Taxes, Affordability (and a Little Gambling) on The Attitude

By Dan Kervick

I appeared today on The Attitude with Arnie Arnesen to talk about taxes.  The discussion began with the Apple tax avoidance issue, but expanded into some of the broader context for thinking about taxes – some of which I discussed in my recent post, “Money, Taxes and What We Can Afford”.  We also spent a few minutes discussing gambling as a means of raising state revenue, since the New Hampshire House of Representatives defeated a major casino gambling bill yesterday.  Enjoy!

Dan Kervick on The Attitude

The Attitude is broadcast by WNHN 94.7 in Concord, New Hampshire.

9 responses to “Taxes, Affordability (and a Little Gambling) on The Attitude

  1. Clonal Antibody

    Dan,
    In your talk, the emphasis should have been on “why taxation by the Federal Govt?” The Fed obviously does not need to tax in order to spend money. So what is the purpose of taxation other than removing money from the economy? Is it to create more equality? More inequality? What purpose does taxing corporate profits serve? Should corporations have a limit on retained earnings (with the rest going as dividends?) Should “capital gains be taxed as ordinary income? Should there be punitive taxation on very high individual earnings?

    • I don’t get to set the agenda for the chat. I tried to turn it at the end toward the idea that at this point in time we shouldn’t be focusing on more tax revenues, and that it fact we should re-instate the FICA holiday.

  2. Matt Franko

    Great job as usual Dan,

    I dont think these foreign subsidiaries actually have the USD balances required to pay the US taxes anyway, their foreign retained earnings are most likely in the local currencies of the foreign nations that they have the external operations within….

    So for Congress to rake them over the coals for “not paying US taxes” when the foreign subsidiaries dont have the USD balances in the first place says more about Congress than it does about Apple…

    rsp,

    • Matt:
      This is a simplification, as to explain everything in detail would take volumes.

      The US parent corporation has already been subjected to taxation on it’s worldwide income by the US. Each tax jurisdiction where said corporation operates ( foreign nation ) has the right to tax the business activity undertaken in that jurisdiction and does just that.

      For purposes of the US, taxes paid to a foreign tax jurisdiction are usually granted a foreign tax credit against US tax otherwise payable, to avoid double taxation. Although, it’s not always the case, subject to existing tax treaties et al. The rules and agreements are numerous and vary greatly to say the least. At the worst, corporations can deduct the taxes paid which are not subject to a credit, against otherwise taxable income. (Again there are a myriad of scenarios)

      The issue of contention is the repatriation of foreign subsidiary’s cash to the US parent corporation, which is resident for tax purposes in the United States. (It has nothing to do with the currency units etc.)

      Most advanced nations would and do treat the repatriation of cash, from a subsidiary to the parent as an intra-company dividend, not subject to taxation. (It’s a capital transaction within the consolidated corporation)
      Only upon the payment of dividends to shareholders, etc. does that cash become once again subject to taxation, once it’s in the hand of the shareholder.

      The United States treats the same physical transfer of cash from a foreign subsidiary to the US parent as foreign income and subject to the current tax rate (i.e. 35%) – less any tax already paid.

      This is the crux of the issue, right or wrong.

      • Matt Franko

        Daniel,

        So are you asserting that for instance Apple can just send the “cash” in Euros back to the US and pay taxes in the US in Euros?

        My discussions with personnel at the BEA who run the ITA reports are that at least they (BEA) treats foreign subsidiaries as completely foreign entities… I would assume the IRS has to look at it the same way… I guess depending on how the corporation is legally structured, they could perhaps incur a US tax liability from these types of foreign subsidiary operations… but I would assume they would structure to avoid this… as perhaps Apple’s Cook asserted before Congress…

        When you say here: “The United States treats the same physical transfer of cash from a foreign subsidiary to the US parent as foreign income..” how is this accomplished? Suitcases of paper bills?

        How does a foreign subsidiary “physically transfer” for instance Euro balances in the Eurosystem to the US? The FRS does not operate in Euros no? To get out of their Euro position I would think they would have to find another external entity with USD surpluses that would exchange these liabilities with them at some agreed to exchange rate…

        suggest look into the concept of “physical transfer of cash” across national borders…. USDs are maintained by the Fed… Euros by the ECB/ESCBs… I dont see how “a Euro can be sent to the US”?

        rsp,

        • Apple consolidates and reports its’ financial results in US dollars and I am not asserting that Apple’s US tax liability is payable in Euros. All transactions with the US government, taxes, fees etc. are exclusively in US dollars.

          Expected foreign currency net receipts for a given budget period are usually hedged (not always) and likewise committed to be exchanged for US dollars at pre-determined rates (forward f/x contracts etc.). It really depends upon the company and a host of other variables.

          Regardless, the foreign cash is simply an entry in the accounting ledger of the subsidiary and the consolidated company. That balance is reconciled to the balance in that company’s / subsidiary’s physical bank account. Any foreign currency denominated financial statements are translated to US dollars each accounting reporting period. (monthly, quarterly, annually etc.)

          Physical cash as you envision it, does not exist, it’s simply an electronic accounting ledger entry, the result of all the net cash in and outflows at a point in time.

          No one fills up a container ship with printed Euros or otherwise and ships them the port of NY.
          It is simply an accounting entry representing the payment of a dividend from the subsidiary to the parent. (This is the transaction recording the transfer of funds from the physical bank account, of the subsidiary to the physical bank account of the parent.)

          Cheers

  3. I like Clonal Antibody’s questions, though. Have you done a post in the past that addresses them? If not, I’d be interested to see one!

  4. I second Clonal Antibody… The interviewer seemed rather clueless, still obsessed with tax revenues. The difference between state taxes and federal taxes wasn’t even distinguished..

  5. Matt McOsker

    I also agree with Clonal Antibody. Raising taxes on the rich redistributes exactly nothing, and does nothing to close inequality on gross income. Only congress can redirect the money. In fact to funnel the money to lower classes for each dollar raised, the government needs to increase spending by $1, and direct it to people in lower income groups. Otherwise a hike of $1 simply reduces the deficit by that much – it has no mechanical impact on spending directed by congress.