Facebook Will Pay No Taxes, Get Huge Refund Instead

That's something like what I suspected when I read it. But, how much assurance do we have that the recipients are properly reporting this income and paying the tax on it. I tend to expect the rate is somewhat lower than it'd be for regular wages. And, only a tiny fraction would be audited. Is a tax mechanism like this in the interests of the country?

 

When you exercise the option, the company has to report it as income on your W2 - it's taxed as though it's regular income.

(this is for the type of options that Facebook is using; there's another type which is taxed differently but also isn't a tax deduction for the company)

 

Actually, they can hammer down on them for hoarding cash.

 

Actually I think folks won't hoard the cash at the corporate level for a few reasons:
a) people want to be able spend money and having tons of $ sitting on the corporate books does them no good whatsoever when they want to buy a house, take a vacation, buy a car, etc.

b) If you hold the $ in a corporation, you put those assets at risk in the event of a lawsuit against the corporation. The a major benefit of a corporation is to insulate the personal assets of owners from lawsuits - however, if you put all your assets in the corporation, you basically put them all at risk - can't imagine a dr would risk a malpractice lawsuit or really any professional services provider.

c) hoarding cash at the corporate level only delays the taxation. Ultimately that cash will be disbursed to someone - either you or your heirs (who could be facing double taxation by facing an estate tax on inheriting shares of the company and then when they take $ out of the entity)

I mean I think this would result in the repatriation of $ into the US from all these overseas corporate accounts, mostly eliminate federal corporate welfare (states giving away the farm is another story) and basically simplify the tax process....

 

And then think about the reduction in efficiency it has caused, at work.

 

You're absolutely right, I forgot about the AET. I don't think it really undercuts my point though. Without corporate taxes, you could just pay yourself a qualified dividend instead of a salary.

Maybe "hoarding" is the wrong choice of word. Removing corporate taxes outright basically gives people a tax-deferred savings mechanism with no statutory contribution limit. It also potentially gives people a way to disguise wages as dividend income. While you don't think many people would take advantage, I disagree.

The point I'm trying to make is that the devil is in the details. It's never as easy as "just get rid of the corporate tax!" because it creates a host of loopholes that need to be closed, which in turn will probably ruffle a few feathers. Before you know it, lobbyists get involved and you end up with a brand-new, overhauled tax code.

 

Facebook will be fine, they just have to keep the network bug free, squeeze the advertisers and commercial pages as much as possible and start acquiring diversified apps rather than build them in house.

 

Stock options are tax deductible just like payroll expense. If Facebook would have paid them in cash, then Facebook still wouldn't pay any taxes. Since stock options are taxable for the employee, I do not have any problems with this. Mark Zuckerburg paid billions in income taxes this year.

 

I think part of it would be that qualified dividends would disappear. I tend to agree that they probably shouldn't eliminate the corporate tax, since at best it is going to lead to other loopholes regardless of how they handle it.

Would like to see them roll back to 20% flat corporate tax rate, and abandon qualified dividends. Small corporations could still make S-elections to avoid double taxation.

Edit: We do want an overhaul of the tax code. It should be simpler, and contain fewer loopholes catering to special corporations and industries.

 

I am all for corporate tax rates being lower to keep our companies globally competitive, but the government subsidies are a tough one.

 

Yes I would move to an entirely consumption based tax.

 

Agreed, which is why you remove the details.

Abolish all subsidies, bailouts, guaranteed loans, income taxes, corporate taxes, payroll taxes. Scrap every devilish detail of our disgusting money laundering and patronage system that is the US Treasury. So complicated you can't tell who is scamming and who is getting hosed.

A low flat consumption tax at the first point of sale, no exemptions. Transparent, anonymous, efficient. Every state already collects it and knows how to do it. Not to mention you get revenues from illegals and tourists that are using our services but not paying for them.

 

Not like people don't work around sales tax too...

 

Even so, the devil is still in the details. How exactly do you enforce a consumption tax instead of an income tax?

Either businesses report all individual sales or consumers report all individual purchases. You honestly don't see any opportunities for loopholes there?

 

We've been successfully collecting sales taxes for quite awhile now. No doubt attempts would be made to avoid, but that applies to all systems.

How much income today goes untaxed?

 

You don't think sales taxes go unreported/uncollected?

 

I think you're mistaking my questions as a defense of the status quo. I'm all for a tax overhaul, provided there's been enough thought put into not only what should be implemented, but also how it should be rolled out so that the transition is smooth. It's all too easy for armchair economists/policy-makers (like you and me) to think there's a simple end-all be-all solution to a complicated problem.

We've had sales tax at the state level for many years. Great! They're mostly in the single digits, and it's only levied upon sale to the final end user. Do we just do the same thing at the national level? If so, it's going to have to be a much higher percentage to garner the kind of tax receipts the federal government is accustomed to seeing. With such a high sales tax, do more people attempt to evade utilizing cash? Do business owners (with resale certificates) evade by making bulk purchases for "resale" but really intend to consume the products themselves. Could compliance be a problem since the vast majority of tax receipts now depend on businesses self-reporting instead being withheld by third-party (i.e. employers)? Or do we avoid all of that by levying a VAT on all purchases from beginning to end? How does affect the economy? It's easy to say people's increased disposable income will easily offset increased prices, but it could be hard to predict. This would be particularly true for low wage earners who paid no income tax and only 7.65% in payroll taxes now suddenly have to pay a double digit national sales tax. So maybe we avoid this problem by setting up credits for low income households. Great...now we're back to monitoring income and there'll be more opportunities for loopholes.

FYI, all those questions are just rhetorical, so you don't have to bother answering them (unless you really want to). An income tax can be simple as well. We just chose to make it complicated. Frankly, you've got to be fooling yourself if you think a consumption tax can't be just as complex or rife with opportunities for evasion.

 

"Illegals" pull their weight and then more by paying in SS and payroll taxes more then they ever receive in government benefits.

In relative comparison, one might say you are a parasite, if one were inclined to such vile language.

 

I don't know very many first point of sale purchases that aren't reported as sales revenue. If you made something in your garage and sold it to another I suppose, but that's a small percentage.

Regardless, evasion exists in all systems.

And of course, today's exemption or credit is tomorrow's loophole or evasion, depending on who is in power bleating about it.

How much income earned by illegals is reported (especially with e-verify)?

And why is illegals in scare quotes?

all good questions. Check out the FairTax, it addresses some of your concerns.

A sales tax has other advantages besides simplicity. Anonymity, government isn't digging into your personal finances. Also as stated, illegals and tourists paying into the system.

 

illegals is in quotes because defining people by their legal status is lame.