I have no problem with corps investing funds in whatever place makes business sense to invest. What I am pointing out here is something which was build into a system, in this case the tax code, that makes a business more profitable selling to the US when it is located outside the US as an artificial product of US policy, as opposed to say, the cheap price of labor drawing manufacturing jobs.
Ok. So we both agree that the way the US tax code is currently written has a harmful effect on US domestic productivity.
This is the tax code as it exists today. Previously this was not the tax code.
Previously, being when? You make it sound like you want to blame someone for it, but are unspecific about who did this and when. The reality is that it was a series of changes made over time, mostly intended to encourage foreign corporations to invest in the US (so to get Toyota to build their cars here, for example), but with the negative side effect we're talking about today.
My question is, do you prefer this aspect of the current incarnation? I color this question with the fact that it was a change lobbied for to, and then pushed through by the GOP.
No. I don't prefer it (although as I've pointed out, it's a bit more complex than a simple "yes/no" answer can give). And you are blaming one group, incorrectly IMO. You'd need to provide more than just your own statement that it's a "fact" to convince me of this. Surely, you aren't suggesting that US corporations actually lobbied for a tax system which penalized them? That seems kinda silly, doesn't it?
It's not a "The tax code is poorly written, so corps can work around it" It's "The tax code is poorly written, because the corps rewrote it, and thus built these backdoors into it."
Ah... You are making exactly that silly claim. So they lobbied for tax code so they'd have to lobby to make loopholes around that tax code? That seems kinda counterproductive, doesn't it? Wouldn't they have just lobbied to not have the penalizing tax code put in place from day one? Doesn't it seem more likely that political forces opposed to big business (like say Democrats), put the tax code in place, and businesses lobbied to get loopholes put in as a defense against that code? Makes more sense that way, doesn't it?
I understand that it's a complex problem for multiple reasons, not the least of which is that most who would take the time to understand what it means is probably taking advantage of it, so therefore has no reason to change it.
I really think you're underestimating the fact that competing political ideologies will result in legal code which does one thing but has loopholes allowing those things to be avoided. Occam's Razor and all of that. If the corps truly had the kind of influence you suggest, they'd have just had the code written to not tax them for economic activity in the US at all. Certainly, they'd have just eliminated corporate taxes entirely so as to not have to bother with the effort and expense of creating dummy corps to shuffle money around so as to avoid the taxes. Right?
You could flip that around and argue that the current US tax code hurts solely US based and operating corporations and attempts to harm those which operate multinationally in the same way. This is why some of us think our corporate tax code in the US is poorly managed and short sighted.
By harming MNCs do you mean making them pay taxes on their allotted share of wealth?
No. By harming them, I mean making them pay more taxes than their activities in the US should warrant.
If you do not tax them, but tax others, it means other corps and residents take the hit instead. This isn't a question of size of governance, but a question of burden of governance. So you don't take this the wrong way, size is irrelevant to a proportionate percentile.
I think you're missing my point. If instead of attempting to tax 100% of all corporate income earned by any US based corporation, which then forces those corporations to "hide" their income offshore in order to avoid the taxes, we instead only taxed them based on their economic activity in the US, we'd actually collect more taxes than we do right now. The US tax code creates an "all or nothing" effect for US corporations. They have to hide their income or else pay taxes even for income earned elsewhere. For corporations which operate in multiple countries, this is sufficiently expensive that they'll expend the effort to work around it.
The result is that the US often collects zero taxes
from corporations. Which is less than they could have collected if we had a more reasonable corporate tax system. Are you getting this yet? You have to accept the fact that quite often, if you raise taxes too high, or make them too unreasonable, you'll actually collect less taxes than if you made them more moderate and/or reasonable. People don't spend much effort avoiding taxes that are reasonable. When they're unreasonable, they'll spend the effort, and once they spend the effort to avoid taxes, they're going to avoid paying all of them, not just the unreasonable portion.
No, I'm not addressing taxes on profits generated in other countries. I'm actually on the side of corps on that one, except in situations where they aren't actually generated in other countries, but rather complex paper valuations where those profits actually came from the US but have been shifted elsewhere.
Yes, but do you understand that because the only way for corporations to avoid paying unreasonable taxes on profits generated in other countries is to expend the effort in those complex paper shuffling operations, that once that cost/effort has been expended they can also use those same methods to avoid paying their "fair share" of taxes on profits generated in the US. One causes the other to happen.
Think of it this way: Let's imagine you have a local transit system. People can buy a bus/train/trolley ticket for whatever distance they're traveling and it's reasonably priced. Let's imagine that for many people this is less expensive and more convenient than owning a car. Now, imagine if the city arbitrarily decides to radically increase the cost to buy a ticket for any trip farther than 5 miles. So you can still buy a relatively inexpensive ticket to get to work, or the nearby shops, but it'll cost a ton to travel across town to visit your relatives, or whatever. Now, you might consider buying a car, so as to make those longer trips more cost effective, right? But once you buy a car, you might start using it to make those shorter trips too. Once you've spent the money to buy a car, you're going to tend to use it instead of taking the bus or train. As a result, total revenue from bus/train tickets will go down.
Same deal here. Once a corporation makes the decision to set up the mechanism to move profits made internationally into areas which can't be taxed by the US, why not use the same system to hide profits made domestically as well? They would not have done this in the first place if it weren't for the unreasonable and unfair taxes the US is trying to collect. But once they've taken those steps, it would be kinda foolish not to use them to avoid paying their fair share of taxes in the US as well.
That's the problem with the "all or nothing" system the US has set up for US based corps. You can't blame the players for playing according to the rules you created. We set up the rules which basically force the corps to do this. Why blame them?
I'm discussing the scenario where a company generates profits in the US and shifts those profits to other locations via holding companies typically places with the lowest tax rate for the held asset class. They then pay cycles costs to those companies and then only actually pay taxes on the profits by those secondary corps to other governments, and at lower tax rates.
Yeah. I know. That's what I'm talking about as well. I'm just going a step farther and addressing why
the corporations do that in the first place. Taxing them more isn't the solution here.
For example, Company A builds cell phones in the US. They pay taxes on this. Company B builds cell phones in SEA country D, but sells cell phones in the US, via company C which is they also own. Company C turns very little profit, because all of that is shifted to company B. Company B pays SEA country D taxes on the lions share of the profits, and only that other small portion is taxed by the US.
Again, ask yourself why they go through those hoops. It's because of the way the US taxes US based corps. Change that system, and they'll have no reason to do this, and we'll collect our "fair share" of taxes.