April 27, 2017
The NYT had an article discussing various efforts to deal with companies shifting profits overseas to avoid paying the corporate income tax. The piece implies that we don’t know how to ensure that companies pay taxes on foreign profits.
Actually, it is not hard to design a system where companies cannot avoid paying taxes on their foreign profits. If corporations were required to turn over an amount of non-voting shares equal to the targeted tax rate (e.g. if we want taxes to be equal to 25 percent of profits, then the non-voting shares should be equal to 25 percent of the total), then it would be almost impossible for companies to escape their tax liability.
Under this system, the non-voting shares would be treated the same way as voting shares in terms of payouts. If a company paid a $2 dividend on its voting shares, then the government’s shares would also get a $2 dividend. If it bought back 10 percent of its shares at $100 a share, it will also buy back 10 percent of the government’s shares at $100 a share.
Under this system, there is basically no way for a company to avoid its tax obligations unless it also rips off its own shareholders. In this case, it would be outright fraud and the shareholders would have a large interest in cracking down on its top management.
It understandable that those who don’t want corporations to pay income taxes would be opposed to this sort of non-voting shares system, but it is wrong to say that we don’t know how to collect the corporate income tax.
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