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.
Your original claim was "Actually, history bears out that higher tax rates result in corporations re-investing more of their profits in the company and less in tax-avoidance accounting."
To claim that as tax rates go up, companies are less concerned about the amount of tax they pay is an extraordinary claim and requires extraordinary evidence.
>...Tax rates don't drive business decisions.
I agree. If there are investment opportunities companies will make them.
>...I was comparing corporate tax evasion now to corporate tax evasion in other times. Measured against itself it's at historically high rates.
Where are the numbers for recent years? Your source says the tax gap and compliance has stayed pretty much the same since they started trying to estimate it:
>...The latest estimates for tax years 2011, 2012 and 2013 show the nation's tax compliance rate is substantially unchanged from prior years.
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.
You're shifting the goalposts. First you were claiming that taxes don't generally spur avoidant behavior. Now you're claiming they do[1], and we want that.
Which is itself dubious. I'm pretty sure "we" don't want people to unilaterally exempt themselves from taxes by relabeling consumption as a business expense. (In the extreme case, imagine you can just pass on every desired purchase as a "wish list" to your employer and they buy it for you, "as a business expense" leaving you with no taxable income. Obviously the IRS has to crack down on that, and no one would call that "things working as intended".)
And we definitely don't want real resources going to gaming of the tax code, which is socially wasteful.
[1] and in the next paragraph, the tack of "but it's cool, they're gonna crack down on that later".
We're talking about different types of avoidance. I'm talking about real business spending, i.e., on facilities, equipment, employees, etc., as a means of tax avoidance. High taxes encourage this type of spending because (a) businesses that are growing are going to do this anyway and (b) they effectively get a discount for this anyway if they're making enough money to actually pay taxes.
But most people are referring to tax avoidance strategies like IP shifting, off-shoring, etc. I'm saying, that based on my professional experience as a tax advisor for a decade, that these activities are not motivated by high tax rates, and indeed were highest during periods of lower tax rates. (In the examples I mentioned above in the earlier comment, the companies weren't engaging in tax avoidance strategies, they were making business investments. The difference is that tax avoidance is entirely or primarily motivated by avoiding taxes and is pursued despite the lack of an actual business need; business investment may be motivated in part by avoiding taxes but is primarily driven by actual business needs and will not be pursued absent a business case for the spending.)
Which is itself dubious. I'm pretty sure "we" don't want people to unilaterally exempt themselves from taxes by relabeling consumption as a business expense
I don't understand where you're going with this. You brought up examples that are considered legitimate business expenses by the tax code, and have been for decades. Hell, they're the basis for all the in-office perks tech companies gave their employees pre-COVID. If you have an issue with whether they should be deductible on moral grounds, that's a separate discussion.
And again, my argument is based on how my clients, and US businesses in general, have actually responded to tax cuts and tax increases, and not to how they were theoretically expected to behave by people who aren't actually running successful businesses.
