Seems pretty bonkers that companies can deduct tax paid overseas against their US tax liability to that degree. From a certain perspective the US tax payer is subsidising the tax revenues of other high tax countries. I'm surprised that doesn't get more attention.
That would be like saying that it's bonkers that home owners can deduct the interest on their home mortgages, their property taxes, along with their State income taxes, from their AGI, to reduce their Federal income tax liability. Even if the deductions drive down their Federal income tax liability to zero. From a certain perspective, renters are subsidizing the income of home owners with mortgages.
Imagine what products made by a US corporation would have to cost overseas, if they had to pay both the corporate tax in the foreign country where their products were sold AND the full US corporate tax, on the profits. Consumers are the ones that eventually pays the corporate taxes, for corporations. US companies would not be able to compete with international companies of other countries, that do not have to pay the full corporate taxes on their foreign profits, in their home countries. You think Apple would be able to compete with Samsung anywhere else in the World, except the US, if this were the case? If the US government were to force US corporations to pay the full US corporate tax rate on all their foreign profits, regardless that they had to pay any foreign corporate taxes, US corporations would be put at a big disadvantage when it comes to competing in countries with high corporate taxes. And if this were the case, US corporations would consider moving their HQ to another country. Much like how many CA businesses are moving their HQ to other States, that are more favorable to businesses.
No, you've misunderstood; what I'm saying is bonkers is how US companies are able to claim a tax credit according to tax paid overseas on tax liabilities in the USA. I don't particularly object to measures to stop double taxation.
I'm not sure that it's possible in personal finances for your state tax deductions to mean that the federal government owe you money.
No, the government gives you a tax credit that can only be used to offset other like taxes that you might have to pay. The government doesn't not pay you for the credit.
With personal financing, when itemizing a Federal return, your State taxes can be use to offset all of form of taxable income. Whether that income is from salary and wages, IRA distribution, money you made selling items at the flea market, reported gifts, gambling winnings, short term capital gains, etc.. But not long term capital gains or qualified dividend as those are already taxed at a lower rate.
With US international corporations, the tax credit a corporation earns because they paid 30% corporate taxes on profits from Japan can be use to offset the US taxes they would have to pay on corporate profits from the UK, which was only taxed at 19%. The government does not owe the corporation any money nor pay any money to the corporation for that credit. Nor can the tax credit be used to offset taxes on US profits.
The main difference between personal taxes and corporate taxes is that with personal taxes, it usually pertains to all the transaction in a tax year. Where as with corporations and businesses, the transaction can occur over the time they are in business. For instance, a tax credit earned by a business that was not fully used in one tax year because they did not have enough tax liability, can often be carried over to the next tax year. With personal finances, all tax credit must be used in the tax year that it was earned.
I.E..... in the US, the government offers a tax credit if you buy an electric car or hybrid. It can be up to $7500, but the credit can only be use to offset any income taxes owe in the year the electric car (or hybrid) was purchased. If you got a $7500 tax credit (for buying a Tesla) and owe $9K in income taxes that year, you would only have to pay $1500. But if you only owe $5K that year, you do not get paid for the other $2500. Neither can you carry it over to the next year. Or use it to offset your property tax.
The real question you should be asking is .... why do the US government deserve to collect the full corporate tax on profits made by a corporation in a foreign country?
Say that Apple opens an Apple Store in the UK. Apple pays the UK all the taxes that is due to the UK. That's because the UK supplied, support and maintain the all the infrastructures that allows Apple to open, operate and profit from selling their products in the UK, to UK customers. Just exactly what did the US government do to earn any taxes from those UK profits? All countries tax corporate profits made with-in their borders. But most to not tax corporate profit made outside their borders and if they do, they will give the corporation a tax credit for any foreign taxes paid.
BP (British Petroleum) is one of the UK biggest corporations. They make a lot of profit from selling their products in the US. For which they must pay the US a 21% corporate tax on the profits made in the US. That's because the US paid for all the infrastructures that made it possible for BP to earn those profits. You think the UK will also tax those US profit at 19%. No, the UK will most likely give BP a tax credit to help offset the taxes they owed in the UK, on the foreign profit made in Ireland, where the corporate tax is only 12.5%. You think BP would be able to compete with Exxon, in the US, if they had to pay a 40% (21% US and 19% UK) corporate tax on their profits?
In nearly every country, by far, the main benefit of having a corporation HQed there, is the jobs they provide. Even the sales tax (or VAT) they generate for the government in their own country, outweighs any corporate tax generated. No country wants to tax a multi-national corporation to the point that they will move their HQ out of the country. It's the other way around with most countries, they want to keep or attract corporations to set ups their HQ's there, by offering lower taxes. If the UK were to also tax corporations foreign profits at 19%, regardless of any taxes already paid to the foreign country, "British Petroleum" might become .... "Ireland Petroleum".
“Some regard private enterprise as if it were a predatory tiger to be shot. Others look upon it as a cow that they can milk. Only a handful see it for what it really is--the strong horse that pulls the whole cart.”
That can't be right. If this was before Trump tax plan, no way did you pay 23.5% ($8930) of $38K in Fed income in taxes. Not even if that included State income taxes. And it would be less after Trump tax plan.
The marginal tax brackets for a single filer, before Trump, was 10% up to $9275 and 15% from $9275 to $37650 and 25% from $37650 to $91,650 That should come to $5227. ($927 at 10% + $4,256 at 15% + $87.5 at 25%) That's not close to 23.5% of $38K, which would be $8930. I'm assuming the $38K was your taxable income (AGI) after taking your standard deduction of $6000. Which would mean that your effective tax rate should be based on $5227 out of $44K, which would be 12%. (If the $38K was before your standard deduction, then your taxes should only be base on $32K.)
In CA, one of the highest tax State, the taxes on $38K (in 2020) would be
$824.02 plus 6% of the amount over $33,421
or $1099. This would have been slightly less years ago.
So you total taxes on $38K (AGI) should be $5227 + $1099 or $6325.76. For an effective tax rate of both Fed and State taxes paid of no more than 16.6%. Which would probably be about normal for a single filer that don't itemize.
What buffet paid was an effective tax rate that was lower than his secretary. Most of Buffet income are in the form of long term capital gains and qualified dividends, which are taxed at a max of 20%. He only draws a $100K salary. Buffet donates a lot of money to charity every year. I mean A LOT. it's now in the tune of billions of dollars. Since charitable donations are tax deductible, this serves to lower his taxable income and thus his effective tax rate.
Buffet is not cheating anyone, by paying an effective tax rate that is lower than his secretary. Buffet is taxed exactly at the same rate on his $100K salary as anyone else making $100K in income. And his long term capital gains income is taxed exactly at the same rate as everyone else with long term capital gains. And nothing is stopping Buffet from not taking any tax deductions on his charitable donations, if he really feels that bad about it. (Plus he did not specify whether his secretary was filing as a single payer vs him as jointly married.)
Here's a run down on how much taxes the wealthy pays. Based on actual tax data from the IRS. Not some bias, uninformed opinion that the wealthy are not paying their "fair share" because they are cheating by paying a lower tax rate than those that are not considered wealthy.
I know exactly what was taken out, all total was 23.5%, I was never in the States during the last four obama years or any of the trump years. my father was and his taxes went up under trump, not down, and my father is a only a thousandaire. having voted for trump he was annoyed (they only went up a tiny bi). I am not concerned about how much Buffett gave away (glad he does), it was Buffett himself who pondered why his secretary paid more, not me, I was just tossing it in. I also never said Buffett is cheating anyone- just parroting himself. he is ok with uber wealthy paying 30%, including himself. there are clearly tax loopholes as the IRS has said there is about 1T in taxes they cannot get as they are hamstrung in getting them. unless that is a farce too. maybe everyone pays their taxes except the poor stealing. everything is as it should be.
just because a tax dodge is legal does not mean it is not a tax dodge. not all rich or uber rich are dodging taxes, but I think the IRS knows how much is not coming in.
Taxes "taken out", is not the same as what you owe in income taxes. You should have gotten a refund if this were the case. Many taxpayers have more taxes "taken out" from their pay check, than they will eventually owe in income taxes. This way they get a refund, instead of having to come up with the money to pay their income taxes. Just because you might had overpaid your income taxes doesn't mean that everyone making $38K paid 23.5% of it towards income taxes. That is not even close to the average rate on that income.
And by "taken out", are you also counting payroll taxes? Like SS, Medicare, UI, SDI and ETT. Or had estimated taxes taken out?
Buffet wasn't pondering why his effective tax rate was lower than that of his secretary. Everyone knew he knows exactly why. He was making a point that wealthy people earn a lot of their income from the lower tax rate of capital gains and dividends. The rate applies to everyone, no matter the income. But I doubt that a person that runs of a publicly traded company whose shares goes for $425K a share (BRK.A), would be want to see his investors pay a higher tax rate on their capital gains and dividend.
That is the most BS tax article I have ever read and you fell for it. In the US the IRS only tax annual income, not growth in wealth. That is the way it should be and most countries in World does it this way. If this were not the case, homeowners would have to pay income taxes on the amount their home increases in value each year or their IRAs or 401Ks. No country in the World taxes wealth at the same rate as annual income. And not even Sen. Warren wants to tax wealth, at the same rate as annual income. There are a few countries with some form of wealth tax, but the tax rate is very low.
How can you even take seriously an article that states that ...
Buffet wealth grew by $23.4B (mainly from the stocks that he holds),
reported an annual income of $125M (mainly from his salary and capital gains from stocks that he sold at a profit)
paid $23.7m in income taxes.
And then claim that his TRUE tax rate was just .10%, basing it on the $23.4B growth of his wealth
Instead of saying his TRUE tax rate was 19%, based on his taxable annual income.
Yes, I call this a FARCE. Only someone with zero knowledge of how the US tax system works, would think this article was "journalism'.
Of course, you would say that Buffet is legally "dodging" taxes by not selling all of his stock holding, so the IRS can collect the taxes on it.
The US tax system is one of the most progressive in the World. That is that it benefits the lower income earners, who can least afford to pay taxes and places most of the burden on the rich, who can afford to pay. It allows for the top 10% of income earners to pay 70% of the total income taxes collected, even though they earn less than 50% of the total income reported (Or the top 1% to pay 40% of the taxes while earning 20% of the income) and the bottom 50% of income earners to pay just 3% of the total taxes collected while earning about 11% of the total income reported.
Comments
With personal financing, when itemizing a Federal return, your State taxes can be use to offset all of form of taxable income. Whether that income is from salary and wages, IRA distribution, money you made selling items at the flea market, reported gifts, gambling winnings, short term capital gains, etc.. But not long term capital gains or qualified dividend as those are already taxed at a lower rate.
With US international corporations, the tax credit a corporation earns because they paid 30% corporate taxes on profits from Japan can be use to offset the US taxes they would have to pay on corporate profits from the UK, which was only taxed at 19%. The government does not owe the corporation any money nor pay any money to the corporation for that credit. Nor can the tax credit be used to offset taxes on US profits.
The main difference between personal taxes and corporate taxes is that with personal taxes, it usually pertains to all the transaction in a tax year. Where as with corporations and businesses, the transaction can occur over the time they are in business. For instance, a tax credit earned by a business that was not fully used in one tax year because they did not have enough tax liability, can often be carried over to the next tax year. With personal finances, all tax credit must be used in the tax year that it was earned.
I.E..... in the US, the government offers a tax credit if you buy an electric car or hybrid. It can be up to $7500, but the credit can only be use to offset any income taxes owe in the year the electric car (or hybrid) was purchased. If you got a $7500 tax credit (for buying a Tesla) and owe $9K in income taxes that year, you would only have to pay $1500. But if you only owe $5K that year, you do not get paid for the other $2500. Neither can you carry it over to the next year. Or use it to offset your property tax.
The real question you should be asking is .... why do the US government deserve to collect the full corporate tax on profits made by a corporation in a foreign country?
Say that Apple opens an Apple Store in the UK. Apple pays the UK all the taxes that is due to the UK. That's because the UK supplied, support and maintain the all the infrastructures that allows Apple to open, operate and profit from selling their products in the UK, to UK customers. Just exactly what did the US government do to earn any taxes from those UK profits? All countries tax corporate profits made with-in their borders. But most to not tax corporate profit made outside their borders and if they do, they will give the corporation a tax credit for any foreign taxes paid.
BP (British Petroleum) is one of the UK biggest corporations. They make a lot of profit from selling their products in the US. For which they must pay the US a 21% corporate tax on the profits made in the US. That's because the US paid for all the infrastructures that made it possible for BP to earn those profits. You think the UK will also tax those US profit at 19%. No, the UK will most likely give BP a tax credit to help offset the taxes they owed in the UK, on the foreign profit made in Ireland, where the corporate tax is only 12.5%. You think BP would be able to compete with Exxon, in the US, if they had to pay a 40% (21% US and 19% UK) corporate tax on their profits?
In nearly every country, by far, the main benefit of having a corporation HQed there, is the jobs they provide. Even the sales tax (or VAT) they generate for the government in their own country, outweighs any corporate tax generated. No country wants to tax a multi-national corporation to the point that they will move their HQ out of the country. It's the other way around with most countries, they want to keep or attract corporations to set ups their HQ's there, by offering lower taxes. If the UK were to also tax corporations foreign profits at 19%, regardless of any taxes already paid to the foreign country, "British Petroleum" might become .... "Ireland Petroleum".
“Some regard private enterprise as if it were a predatory tiger to be shot. Others look upon it as a cow that they can milk. Only a handful see it for what it really is--the strong horse that pulls the whole cart.”
― Winston Churchill
Taxes "taken out", is not the same as what you owe in income taxes. You should have gotten a refund if this were the case. Many taxpayers have more taxes "taken out" from their pay check, than they will eventually owe in income taxes. This way they get a refund, instead of having to come up with the money to pay their income taxes. Just because you might had overpaid your income taxes doesn't mean that everyone making $38K paid 23.5% of it towards income taxes. That is not even close to the average rate on that income.
And by "taken out", are you also counting payroll taxes? Like SS, Medicare, UI, SDI and ETT. Or had estimated taxes taken out?
Buffet wasn't pondering why his effective tax rate was lower than that of his secretary. Everyone knew he knows exactly why. He was making a point that wealthy people earn a lot of their income from the lower tax rate of capital gains and dividends. The rate applies to everyone, no matter the income. But I doubt that a person that runs of a publicly traded company whose shares goes for $425K a share (BRK.A), would be want to see his investors pay a higher tax rate on their capital gains and dividend.
As for your link (this one works)
https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax
That is the most BS tax article I have ever read and you fell for it. In the US the IRS only tax annual income, not growth in wealth. That is the way it should be and most countries in World does it this way. If this were not the case, homeowners would have to pay income taxes on the amount their home increases in value each year or their IRAs or 401Ks. No country in the World taxes wealth at the same rate as annual income. And not even Sen. Warren wants to tax wealth, at the same rate as annual income. There are a few countries with some form of wealth tax, but the tax rate is very low.
https://taxfoundation.org/wealth-taxes-in-the-oecd/
How can you even take seriously an article that states that ...
Buffet wealth grew by $23.4B (mainly from the stocks that he holds),
reported an annual income of $125M (mainly from his salary and capital gains from stocks that he sold at a profit)
paid $23.7m in income taxes.
And then claim that his TRUE tax rate was just .10%, basing it on the $23.4B growth of his wealth
Instead of saying his TRUE tax rate was 19%, based on his taxable annual income.
Yes, I call this a FARCE. Only someone with zero knowledge of how the US tax system works, would think this article was "journalism'.
Of course, you would say that Buffet is legally "dodging" taxes by not selling all of his stock holding, so the IRS can collect the taxes on it.
The US tax system is one of the most progressive in the World. That is that it benefits the lower income earners, who can least afford to pay taxes and places most of the burden on the rich, who can afford to pay. It allows for the top 10% of income earners to pay 70% of the total income taxes collected, even though they earn less than 50% of the total income reported (Or the top 1% to pay 40% of the taxes while earning 20% of the income) and the bottom 50% of income earners to pay just 3% of the total taxes collected while earning about 11% of the total income reported.
https://taxfoundation.org/summary-of-the-latest-federal-income-tax-data-2020-update/
https://www.investopedia.com/terms/p/progressivetax.asp