You probably have a sketchy idea of tax havens--the pillowcases of the super-rich--but might not have an idea of exactly the steps necessary to avoid getting taxed by the government. But a recent financial data leak has given us a window into the process, and this CBC News infographic breaks it down amazingly.
Walk through the slides and you'll stash your cash where it can't be traced, set up a fake company, move the money, hide the money through investments, and finally spend it. (Or turn yourself in--as if you were considering that.)
Yes, it'll make you frustrated that people with millions of dollars can make even more millions by skirting tax law. But this infographic also makes it fun to do yourself.
Barter is the simplest way of avoiding taxes.
How about instead we talk about the policies and procedures that drive the rich to hide their money and take it overseas in the first place?
Lets start with the 40% Corporate tax rate. The idea that corporations actually pay taxes is a cruel joke.
On top of that, our policy on how that tax applies to exports means its essentially impossible for us to manufacture anything for any other country, anywhere, ever. And foreign companies don't put factories or headquarters here for that same reason.
The meme of the greedy rich man is pretty annoying. When you start trying to take 40-60% of the wealth ANYBODY generates for "the public good", they either find a way to keep more, or just stop working because it's not worth it. Both things are detrimental to our economy, and to job growth. Especially when those that are encouraged to stop working most have empircally been very good at investing in ideas and getting businesses off the ground.
How about we tax those guys when they use their wealth to their own luxery? Instead of punishing them for being productive, punish them when they consume. The rich guy doesn't accumulate $20 Million to swim around in greenbacks. They accumulate the money to enjoy luxery cars, caviar, exotic and experimental medical procedures, jets, and mansions. Tax them when they buy those, and not when they invest in businesses that turn a profit by providing a payroll for thousands of others.
We need jobs right now. Not class warfare.
The people named are individuals, not corporations. What kind of fool doesn't work to make a buck because they get a couple nickels taken away?
The man named in CBCs article linked here has explicitly said he doesn't make money to spend he makes it to have it collect dust in his accounts. That action which isn't uncommon just serves to remove wealth from the economy not grow it.
@Brian144, your point about individual taxes and luxury tax vs. corporate taxes is an interesting one, and was discussed at length on a recent episode of Planet Money where they had a bunch of economists from across the spectrum find common ground. however, I don't think it's a cruel joke to ask entities who benefit from public money spent on infrastructure, education, etc...to contribute, especially if they are given protections that individuals receive.
Your other points are pretty specious. Investment has remained high at other times in our nations history when corporate and individual tax rates were muuuch higher than they are now. Also, you'd never be able to lower taxes enough to keep businesses away from places with weak labor regulations and cheap land and natural resources.
tertertert, you seem to have missed brian144's excellent point about taxing consumption ("sales tax") instead of income. When you do that, those wealthy people that everyone is so jealous of end up paying a lot more in taxes because they are also the most prolific consumers. Corporations and privately owned businesses still have to buy raw materials, goods, and services from others--and a lot of them!--in order to do business, so they still pay taxes if you go to a consumption tax.
You also missed the point that it is perfectly natural and rational for humans to minimize the amount of tax they pay especially when the tax rate is egregious. The root of the problem, as brian144 points out, is the counterproductively high tax rate for corporations and wealthy individuals. If the government took 40% of your income, you'd call it robbery. So people lobby to have all kinds of deductions and exemptions introduced into the tax law, which is how it ends up so complicated.
If you levy reasonable tax rates (less than 20%), apply them intelligently (e.g.; on consumption rather than income), and get rid of the thousands of exceptions, deductions, and loopholes except for a handful that make sense (like charitable contributions), you would significantly minimize tax avoidance.
hms, the fundamental flaw in your reasoning is that you assume that the money "rich people" earn doesn't belong to them, but the money YOU earn does belong to you. We don't "ask" people to "contribute" to public infrastructure. We confiscate it from them and hand it to the most unproductive, inefficient, and unaccountable people--government employees--to spend on public projects. Taxation is a necessary evil; we accept that. The argument is about how it is confiscated, how much is taken, and how it is spent.
The other flaw in your reasoning, hms, is that you think it's okay to compel people to pay more for "infrastructure" that they don't use any more of. Does a billionaire driving a Bugatti Veyron introduce more wear and tear on public highways than a recent college graduate in his beater Nissan? No. Why should he pay more? Because he has more? That goes back to your first reasoning flaw. To refresh your memory, it's not YOUR money. It's his. If you give the government authority to take away most of HIS income, what's to prevent that government from taking away most of yours? And why is it somehow moral to take away 40% of his income and only, say 10% of yours? He isn't using 4 times the infrastructure you're using.
Tertert: Individuals often have money managers, who place their money in foreign investments, tax havens, etc. It all has the same effect. That money is not being spent in America to start new businesses.
And I would ask that you stop and think about your ideas before sharing them with others. "Explicitly said he makes money to collect dust."
That money is going to be spent. His heirs, or favorite charities will inherit it (well, half of it; thanks deathtax) and they will spend it. But you seem to be under the false impression that spending money actually creates wealth. It does no such thing. It is just a convenient bartering tool. Bartering for things we want, at a valuing system we can share, is what generates wealth. Without it his money is just a bunch of stained paper; or a few dozen bits on a computer drive.
If this man had $1 Billion, it means that he added over $1 Billion worth of wealth in tangible goods or services to society - because society traded him every one of those dollars for his service, and nobody ever trades down. He gets $1 Billion in exchange that he gets to redeem for his compensation. If he takes that big pile of money and lights it on fire, what happens? He doesn't get to redeem his work tokens. Society got $1 Billion worth of wealth, for FREE. Spending money doesn't make society richer. Consuming doesn't make society richer. Producing does. If the producers don't spend the money they're given, but work anyway, then they are just giving society free stuff. If they're removing money from circulation, then they are deflating the currency. which makes every dollar YOU own worth more.
hms: I'm not entirely sure what Planet Money is. But the businesses do /not/ benefit from that public infrastructure. Things like roads are helpful, but they were paid first by the income generated by the businesses; not the other way around. Just because a natural monopoly exists (it wouldn't make sense for businesses to build their own roads with the government doing it anyway) does not mean that roads would not exist without the government making them.
Also, I find it suspect that the entire tax bill collected by companies goes towards those "public services" they benefit from. See, in the private market you pay for what you want. In this system, you're taking a guy's wallet, and buying him a hot-dog before running off. Make no mistake; they are not benefiting from it. If they were, they'd already be doing it themselves.
As far as "cruel jokes" go, you misunderstand me. Corporations receive a tax bill. but they CANNOT pay taxes. Companies are just a representation of the work by a group of people - a fictional legal entity that has some form of dedication to providing a good or a service by consuming resources and outputting the good, and then selling it at a profit. Competition drives profits down to acceptable levels. Take 20, 30, 40% off of that, and the profit is not going anywhere. That profit has to exist, or the company won't. That tax just results in higher costs, lower wages, or lower dividends.
Higher costs = tax on public; hurts poor people.
Lower Wages = tax on workers; ^^^
Lower dividend = can't command as much investment; can't expand. Job creation is reduced.
Corporate tax is a wonderfully stupid scheme, but consistent. The idea of large taxation is the faulty belief that you can live at the cost of someone else. And in some sense you can, but they're all living at your expense too. So everyone says: "Tax the faceless corporation. Then we hurt nobody!" even though all they're doing is hiding the tax inside their paycheck and inside their store prices.
As far as "investment has been fine" with higher corporate and income tax rates. As far as corporate goes; we have the highest rate in the world today. As far as income goes, back when the top marginal rate was 60%, 70%, 90%, NOBODY paid it. Through deductions and other deductions, nobody ever paid that rate.
As far as why investments are down, it's because this recession has been a bank balance sheet recession; something we hadn't seen since the Great Depression. People are scared stiff of investing for a multitude of reasons. High taxes mean that those who are investing are more prone to do so overseas than they would be otherwise.
And actually you can get taxes/costs low enough to manufacture in the United States. The business climate, the human capital, and the productivity of the workers is far better than in somewhere like India. What you must keep in mind is that America can generally not compete with exports, because other countries essentially refund the taxes companies pay on exports. The united states does not. So if me and my friend Jack are making the same thing in America and in France for the same cost, despite France's higher domestic taxes, I'm still at a 10-20% pricing disadvantage. That's just not something you can compete with.
If you want some empirical evidence, the Fairtax.org group has a pretty compelling one. They've gotten various donations and spend several million dollars researching their bill proposal, which includes eliminating all corporate tax. They surveyed 500 Large Foreign companies (Think Fiat, Airbus, etc), and asked them what they'd do if we passed that bill, and turned America into the world's biggest tax haven.. 80% said they would build their next factory here. 20% said they'd relocate their HQ here. Taxes aren't everything; but they are a hell of a lot.
If Foreign people and companies would invest, or even move to America, you can be sure American people and companies would.