On Thu, Aug 25, 2011 at 8:57 AM, Jordan Hayes <jmhayes at j-o-r-d-a-n.com> wrote:
>> my intent was to draw you out on the fairness aspect
>
> I'm not sure I can be more explicit than I already have been: a tax that is
> easily avoided by some is not a fair tax. In theory, you may be right; in
> practice, you'll for sure be wrong. I believe any effort spent on a tax on
> wealth would be counter-productive to the ultimate goal of fairness. At its
> core, the US income tax system is a fair and progressive one. It has been
> perforated over the years by special rules for special parties that, in most
> instances, work against the existing fairness of the system.
>
> A simple rollback would go a long way.
>
> As a for instance, as recently as 7 years ago, a company like Microsoft paid
> approximately their fair share. I mention Microsoft because it had, what
> some would say is, "a tax problem" -- their revenues were largely cost-free.
> They had very little capital invetment. They had, in short, no deductions.
> Each new license of Windows or Office didn't have an associated cost other
> than packaging (in the case of a retail sale; in the case of an OEM sale, it
> wasn't even that). This means that their tax return was fairly simple: big
> revenue minus small costs is net profit; 35% of that was owed in tax.
> During their big run up in growth and profitability, their taxes were
> sometimes on the order of 1% of total tax revenue in the US. Income taxes
> were almost always their largest expense, far ahead of things like rent and
> salaries. That has mostly changed, due to new-ish provisions that make tax
> avoidance a blood sport. Not much has changed about their revenue: it has
> climbed steadily from $58B in 2009 to $62B in 2010 and $69B in 2011 (what
> some would call 'moderate growth' even during a troubled time in the
> market). Their effective tax rate, however, has dropped. They paid $5.2B in
> 2009, and will pay $4.9B in 2011 even as net income went from $19B to $28B.
> Yes: their net income went up by $9B and their income tax went *down* by
> nearly half a billion dollars. You don't even have to dig any further into
> it: there's something rotten here. A decade ago, their tax burden on $28B
> of profits would have been close to $10B. And that doesn't even address how
> much more of their gross revenue has been recategorized to lower the $28B
> number. Google "double-dutch sandwich" for more details. Oh, and stick
> *google* in your search to see how Google itself has been successful at
> this, while you're at it.
>
> This trend has accelerated over the last decade due to two factors:
>
> - The rules keep changing in-trend: more ways to avoid tax legally appear
> each year
>
> - The players are getting better at the game. For a given circumstance, if
> you have an active tax avoidance department that has been cast as a "profit
> center" then your effective tax rate will most likely go down just because
> they are trying harder. A generation ago, the cherry jobs for newly minted
> lawyers and accountants were on Wall Street. Today they are in "tax
> compliance" at major multinationals.
>
> By and large, these changes don't generate much media attention: they are
> not "tax cuts" in the common vernacular. They are merely rule changes that,
> if taken advantage of, lower your effective tax liability. And when you do
> take advantage of them, the net effect is to reduce the progressiveness of
> the income tax; to lower the fairness. I'm positive that, given the charge
> to do so, a small panel of people could identify rule changes made in the
> last decade that, when applied to the current scenario, serve only to reduce
> the progressiveness of the net tax burden in the US and put them in a pile
> to be rolled back en masse. It would be a simple task: remove the
> aggressive attack on fairness. It would be very clear to anyone who looked.
>
> How to get that to happen is beyond the scope of this posting. But: I am
> certain that it would be a better avenue of approach than concoting some
> tax-on-wealth scheme.
>
> /jordan
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-- Michael Perelman Economics Department California State University Chico, CA 95929
530 898 5321 fax 530 898 5901 http://michaelperelman.wordpress.com