Ethics of tax planning

[crazy canuck]

I am challenging the assumption that the reason that companies plan around taxes is because they are too high. If the company is making millions it seems hard to conceive of a rate where it would just not make sense to do so. Even if it was 1% surely that is worth hiring a few tax attorneys.

Yeah, they would plan around the taxes no matter what the rates are, because that's just obvious. There's not going to be a company who says "we don't care about the taxes because they aren't that bad". They will always be weighing the costs of relocation vs the costs of staying. Moving stuff is expensive. You can tax a company quite a lot before moving makes sense. If it gets to that point where there is a mass exodus or whatever, you're well past the question of tactical planning and more in the line of either increasing repression or loosening. A lot.

I do think that world governments competing for better tax rates is a good force in the market though. "Tax havens" could be easily put out of business by removing their advantage. Just out-compete them. It's happening to my own state now in the corporate registration arena. For decades, a corporation residence Mecca. We can't hack it and we're getting screwed. If we weren't making sweetheart deals with Tesla and Apple we'd be going down the drain. It's all about the high-powered connections.
Once you start relying on that stuff, you're done. It might be tomorrow, it might be a few decades, but that's it.

how does a country that wishes to provide any services compete with a jurisdiction that has no tax?  A race to the bottom is just that.  Your state's gain is a loss for the whole country as states are able to provide less and less basic infrastructure and services.

Put another way, how will your state react when another state or country attracts those companies away with even more generous tax rates and subsidies.

[Berkut]

I am challenging the assumption that the reason that companies plan around taxes is because they are too high. If the company is making millions it seems hard to conceive of a rate where it would just not make sense to do so. Even if it was 1% surely that is worth hiring a few tax attorneys.

Yeah, they would plan around the taxes no matter what the rates are, because that's just obvious. There's not going to be a company who says "we don't care about the taxes because they aren't that bad". They will always be weighing the costs of relocation vs the costs of staying. Moving stuff is expensive. You can tax a company quite a lot before moving makes sense. If it gets to that point where there is a mass exodus or whatever, you're well past the question of tactical planning and more in the line of either increasing repression or loosening. A lot.

I do think that world governments competing for better tax rates is a good force in the market though. "Tax havens" could be easily put out of business by removing their advantage. Just out-compete them. It's happening to my own state now in the corporate registration arena. For decades, a corporation residence Mecca. We can't hack it and we're getting screwed. If we weren't making sweetheart deals with Tesla and Apple we'd be going down the drain. It's all about the high-powered connections.
Once you start relying on that stuff, you're done. It might be tomorrow, it might be a few decades, but that's it.

how does a country that wishes to provide any services compete with a jurisdiction that has no tax?  A race to the bottom is just that.  Your state's gain is a loss for the whole country as states are able to provide less and less basic infrastructure and services.

Put another way, how will your state react when another state or country attracts those companies away with even more generous tax rates and subsidies.

It's all a matter of (as almost always) perverse incentives.

It can be attractive to attract businesses with tax breaks because the idea is that they bring jobs, and those jobs are more valuable to the locality than the taxes the business might generate. For a locality that is struggling, that is likely actually completely true. More business tax revenue is the least of their problems when their property values have collapsed and young people are fleeing the area.

So there is a powerful incentive to attract businesses regardless of your desire to generate business tax revenue. Bootstrapping the economy by getting some significant employer (or several of them) to come in is vastly more important.

In a nutshell, for a depressed local economy the benefits of a business coming in are not really about the tax that particular business will pay directly, but the indirect and substantial benefits the business itself provides to the local economy. So it makes perfect sense to offer them little or no direct taxes.

[grumbler]

In a nutshell, for a depressed local economy the benefits of a business coming in are not really about the tax that particular business will pay directly, but the indirect and substantial benefits the business itself provides to the local economy. So it makes perfect sense to offer them little or no direct taxes.

Indeed.  "Business taxes" per se are not collected on the local level anyway.  Property taxes, etc are assessed locally, but the business tax rate doesn't impact those; Corporations with shells headquartered in tax havens still have to pay property taxes on their physical locations.

I think that an argument could be made that business taxes themselves are antiquated and should be done away with, and the taxes on business profits captured at the individual income level.

[dps]

I think that an argument could be made that business taxes themselves are antiquated and should be done away with, and the taxes on business profits captured at the individual income level.

I think I could support that idea, but it would probably have to be part of a comprehensive tax reform, which will probably never happen.

[Valmy]

Heck I wondering if any sort of reform of anything at all is possible these days much less something as significant as taxation.

[crazy canuck]

I am challenging the assumption that the reason that companies plan around taxes is because they are too high. If the company is making millions it seems hard to conceive of a rate where it would just not make sense to do so. Even if it was 1% surely that is worth hiring a few tax attorneys.

Yeah, they would plan around the taxes no matter what the rates are, because that's just obvious. There's not going to be a company who says "we don't care about the taxes because they aren't that bad". They will always be weighing the costs of relocation vs the costs of staying. Moving stuff is expensive. You can tax a company quite a lot before moving makes sense. If it gets to that point where there is a mass exodus or whatever, you're well past the question of tactical planning and more in the line of either increasing repression or loosening. A lot.

I do think that world governments competing for better tax rates is a good force in the market though. "Tax havens" could be easily put out of business by removing their advantage. Just out-compete them. It's happening to my own state now in the corporate registration arena. For decades, a corporation residence Mecca. We can't hack it and we're getting screwed. If we weren't making sweetheart deals with Tesla and Apple we'd be going down the drain. It's all about the high-powered connections.
Once you start relying on that stuff, you're done. It might be tomorrow, it might be a few decades, but that's it.

how does a country that wishes to provide any services compete with a jurisdiction that has no tax?  A race to the bottom is just that.  Your state's gain is a loss for the whole country as states are able to provide less and less basic infrastructure and services.

Put another way, how will your state react when another state or country attracts those companies away with even more generous tax rates and subsidies.

It's all a matter of (as almost always) perverse incentives.

It can be attractive to attract businesses with tax breaks because the idea is that they bring jobs, and those jobs are more valuable to the locality than the taxes the business might generate. For a locality that is struggling, that is likely actually completely true. More business tax revenue is the least of their problems when their property values have collapsed and young people are fleeing the area.

So there is a powerful incentive to attract businesses regardless of your desire to generate business tax revenue. Bootstrapping the economy by getting some significant employer (or several of them) to come in is vastly more important.

In a nutshell, for a depressed local economy the benefits of a business coming in are not really about the tax that particular business will pay directly, but the indirect and substantial benefits the business itself provides to the local economy. So it makes perfect sense to offer them little or no direct taxes.

I see the logic at the local level.  But it doesn't work very well at the state/provincial or national level.  At some point taxes have to be collected or infrastructure crumbles.