Ex CEO has big plans for your tax money

It is a fairly perverse situation when a bunch of extremely wealthy business men ask the government to do things that they could do but are not willing to do so.  Well, in this case I am speaking about research and investment into skills and innovation that will help their companies (and everyone else) to prosper.

The reason I find it so perverse is that the companies are doing their best to lower their tax bills through a lot of legal tricks to save a lot of money.  Well, we shouldn’t be too surprised that companies do these types of maneuvers in order to minimize their tax bill.

What is the responsibility of a corporation?

Their principal and overriding responsibility is to shareholders and it is a responsibility to conduct the operations of the company in such a way as to maximize the wealth of these shareholders.

This actually means that the companies officers are not doing their job if they are not putting the shareholders at the top of the list of people/organizations to please.

Pro Tax minimization argument

To play the devils advocate in favor of corporations – if it is legal then this is actually a good thing.  The shareholders have invested their money and get a dividend (some of them do) or the value of the companies stock increases.  This money will later be spent on goods and services which and taxes will be paid on it.  The goods and services need to be provided by people so the people get jobs and the taxes get paid so the governments are happy.

This is completely true and good, but in the best possible case the tax money will be deferred to some point in the future, but the people who are providing the goods and services will be also earning, spending and paying taxes.

This is great but unless the companies themselves are doing a lot of research and development for the future, they are simply reaping now what was sown in the past.  It doesn’t sound so bad when you put it that way, but it is actually worse than that.

Money that is diverted through legal tricks is also money that does not get spent on local taxes for general infrastructure.  Unfortunately this infrastructure is really boring and so nobody really wants to talk about it.

  • roads
  • airports
  • power grids
  • schools
  • universities

When states or countries don’t have the money in the form of taxes the infrastructure starts to wear out but airports don’t disappear.  True, some maintenance cannot be avoided but with a smaller pool of tax money the ability to maintain is limited and problems accumulate or in the worse case can cause catastrophic problems like the bridge collapse in Minnesota.

If all of this wasn’t bad enough it gets worse.  It is only the big, very big and multi-national companies that can fool around with their earnings.

Microsoft holding money offshore to avoid taxes

Apple, Google and Microsoft holding money off shore to save taxes

Apple borrows money to save tax bill

Microsoft moving profits offshore to avoid taxes

No, that isn’t quite the end of it because small business cannot do the same tricks.  If you are a small grocery store, gas station, dry cleaner or other small business then everything you do is local.  Your money is both earned and taxed and that is the end of the story. Well, except those taxes are probably higher than they need to be because the playing field is not level – I am looking at you big corporations.

Perhaps that means we should just tax the big companies and do it in a really big way.

Pro Tax argument

It is possible to be the devils advocate on the tax-em all side of the argument.  The argument is a bit different.  If all companies and people pay a lot of taxes, then the infrastructure will be fabulous.

The problem is that enough is never quite enough, and if the coffers were full to overflowing with tax revenue then the politicians would be extremely eager to spend it in any way they see fit.

This is not accusing them of taking 100 dollars and going out and having dinner.  That might be a money better spent than the alternative.  The problem is that some people must really really like being a politician and will do virtually anything to keep the job.  The best way for a politician to keep their job, especially at the federal level, is to be continually bringing work, jobs and money back to their district.

The easiest way to get the money back to your district is for you and all of your politician friends to take parts of various large projects back home to their state.

F35 Fighter jet built in 45 US states

Rabbit massages

Building a bridge to nowhere

Well, if we somehow managed to keep the money out of the bridge programs and in general away from politicians, we could see that the public sector people received a decent wage.

At first glance this seems ok, after all, we want motivated people at the department of motor vehicles when we get our drivers license.  Who wouldn’t want to know that the people who are teaching our children are being properly paid.

But were would we draw the line, would the wages be so good that people would earn better wages in the public than private sector?  The problem is that this then becomes a form of income re-distribution which may or may not be fair to all levels of government. Even if it was fair, which tax payer would want to keep the government coffers full so public sector jobs would earn more than the people funding them.

Pro Responsible argument

Obviously this is a pretty complex issue that could not be solved over a few beers with friends in the bar.  Yet, both fairness and a wide net may be the answer.

It isn’t fair if “Joes Pizza” is paying all the required taxes when large companies simply move the intellectual property to a low tax country and move the profits there.  It also isn’t fair if the taxes are so high that a company cannot make a decent profit for their shareholders.

Whenever I read or hear some billionaire complaining that the the basic research isn’t being done by the government, I really hear something slightly different.

We want you, the government,  to spend more money on general research and investment while at the same time we want to use tax tricks to minimize how much money we give you to spend on general R&D and infrastructure.

On the other hand, he might be right.  Basic R&D has been proven time and time again to pay for itself, although sometimes differently than initially expected.



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