This graph made me think:



GE recently came under fire for the fact that they used tax tricks to make their US earnings appear as foreign earnings and pay no taxes last year, more or less.

Look, I get the argument that we have to lower tax rates in order to be competitive or else have companies incorporate other places. I'm not interested in arguing that. I'll go ahead and admit that the tax code is complicated beyond my comprehension, but what I'm concerned about is if we've lost the ability to compensate for things like cutting the corporate tax rate with other tax policy.

We pretty much don't do tariffs anymore, right? That word is politically toxic, it must not be spoken. Isn't that a problem? Doesn't that take away any leverage we have to get a company to produce here unless we lower the corporate tax rate?

Ok, so I'm not stupid, and I know international tax law is complicated. This is my world view when it comes to the international business scene:

Companies are:
- Private enterprises
- Corporations

Production is domestic or foreign, and so are sales. How do you define what profits are domestic vs. foreign? Heck if I know. Corporations, however, do have somewhat of a higher tax burden over private enterprises due to the corporate tax, as long as the private enterprise can label its income as capital gains, which I don't know if it can or not.

Stock options, are basically theft from Uncle Sam. What happens is that you make a lot of money, so you say to yourself "I'm going to put lipstick on that pig", and change it to equity and only pay capital gains on it like it was never income. This is what all CEOs do. Granted, the stock had the burden of corporate tax to begin with. So yes, that may under-represent the tax burden of the rich, but the rest of us suckers are competing in the capital markets after paying regular income tax, social security, etc. on our savings.

I guess what I'm trying to say is that we have lost the ability to protect domestic industries because it would be seen as protectionist, while we've also lost the ability to levy increased taxes on the rich. On top of that, in addition to the US markets are becoming increasingly irrelevant for our largest companies as a matter of the economy, they are finding it increasingly lucrative to relocate operations to places that hit the floor with their corporate tax which is really just a dressed up way to disadvantage US companies because the rest of the tax code in those nations is not congruent.

What say the rest of you?

3/28/2011 5:59:10 PM

taxes should be slashed
spending should be slashed

You raise/keep high taxes, companies, as they are, will move elsewhere. the rah-rah-liberal-high taxes-fuck the businessman bullshit will run any country into the ground.

3/28/2011 6:03:09 PM

Quote :

"taxes should be slashed spending should be slashed"

Which taxes?

3/28/2011 6:14:47 PM

Corporate and capital gain taxes should be slashed. I would also like to run an experiment where-by federal income taxes are returned to the states in blind block grants in proportion to population. Alas, spending must be cut, and depriving the rich of free healthcare and a SS check is beyond our political will, so no taxes can be cut.

3/28/2011 6:22:50 PM

^^every single tax out there.

3/28/2011 7:00:45 PM

You know that taxes do more than just take you money right?

Taxes disincentive certain activities and therefore favor others. Taxes make it harder for you to get hired for the sheer paperwork alone and increase the time you'll spend between jobs by decreasing the liquidity of the job market.

Taxes can crush a domestic industry that otherwise would have been strongly competitive if you just levied the nation's average tax rate on its income flow, and at the same time it creates entirely new industries out of thin air.

Taxes completely warp the economy, it pushes, pulls, demolishes, and creates empires.

I actually have no problem with taxes, or even the level of spending we're at. I have a problem with the tax code.

3/28/2011 7:16:06 PM

Quote :

"Stock options, are basically theft from Uncle Sam."

How so?

3/28/2011 7:57:01 PM

yeah, I don't get that statement either.

Quote :

"We pretty much don't do tariffs anymore, right? That word is politically toxic, it must not be spoken. Isn't that a problem? Doesn't that take away any leverage we have to get a company to produce here unless we lower the corporate tax rate?"

Tariffs are fucking stupid. The rare instance when we use them shouldn't be to shelter domestic production, but to penalize foreign countries who may have unfair trade practices. Even then I don't know if it would be a good idea, or if there are better ways to tackle it.

3/28/2011 8:23:47 PM

Quote :

"We pretty much don't do tariffs anymore, right?"

Oh, we have them. They're quite small relative to past levels, but they exist, as do their equally stupid cousins like quotas and subsidies, which are designed to do the same things that tariffs do, which cost us money as both consumers and taxpayers and which frequently prop up the most absurd industries. Sugar is my favorite example. This country has approximately zero land suitable for sugar production, but some ninnies way back when set up some plantations anyway and ever since they've managed to convince congress to restrict sugar imports through various means, with the result that we pay more for sugar than pretty much anybody else.

Quote :

"Production is domestic or foreign, and so are sales."

In a lot of cases, production and consumption are both foreign and domestic. It's a massive clusterfuck for taxation purposes, as you suggest.

Quote :

"Tariffs are fucking stupid. The rare instance when we use them shouldn't be to shelter domestic production, but to penalize foreign countries who may have unfair trade practices."

Agreed.

[Edited on March 28, 2011 at 8:30 PM. Reason : ]

3/28/2011 8:28:56 PM

Quote :

""Stock options, are basically theft from Uncle Sam." How so?"

People who get stock options (given certain assumptions) only pay the flat capital gains tax. It's a way for the rich to not pay income tax.

Quote :

"Tariffs are fucking stupid. The rare instance when we use them shouldn't be to shelter domestic production, but to penalize foreign countries who may have unfair trade practices. Even then I don't know if it would be a good idea, or if there are better ways to tackle it."

So are you just ok with more polluting factories in China driving their counterpart in this nation out of business? I agree there are other ways to correct for this, but we're not doing anything to address that problem right now. And yes, that is wrong.

3/28/2011 8:40:28 PM

Quote :

"So are you just ok with more polluting factories in China driving their counterpart in this nation out of business?"

Pretty much, yeah.

Let's face some realities here. We are not a labor-intensive country. We have every type of capital in spades, but labor, not so much. And the labor we've got has worked very hard to make itself very expensive. Some industries in this country are toast, and no protectionist policy is going to revive them. And do we even want to revive them? Do we want to expend resources sustaining moribund industries that do little to develop our human capital? I, for one, don't feel that this country has a huge need for assembly-line guys placing the same rivets into the same frames for their entire careers and getting exorbitant pay and benefits for their work. I would rather be able to afford to buy things. It doesn't help that my career options are not protected by tariffs. My pay doesn't go up, just my costs.

Are you OK with paying dramatically higher prices for everything you buy? Are you OK with subjecting the entire US economy to big dead-weight losses that nobody recoups? Are you OK with violating our international agreements involving trade?

As to the pollution...trade barriers are not the solution. Trade barriers make us all poorer and nobody every developed cleaner energy or manufacturing processes by being poor.

3/28/2011 9:39:55 PM

The Y-axis of that graph is all fucked up. Also, this shows the "official" corporate tax rate, but due to accounting tricks, loopholes and the fungibility of international corporate assets, very few companies pay anywhere close to the 39% rate.

But yeah, neoliberalism has swept the globe and it's time to slash the corporate tax rate to bring it in line with the rest of the developed world.

3/29/2011 12:42:27 AM

Quote :

"People who get stock options (given certain assumptions) only pay the flat capital gains tax. It's a way for the rich to not pay income tax."

so only the rich get stock options? interesting.

3/29/2011 7:03:05 AM

Quote :

"The Y-axis of that graph is all fucked up. Also, this shows the "official" corporate tax rate, but due to accounting tricks, loopholes and the fungibility of international corporate assets, very few companies pay anywhere close to the 39% rate. "

Yes, that is the reality. But it is a terrible terrible terrible reality. That creates a comparative advantage for the companies that can maintain the massive accounting departments like what GE has in order to reduce the taxes paid.

I would support getting rid of the corporate tax and shift the burden somewhere else, just to get rid of that bull.

Quote :

"As to the pollution...trade barriers are not the solution. Trade barriers make us all poorer and nobody every developed cleaner energy or manufacturing processes by being poor."

But it's not ethical to let our businesses be shut down by counterparts that do nothing differently other than act less responsibly toward their neighbors and environment. That's fine that you think we should get rid of trade barriers - what other solution do you espouse to this problem that you have yet to disagree with?

Quote :

"But yeah, neoliberalism has swept the globe and it's time to slash the corporate tax rate to bring it in line with the rest of the developed world."

And THEN do what? How do we levy taxes (period) without loosing global competitiveness?

3/29/2011 9:23:54 AM

Quote :

"But it's not ethical to let our businesses be shut down by counterparts that do nothing differently other than act less responsibly toward their neighbors and environment."

That's not all they do differently. They also pay their labor jack shit, while our labor has spent the past hundred and fifty years demanding ever higher salaries and benefits packages. For many (probably most) industries this is a way bigger consideration than environmental regulations.

The solution I espouse is to do nothing, for several reasons:

1) China has already realized it has a pollution problem. A large share of protests in the country are related to environmental issues, plus even the most callous chicom bigwig doesn't like breathing in ass soup when he walks out the door every day.
2) Anything we do could backfire. Throw up a barrier? They might go even cheaper, reducing standards even further and treating workers worse, to compensate. Or they might fuck with their currency to make their shit cheaper.
3) You'd be an asshole to tell a country they can't get rich the same way every other rich country did, just because they showed up late to the party.
4) If your ethical concern is primarily about our own industries here, forget it. As I've said, environmental regulations are not the deciding factor here.

3/29/2011 9:41:23 AM

Quote :

"People who get stock options (given certain assumptions) only pay the flat capital gains tax. It's a way for the rich to not pay income tax."

Do you under stand how options work ?

To actually make a large gain on these, you need the stock of said company to he higher 5-10 years after the option grant, which means your 'income' is based solely on company market performance. So lets take a look at selling off your options this year
(prices given as today, 5 years ago, 10 years ago)
GE: 19.62, 34.78 ,41.86 (worthless)
BP: 44.75, 69.48, 49.62 (less worthless)
Wal-Mart: 52.20, 48.19, 39.52 (holy shit these are actually worthwhile options 4 dollars/share at 5 year or 13/share for ones granted 10 years back)

Market indexes (big picture style)
S&P 500: 1308.26, 1302.95, 1193.83 ( longer held options at companies that make up this index have some value, not so much for grants since 2006)
NASDAQ: 2737.56, 2312.82, 1928.68 (looks huge, if you take out Apple and Google its flat for 10 years, if you had stocks/options from the early 2000 years you made $Alaska)
Dow: 12207.04, 11279.97 10126.94 (trending upward but not at a meteoric rate, peaks at just over 14000, dropped under 7000 in the last 5 years, so depending on the date the stocks were priced they could be worth between less than nothing or $Texas).

[Edited on March 29, 2011 at 10:19 AM. Reason : t]

3/29/2011 10:18:46 AM

^ yep.

and stock options, upon exercise, are treated as ordinary income.

[Edited on March 29, 2011 at 10:42 AM. Reason : .]

3/29/2011 10:42:51 AM

^^ this is true, but you are ignoring the bigger picture. The CEO is given, effectively, a million dollars in stock as compensation, and not taxed on that. If the stock goes up, he pays taxes only on the increase in the value of the stock. So, he could, in theory, immediately sell the stock, and he just got a million dollar salary without being taxed. That is what people don't like.

3/29/2011 11:20:18 AM

Quote :

"Do you under stand how options work ? To actually make a large gain on these, you need the stock of said company to he higher 5-10 years after the option grant, which means your 'income' is based solely on company market performance. So lets take a look at selling off your options this year"

Correct but irrelevant to my point. I'm saying the rich are unfairly taxed less through stock option taxation laws. You're saying "but they're volatile". I'm not advising you to do stock options, they may likely remain a bad deal for you while still exasperating the inequity in the nation.

There are 2 sides to this coin. If stocks recently went down, that was equaled and surpassed by the boom times such that a net transfer of wealth to the rich at unfairly low taxation rates still occurs unabated.

Quote :

"and stock options, upon exercise, are treated as ordinary income."

Some are, others are not. Those that have the gains taxed as capital gains are nothing more than taking a multi-year interest-free investment loan from Uncle Sam (like a Roth IRA), sure. But when CEOs do pay income tax on the principle transferred to them in the first place, they use accounting tricks to mark it down to something other than market value. If they couldn't, the Forbes 400 would have someone paying a larger fraction of their income in taxes than their secretaries, contrary to what the Buffet Challenge established.

Quote :

"That's not all they do differently. They also pay their labor jack shit, while our labor has spent the past hundred and fifty years demanding ever higher salaries and benefits packages. For many (probably most) industries this is a way bigger consideration than environmental regulations."

Do you think that coal plants have comparative advantage due to the value of labor? Heck no. I completely agree that we should expect, and brace for, a revaluation of the world's economies based on a labor cost differential, which is great because it's a universal equalizer and will eventually afford dignity and a reasonable standard of living to the poor of the world.

For manufacturing of consumer products, China is afforded a huge comparative advantage due to labor costs, and good for them! But in terms of industrial scale energy and chemical production, get real. Labor costs matter very little in those areas, they're flexing a comparative advantage due to the fact they're compromising the health of their environment and citizens and we're buying it.

3/29/2011 11:23:31 AM

You're going to bring coal into this? The thing that accounts for half of our energy production, and that we gleefully rape the shit out of the environment to acquire? That we use so much that hydroelectric power accounts for 7% of our power (as opposed to 20% of China's)?

I'm also confused as to how Chinese energy production is putting Americans out of business. It's not like we can ship electricity over there or vice versa.

3/29/2011 12:05:16 PM

Quote :

"GE recently came under fire for the fact that they used tax tricks to make their US earnings appear as foreign earnings and pay no taxes last year, more or less."

It strikes me as ironic that Obama appointed the CEO of GE, Jeff Immelt, as the chairman of the "Council of Jobs and Competitiveness." How to be competitive? Get from underneath (through whatever means necessary) the massive burden of the federal government. If you can do that, or just do business in another country entirely, you have a much greater opportunity to succeed.

3/29/2011 12:59:55 PM

^^^^ If you are referring to RSU they are taxes as ordinary income the year they vest.

If you are referring to Restricted Stock that's grants to executives they can be reported and taxed 2 ways.

1) Declare at time of granting, pay ordinary income on that amount and then pay capital gains on any increase when sold after vesting

2) Option for an 83b and you pay ordinary income during the vesting year on the gains (vesting price - grant price * option amount).

So option 1 does have a tax advantage, however, in most cases if you leave the company, company goes under, stock looses value, etc you have paid tax on $$$ you never received.

In all the forms of options/grants/stock compensations i can think of Restricted Stock is about the only one where you can 'just pay capital gains' but that's mostly because your paying for capital freaking gains on the stock value increase of your grant. But there he's still paying ordinary income on the original stock value

[Edited on March 29, 2011 at 1:09 PM. Reason : ^]

3/29/2011 1:08:44 PM

nah, I'm talking about regular old NQSQ options, which I have thousands of that are underwater!

Yeah the RSUs they're giving out now are as you described.

but since mrfrog mentioned options, i wanted to clarify.

3/29/2011 1:22:39 PM

o know what you were talking about, i am trying to figure out what these untaxable stocks are because I've got an all-hands with my VP today and i want to ask for them

3/29/2011 1:24:08 PM

Quote :

"2) Option for an 83b and you pay ordinary income during the vesting year on the gains (vesting price - grant price * option amount)."

So, I keep hearing that employee stock options are commonly granted at prices lower than market rates or what they otherwise should be at. Of course, this is complicated by the fact that they can get preferred shares and stuff that isn't traded in the first place. On top of that, people complain about companies like Intel giving their employees reduced price shares while at the same time doing share buybacks (at market value) to meet analyst's per share projections.

But what's to keep a company from granting their executives stock options at artificially lower prices which reduces the principle that they have to pay income tax on?

Quote :

"I'm also confused as to how Chinese energy production is putting Americans out of business. It's not like we can ship electricity over there or vice versa."

Something like 30% of China's carbon footprint comes from industrial activities making junk for the rest of the world. California, on the other hand, has a very low carbon footprint and imports huge amounts of stuff.

Electricity can't be traded directly (otherwise we'd buy power from China's coal plants), but it's a cost of production and those with lower electricity prices are more competitive. I'm not trying to undersell the importance of labor.

I don't understand how, in your world view, a sovereign entity imposes regulations that are responsible and create a clean and healthy environment without become a resort/retirement land supported almost entirely by the industrial umbilical cord to locations that take no accountability for the environmental impacts of their industries. I'm asking you - tell me how that should work.

[Edited on March 29, 2011 at 2:08 PM. Reason : ]

3/29/2011 2:05:05 PM

Quote :

"So, I keep hearing that employee stock options are commonly granted at prices lower than market rates or what they otherwise should be at."

You're referring to option backdating. It's not very common, and often illegal if done intentionally to coincide with lower stock pricepoints to align them to "at the money" vs. "in the money", the former essentially being a tax-evasive measure, and illegal.

Quote :

"On top of that, people complain about companies like Intel giving their employees reduced price shares while at the same time doing share buybacks"

This is ESPP, and there are federal limits. The max discount is 15% of the share price, and the maximum an individual can purchase is 10% of their gross income. It's part of many companies' compensation packages, and with the tight regulations and availability to all employees, I see any complaints as jealousy... Some companies still give out company cars, many don't. same kind of deal.

Quote :

"But what's to keep a company from granting their executives stock options at artificially lower prices which reduces the principle that they have to pay income tax on?"

Again, with stock OPTIONS, you pay income taxes on the difference between the exercise price and the offer price.

Also, backdating is usually illegal when done in the way you are concerned about.

3/29/2011 2:40:46 PM

Quote :

"I don't understand how, in your world view, a sovereign entity imposes regulations that are responsible and create a clean and healthy environment without become a resort/retirement land supported almost entirely by the industrial umbilical cord to locations that take no accountability for the environmental impacts of their industries."

This sentence doesn't make a lot of sense to me; perhaps you could reword or clarify.

Quote :

"Something like 30% of China's carbon footprint comes from industrial activities making junk for the rest of the world."

Pollution is a byproduct of production. If California were the manufacturing center of the world, it'd be polluted as shit, too. No, you say, it would be cleaner, we have standards! Which is part of the reason why California isn't the manufacturing center of the world.

3/29/2011 3:16:58 PM

Quote :

"Pollution is a byproduct of production. If California were the manufacturing center of the world, it'd be polluted as shit, too. No, you say, it would be cleaner, we have standards! Which is part of the reason why California isn't the manufacturing center of the world."

We're both looking at the same problem and agreeing on something here.

It's complete bull that California has "cleaned up" by pushing manufacturing to other places. But what is the solution? It doesn't make sense to argue that developed nations should ease regulation, that just isn't going to happen and it doesn't make sense. Right now, instead of facing reality, the rich just have it both ways. They protect their local environment (NIMBYism) and just get other places with low cost labor and dirty industries to produce abundant manufactured goods.

I admit that it's actually pretty much impossible to separate wages, working conditions, and environmental treatment. A human life has a different value from place to place (consider tradeoffs for automobile safety in India), and so does the environment. But that's exactly my point - the fact that the environment is valued differently in different places doesn't mean it has a different value, and since many environmental issues are in fact global in nature, technically, we are letting the free market screw up the Earth.

It is my view that, unfortunately, most solutions that are politically permissible to talk about are half-solutions to this problem, at best.

3/29/2011 3:52:33 PM

First, you are wrong about how the world works in the short term. While dirty and labor intensive activity will certainly move, very little fits in that category (mining, ?). The vast majority of the work that has moved to China is low wage only. Product assembly and plastic molding are not dirty by themselves: they require electricity which China produces by burning unfiltered coal. When we come to the activities that are particularly dirty, namely refining, electronics, and the petrochemical industry, they just happen to be capital and technologically intensive. Dow chemical is not relocating their plants to Beijing because the Chinese would steal all their intellectual property if they did.

So, while all the heavily polluting industries have left California, they did not move to China, they moved to either another U.S. state, Japan, Canada, or anywhere the secure property rights far outweigh any savings from lax pollution laws.

China is an environmental disaster because of only three industries: oil refining, electricity production, and mining. With rare exceptions, none of these produce for export and the United States in particular is self sufficient in all three industries (we mine more than our share, we produce more electricity than we consume, and we refine more oil than we consume).

Second, jobs do not move to China forever. As jobs move to China, the demand for workers rises and the local economy deepens, driving up both wages and the political demand for environmental regulation. Wages in parts of China are rising fast. The end result of all this capitalist relocation is not a polluted world, but a more uniformly wealthy and clean planet.

3/29/2011 5:58:45 PM

Quote :

"So, while all the heavily polluting industries have left California, they did not move to China, they moved to either another U.S. state, Japan, Canada, or anywhere the secure property rights far outweigh any savings from lax pollution laws. "

You're absolutely right, pollution laws are nothing more than a part of an equation. Labor laws matter very significantly too.

What do you mean by secure property rights?

Quote :

"The end result of all this capitalist relocation is not a polluted world, but a more uniformly wealthy and clean planet."

I totally agree, but still, a clean planet compared to what? Industrialization, having gone from start to end result, is very good for the people, no doubt. For whatever it's worth, that doesn't mean better off for the natural environment though.

3/29/2011 6:32:01 PM

Quote :

"Industrialization, having gone from start to end result, is very good for the people, no doubt. For whatever it's worth, that doesn't mean better off for the natural environment though."

The natural environment can go fuck itself when it doesn't help people. I'm not going to tell somebody they have to live in poverty so that some monkey, frog, or plant can live, purely for the sake of that thing living.

And if it isn't purely for the sake of that thing living, then it must in some way help people.

Quote :

"Right now, instead of facing reality, the rich just have it both ways. They protect their local environment (NIMBYism) and just get other places with low cost labor and dirty industries to produce abundant manufactured goods."

This isn't "right now," this is "forever." The rich never live in the factory district. Never have. They can afford to live away from the centers of production.

Quote :

"But that's exactly my point - the fact that the environment is valued differently in different places doesn't mean it has a different value, and since many environmental issues are in fact global in nature, technically, we are letting the free market screw up the Earth."

Well here's my confusion. You start off on some rant about American factories shutting down, but in reality what you give a shit about is the environment. But I think you can't really argue that too hard, because you don't want to be the guy to go tell three billion Chinese and Indians that they don't get to drive cars and own nice things.

3/29/2011 6:56:32 PM

^ That's fine if you identify a value difference between us. We'll agree to disagree on those, and I considered it an accomplished discussion when it's brought down to a values difference.

So it's fine that that environment is value differently in different locations based on the well-being of the people, according to you. That's fine, that's completely and totally valid for most types of pollution. After all, the theoretical political difficulty of reduction of Carbon emissions efforts (Kyoto, Copenhagen, etc) was the existence of a new type of pollution that is completely global in nature, so while China has a different value on environment versus economic development, the only real solution is for the "rich" nations to write a check paying them to clean up their act.

Then again, we screwed a lot of things up in the past that we later decide was not such a good idea. If we're entertaining a transfer of wealth from the rich to the poor to clean up their act, the most appropriate transfer would be from the future to the present.

3/30/2011 10:34:30 AM

Quote :

"Industrialization, having gone from start to end result, is very good for the people, no doubt. For whatever it's worth, that doesn't mean better off for the natural environment though."

The Thames River became fowl and unsafe to drink in the 12th century, although we drank it anyway, long before industrialization. I feel I can safely say that at least in Europe, the environment is better now than it was before industrialization.

3/30/2011 11:24:14 AM