve competent and effective government. Coolidge and his team were able to monitor government and run it efficiently because the federal budget consumed only about 5 percent of GDP. But when the federal budget is 23 percent of GDP, by contrast, it’s much more difficult to keep tabs on what’s happening – particularly when the federal government operates more than 1,000 programs. Even well-intentioned bureaucrats and politicians are unlikely to do a good job, [...]
  2. Higher tax rates don’t automatically lead to more tax revenue. Coolidge and his Treasury Secretary practiced something called “scientific taxation,” but it’s easier just to call it common sense. Since Amity’s book covered the data from the 1920s, I shared with the audience some amazing data from the 1980s showing that lower tax rates on the “rich” led to big revenue increases.

Dan Mitchell, “Two Lessons from Calvin Coolidge”, International Liberty, 2013-05-26

May 26, 2013

Putting the Gibson Guitar raids into context

Filed under: Bureaucracy, Law, Politics, USA — Tags: , , , , — Nicholas @ 11:06

Remember back in 2011 when the US government raided Gibson Guitars for alleged violations of Indian law? (Posts here, here, here, here, and here.) Now that we’re learning much more about the IRS witch hunt for Tea Party organizations, Investor’s Business Daily points out that the Gibson raids now make sense:

Grossly underreported at the time was the fact that Gibson’s chief executive, Henry Juszkiewicz, contributed to Republican politicians. Recent donations have included $2,000 to Rep. Marsha Blackburn, R-Tenn., and $1,500 to Sen. Lamar Alexander, R-Tenn.

By contrast, Chris Martin IV, the Martin & Co. CEO, is a long-time Democratic supporter, with $35,400 in contributions to Democratic candidates and the Democratic National Committee over the past couple of election cycles.

“We feel that Gibson was inappropriately targeted,” Juszkiewicz said at the time, adding the matter “could have been addressed with a simple contact (from) a caring human being representing the government. Instead, the government used violent and hostile means.”

That includes what Gibson described as “two hostile raids on its factories by agents carrying weapons and attired in SWAT gear where employees were forced out of the premises, production was shut down, goods were seized as contraband and threats were made that would have forced the business to close.”

Gibson, fearing a bankrupting legal battle, settled and agreed to pay a $300,000 penalty to the U.S. Government. It also agreed to make a “community service payment” of $50,000 to the National Fish and Wildlife Foundation — to be used on research projects or tree-conservation activities.

May 25, 2013

Ireland’s corporate tax rate

Filed under: Business, Economics, Europe — Tags: , , — Nicholas @ 08:01

At the Adam Smith Institute, Tim Worstall explains why Ireland has — and should continue to have — a low rate of corporate tax:

Companies don’t pay corporation tax: it’s some combination of the shareholders and the workers who do. This is not a point in argument: the only argument is about what the portions are, not the fact that the burden falls upon these two groups. We also know what it is that influences which group: it’s how large the economy is in relation to the world economy and how open it is to capital movement. The smaller and more mobile, the more the workers get it in the neck.

The mechanism is simple enough. It’s pretty much straight from Adam Smith in fact. There’s an average rate of return to capital: a jurisdiction that taxes that return to capital will have a return lower than that global average. So, some domestic capital will flow out seeking the higher foreign returns, some foreign capital will not flow in for the lower domestic ones. There’s thus less capital employed in the economy. Adding capital to labour is what drives up the productivity of labour: the average wages in a country are determined by the average productivity in that economy. So, tax companies, get less capital employed, wages are lower than they otherwise would be. The workers are bearing part of the burden.

As I say, the smaller the economy and the more open it is then the more of that burden is upon the workers. And in a wonderful result back in 1980 Joe Stiglitz showed that the burden upon the workers can actually be more than 100%. That is, the workers lose more in wages than the government gets in tax.

Ireland’s a small economy, 3.5 million people or so and as it’s in the EU has about as close to perfect capital mobility as it is possible to get. Thus it ought to have a lower corporation tax rate than larger economies. And it does, so that’s just fine then. Attempts to push it up (as various EU types are currently muttering) would simply lower wages in that country.

May 21, 2013

Apple and the question of profit shifting

Filed under: Business, Government, USA — Tags: , , , — Nicholas @ 09:23

Tim Worstall explains why both Apple and the Senate Permanent Subcommittee on Investigations can both be correct on the question of profit shifting — because the term’s meaning isn’t consistent:

Apple divides itself, roughly speaking, into two segments. The Americas and everywhere else (not that unusual for a US company, actually). Apple’s point is that it makes profits in the US selling things to people in the US. All profits from doing this pay the full US corporate income tax minus the usual deductions and allowances that every company can take advantage of.

Apple also points out that it makes the majority of its profits selling things outside the US to people who are not Americans. The iPhones are made in China and sold in Europe, just as one example. These profits are made outside the US: and Apple does not bring them into the US. Thus such profits are not liable to US corporate taxation (it is more complex than this but that’s the gist of it).

However, the Senate doesn’t use that commonsense definition of the phrase:

The Subcommittee is agreeing that these are profits made in foreign countries. Profits made by buying something in China and selling it outside the US. These profits are then not repatriated to the US. This is then deemed to be profit shifting.

It’s worth noting what everyone does agree upon.

Apple makes large profits in the US. These pay full US corporate income tax.

Apple makes large profits outside the US. These are kept outside the US and do not pay US corporate income tax.

And so the question becomes, what is the definition of profit shifting? If we take Apple’s definition, that they do not move profits out of the US, then they’re not profit shifting. If we take the Subcommittee meaning then they are. For without the corporate structures that Apple has put in place then those foreign profits would be subject to the US corporate income tax (minus, of course, the foreign taxes already paid).

Update:

Update, the second: The Register‘s report on the Irish side of the “profit shifting” story:

Irish deputy PM: You want more tax from Apple? Your problem, not ours
Póg mo thóin, you crazy Yanks

May 4, 2013

Ron Paul on the so-called “Marketplace Fairness Act”

Filed under: Business, Economics, Government, USA — Tags: , , , , , , — Nicholas @ 09:28

As you probably guessed, he’s against it:

David French, Senior Vice President of the National Retail Federation, the major industry group lobbying for the so-called “Marketplace Fairness Act,” (more aptly named the “National Internet Tax Mandate”) recently commented that “…the law [governing Internet sales] today is a 20th-century interpretation of an 18th-century document…” Mr. French’s comments are typical of those wishing to expand government power beyond the limits established by the United States Constitution.

[. . .]

The National Internet Tax Mandate overturns the Supreme Court’s 1992 Quill v. North Dakota decision that states can only force businesses to collect sales tax if the business has a “physical presence” in the state. Quill represented a rare instance where the Supreme Court properly interpreted the Commerce Clause. Thanks to the Quill decision, the Internet has remained a tax-free zone, though some states require consumers to later pay taxes on products they purchased online. This freedom has helped turn the Internet into a thriving and dynamic sector of the economy, to the benefit of entrepreneurs and consumers.

Now that status is threatened by an alliance of big business and tax-hungry state governments seeking new powers to force out-of-state business to collect state sales taxes. Far from updating the Constitution to fit the needs of the 21st century, the National Internet Tax Mandate is a throwback to 18th century mercantilism.

The National Internet Tax Mandate will raise the costs of doing business over the Internet. Large, established Internet companies, such as Amazon, can absorb these costs, whereas their smaller competitors cannot. More importantly, the Mandate’s increased costs and regulations could prevent the creation and growth of the next Amazon.

This is why cash-rich Apple is borrowing money on the bond market

Filed under: Business, Economics, USA — Tags: , , — Nicholas @ 09:20

In one word, taxes:

What a crazy world. Apple, a company with $145 billion of cash, is issuing some $17 billion of debt to buy back its own shares. Why doesn’t it just use its cash to do the same thing? First, because a lot of that cash is overseas, and bringing it back to America would incur a tax charge. Second, because interest rates are low and debt interest is tax-deductible, making this look a great arbitrage.

But think of it from the point of view of the hard-working American taxpayer. Apple’s money will still sit overseas and not be invested at home to create jobs. Apple’s tax bill will fall, as it offsets the interest payments against its profits. The buy-back will probably push up the share price in the short term, boosting the value of executive options; profits from those options will probably be taxed at the long-term capital gains tax rate of 15%, lower than the rate many workers pay. Organising a bond issue, rather than using a company’s own cash, incurs costs in the form of fees to bankers on Wall Street; the same bankers taxpayers helped support five years ago.

Tax “competition” is a feature, not a bug

Filed under: Government, USA — Tags: , , , — Nicholas @ 08:49

At the Adam Smith Institute blog, Tim Worstall explains that Adam Smith was right about conspiracies to raise prices, especially when we look at governments:

Imagine that you don’t like the taxes that are being imposed upon you. No, go on, just imagine. You as an individual voter don’t actually have much influence over this. Which is why that option of exit is so important. The ability to simply say “The hell with you lot” and leave. We should note that there are very definitely some campaigners who insist that that exit route should be closed off. As, largely, it already is for US citizens. They can leave the US, certainly, but find it very difficult indeed to escape the clutches of the IRS.

Mitchell’s also making a very good Smithian point there. It is indeed true that once businessmen have gathered together for that conspiracy against the public then it is indeed competition from alternative suppliers that is said public’s only method of beating the conspiracy. And so it is with government: we can only preserve a modicum of freedom (and a modest portion of our wallet) if we are indeed free to choose among competing providers of those governmental services.

Which is what much of the conspiracy among governments is all about: seeking to deny us that exit, that protection from their monopoly.

April 27, 2013

The misplaced outrage over Amazon’s tiny tax bill in the UK

Filed under: Britain, Business, Economics, Europe, Media — Tags: , , , , , — Nicholas @ 08:40

Tim Worstall explains that the current efforts by various campaigners including Stephen Fry are not only a waste of time and effort, but betray a fundamental misunderstanding of how the EU is set up:

There are several points that could be made. One being that selling to Brits from Luxembourg is not tax dodging, it’s exactly what the EU intends the Single Market should be. A, umm, single market across 27 countries. A second might be that even if we start to whine about UK warehouses, tax is still not due here. Our double taxation treaty with Luxembourg means that such warehouses do not lead to tax being due. And that’s from 1968 or so when Wilson ruled: it’s also a standard part of all double taxation treaties and for good reason.

(For example, the metals trade uses warehouses in Rotterdam as the point at which a contract is concluded. The cut flowers business warehouses in a small village near Schipol. Should Holland get all the tax from the world’s metals and flower businesses? Or should everyone be taxed where they really are, not the warehouses?)

But there’s much worse than this. We’ve had the Margaret Hodges screeching that we’re talking about immoral, not illegal. The TJN and other fools similarly scream about how awful it is that people can do business without paying tax. And it is precisely all of this activism that leads these gentle booksellers to spend their year collecting signatures. To absolutely no avail whatsoever.

For in the year they are complaining about, last year, 2012, Amazon did not make a profit. A $39 million loss in fact according to their accounts. It’s simply not true that “tax dodging” by Amazon is leading to the crucifixtion of the independent book shop. That’s a lie that’s been foisted upon people by the obfuscations of the campaigners.

April 25, 2013

Populist talk on taxes may please the voters (sometimes), but it won’t help the economy

Filed under: Cancon, Economics, Government, Politics — Tags: , , — Nicholas @ 00:01

In Maclean’s, Stephen Gordon explains why the only kind of tax hikes that seem in any way “popular” are particularly bad if implemented:

Magical thinking might be smart politics, but it’s not very good economics. Here are the two most popular themes:

  1. Higher corporate income taxes. From a political marketing point of view, the appeal of increasing corporate income tax (CIT) rates is obvious: “Hey, I’m not a corporation, so it’s no skin off my nose.” But the economics of CIT rates are very dodgy indeed: higher CIT rates are the most costly way of generating revenue and are most harmful to economic growth. It also turns out that workers and consumers are the ones who ultimately bear the burden of higher CIT rates. (If you start taxing corporate profits, shareholders will eventually move their money to jurisdictions with more competitive rates, reducing the availability of investment capital. In the long-run, that results in lower output and weaker labour demand. More on that here.) But even if you were willing to pay these costs, higher CIT rates don’t generate much in the way of new revenues.
  2. Increased taxes on high earners. While there may be good reasons for wanting to use the personal income tax system to counter recent trends in the concentration of income, policymakers should be under no illusions about how much new revenue taxing the rich will bring in. There simply aren’t that many high earners to tax, and they have access to expert tax planning advice: there is overwhelming evidence showing that those with high incomes can and will respond to higher tax rates by reporting lower taxable income.

April 24, 2013

Tax day is approaching…

Filed under: Cancon, Government, Humour — Tags: — Nicholas @ 13:11

April 16, 2013

The anti-libertarian legacy of Margaret Thatcher

Filed under: Britain, Government, Law, Liberty — Tags: , , , , , — Nicholas @ 09:31

Sean Gabb explains why Thatcher should not be considered in any way “libertarian”:

She started the transformation of this country into a politically correct police state. Her Government behaved with an almost gloating disregard for constitutional norms. She brought in money laundering laws that have now been extended to a general supervision over our financial dealings. She relaxed the conditions for searches and seizure by the police. She increased the numbers and powers of the police. She weakened trial by jury. She weakened the due process protections of the accused. She gave executive agencies the power to fine and punish without due process. She began the first steps towards total criminalisation of gun possession.

She did not cut government spending. Instead, she allowed the conversion of local government and the lower administration into a system of sinecures for the Enemy Class. She allowed political correctness to take hold in local government. When she did oppose this, it involved giving central government powers of supervision and control useful to a future politically correct government. She extended and tightened the laws constraining free speech about race and immigration.

Her encouragement of enterprise never amounted to more than a liking for big business corporatism. Genuine enterprise was progressively heaped with taxes and regulations that made it hard to do business. Big business, on the other hand, was showered with praise and legal indulgences. Indeed, her privatisation policies were less about introducing competition and choice into public services than in turning public monopolies into corporate monsters pampered by the State with subsidies and favourable regulations — corporate monsters that were expected in return to lavish financial rewards on the political class.

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