And the lower the incentive to make new investments.
And the higher the incentive to engage in socially wasteful tax-avoidance accounting.
The difference being that the former is low risk and can grow the business, while the other has a good chance of triggering penalties that wipe out the savings and could even result in jail time for one or more executives.
Consider that the historically highest rates of tax fraud are during the current administration, despite historically low levels of tax on corporate income.
Can't speak for all companies, but higher tax rates generally means more money invested in tax avoidance. If for example, your tax rate was 95% of your income it would be rational for you to put a lot more effort into finding ways to avoid those taxes than if the taxes were 1%.
>...The difference being that the former is low risk and can grow the business,
Low risk? Investing in your business can grow the business or it can be money that could have just as well be thrown away. Lots of businesses have failed because they did bad investments, tried to over-expand, etc.
>...while the other has a good chance of triggering penalties that wipe out the savings and could even result in jail time for one or more executives.
There are no penalties or jail time associated with tax-avoidance - you probably mean tax evasion which is a crime.
>...Consider that the historically highest rates of tax fraud are during the current administration, despite historically low levels of tax on corporate income.
How much tax fraud is there with corporations? According to the IRS:
>...The Internal Revenue Service (IRS) has identified small business and sole proprietorship employees as the largest contributors to the tax gap between what Americans owe in federal taxes and what the federal government receives. Small business and sole proprietorship employees contribute to the tax gap because there are few ways for the government to know about skimming or non-reporting of income without mounting more significant investigations.
https://en.wikipedia.org/wiki/Tax_evasion_in_the_United_Stat...
Another source says:
>... Even though corporate misdeeds grab a lot of press, corporate underreporting accounts for only $67 billion of the tax gap, or 14.8 percent.
https://money.howstuffworks.com/personal-finance/personal-in...
It's funny because I'm a tax consultant for a living, and that's simply not been my experience. Businesses want to avoid paying taxes when possible, but it's generally not worth their effort to play tax games. A business doesn't pay taxes unless it's making profits, and it would have to be making sufficient profits that the millions they'd spend on consultants and maintaining tax avoidance strategies every year exceeds the actual tax liability by a material amount. For most businesses, that's not worth it.
Tax rates don't drive business decisions. The only time they matter is when a business is choosing between multiple otherwise equal or similar options and tax issues are the primary differentiators.
There are no penalties or jail time associated with tax-avoidance - you probably mean tax evasion which is a crime.
There are penalties associated with numerous tax avoidance strategies if the tax authority disagrees with your position; it's not necessary for the position to rise to the level of tax evasion. But on that note, there have been a number of tax avoidance strategies that were legal for years but deemed to be tax evasion after the fact, resulting in hefty fines and criminal sentences for those involved.
The Internal Revenue Service (IRS) has identified small business and sole proprietorship employees as the largest contributors to the tax gap between what Americans owe in federal taxes and what the federal government receives.
No citation was provided for that statement in wikipedia. Additionally, that statement conflicts with what the IRS has actually said about the tax collection gap being approximately $500 billion. https://www.irs.gov/newsroom/the-tax-gap. Based on Propublica reporting, at least $100 billion of that $500 billion is wealthy individuals like the Sackler family.
Even though corporate misdeeds grab a lot of press, corporate underreporting accounts for only $67 billion of the tax gap, or 14.8 percent.
True, but I wasn't saying that corporate tax evasion is higher than other types of tax evasion. I was comparing corporate tax evasion now to corporate tax evasion in other times. Measured against itself it's at historically high rates.
I'm just imagining the 1950s cottage industry in compensating executives with a company car, personal assistant outside of work, etc before the IRS caught up?
And all the present day shenanigans with Amazon/Apple etc hiding profits in Ireland?
The present day shenanigans were Apple and Amazon (note: Apple takes historical credit for being the first tech company to implement this structure) hiding profits in Ireland through the double dutch or similar structures. However, the EU has already attempted to crack down on the use of that structure and deemed it illegal. Companies that currently use the structure may be grandfathered in as a result of EU court decisions but no new companies can get implement the structure. Apple especially has been hoarding money overseas and not doing anything with it. In contrast, companies with higher tax rates have been very active about spending their overseas money rather than bringing it back to the US, precisely to avoid paying the higher taxes that repatriation would incur.
Yes, it's counterintutive. But it's how the world actually works.
