Re Google's So-Called Tax Evasion, Let's All Calm Down
Yesterday on Drudge Report, the centerpiece headline was: GOOGLE PAYS ONLY 2.4% TAX RATE; 'INCOME SHIFTING' ROBS GOV'T OF $60B, which linked to a story in Bloomberg by the same title.
While I'd love to get in a dig at Google CEO Eric Schmidt as much as the next guy, the problem here is that this article conflates a couple of very different things. The Google activities described in the article don't directly affect its U.S. taxes. What it is doing is reducing the taxes it pays internationally -- to other countries -- to around a 2.4% rate. This may be of some concern to Ireland, where Google has its European headquarters, but hardly has anything at all to do with the U.S. or Obama. The article then makes the broader point that according to one expert, "tax shifting" more broadly, by all companies, may cost the U.S. Treasury something like $60B a year. There is nothing in the article to suggest that Google is "shifting" any of its profits away from the U.S. in any unusual way -- it may very well be doing so, but the article offers no evidence of this. The article does actually note, buried in an obscure paragraph, that Google's overall global tax rate was 22.2% last year. Given its apparently low rate of international taxation, that would seem to imply a U.S. tax rate of 25% +. Last time I looked into these things, which was almost 10 years ago, the average U.S. company paid an effective tax rate of between 25 and 28%. That would make Google about average here in the U.S.
There is a broader and more substantive question underneath all of this, which is whether "transfer pricing" of technology licenses and other intellectual property to overseas subsidiaries should be allowed at all, or whether all of the profits of a Google, no matter where the revenue comes from, are really "U.S." profits -- but that is (a) extremely complex, (b) hardly a gripping topic, and (c) one on which I am not remotely qualified to pose as an expert.
The real lesson here is that the caliber of reporting in the mainstream press about "business" issues is really pretty bad, and reinforces a point I've been making for more years than I can count: If the government/media/academic "elites" really think they ought to be regulating business, the very least they can do is learn enough about it to be able to address its issues intelligently.
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Jul '10
Re: Re Google's So-Called Tax Evasion, Let's All Calm Down
Well, would those 2,000 Google jobs in Ireland be in Mountain View if it wasn't for those tax manipulations?
And then there's the part about how the IRS recommended changes to crack down on some of the more creative practices - until GE and other large companies lobbied the friendly folks at Ways and Means....
Re: Re Google's So-Called Tax Evasion, Let's All Calm Down
George Savage: For me, the real story is the insanity of persisting with a self-defeating, uncompetitive corporate tax policy here at home. Over the past twenty years other countries have dramatically cut corporate tax rates, enticing companies to relocate operations, intellectual property and high-paying jobs. As Google and Facebook pile up tax-deferred cash overseas, a corresponding incentive develops to find ways to invest the funds in-country rather than repatriating and losing 35-45 percent to taxes. The current US tax posture also encourages an unhealthy preference for debt--interest payments are deductible against income--over equity. Think we have too much debt in the USA right now?
The US market, workforce and rule-of-law are the envy of the world. If we abolished or dramatically cut the corporate income tax, every corporation on earth would stampede our way with capital and jobs, helping us out of the current economic doom loop. And our homegrown small corporations would also have an easier time creating the capital needed to grow. · Oct 22 at 3:38pm
Oct '10
Re: Re Google's So-Called Tax Evasion, Let's All Calm Down
Two observations: 1) If these "income shifting" policies are legal, how can they be construed as robbery? 2) I think Facebook and Google are on the Feds' chopping block right now. A few weeks ago on CSPAN, I saw a House panel grilling executives from both companies. Perhaps the media have just lagged a bit in peforming their duty as the Democrats' megaphone.
Edited on Oct 22, 2010 at 4:16pmMay '10
Re: Re Google's So-Called Tax Evasion, Let's All Calm Down
I guess we are back to FDR versus Andrew Mellon, where tax avoidance is to be treated as illegal.
I am fine with Google legally avoiding punitive US business taxes. If they engage in shady accounting a la Andrew Fastow, lock 'em up.
However, I am also fine with them getting reamed on a PR basis, because this is a persistently lefty company and their political allies are the ones who are business tax enthusiasts.
Jul '10
Re: Re Google's So-Called Tax Evasion, Let's All Calm Down
What enrages me is the hypocrisy. Google has been a consistent booster of cap and trade, health reform, "green" energy and other government boondogles that will impose new taxes on the middle class. But when it's their turn to pony up, it's another matter.
Oct '10
Re: Re Google's So-Called Tax Evasion, Let's All Calm Down
I consider it my duty to avoid taxes at every turn, especially since I find them at every turn! As an American it is my birth right to attempt to avoid every superfluous payment at every step, in a legal manner of course. There are no "loopholes", only human beings attempting to do what they wish with the fruits of their labors. Let Google, a company I adore on a technological level, keep their money in whatever manner they are able within the established law. We know, be it in Ireland or domestically, they will find a better way to spend it than Uncle Sam. This is sour grapes from greedy socialists. Good for Google, more of the same!
Jun '10
Re: Re Google's So-Called Tax Evasion, Let's All Calm Down
As much as I despise Google (lefty swine) no one "robs" the government by not paying exorbitant taxes.
However, I think every democrat who wants to raise our taxes should be required to use the 1040 EZ form to file his taxes -- no itemization. No one says John Kerry must itemize.
May '10
Re: Re Google's So-Called Tax Evasion, Let's All Calm Down
As the legendary Judge Learned Hand once said:
"Anyone may arrange his affairs so that his taxes shall be as low as
possible; he is not bound to choose that pattern which best pays the
treasury. There is not even a patriotic duty to increase one's taxes.
Over and over again the Courts have said that there is nothing sinister
in so arranging affairs as to keep taxes as low as possible. Everyone
does it, rich and poor alike and all do right, for nobody owes any
public duty to pay more than the law demands."
Sep '10
Re: Re Google's So-Called Tax Evasion, Let's All Calm Down
It was refreshing to see your post and I was not surprised when I read your bio to find that you had not had journalism training. (that is a compliment). When I saw this headline I knew it could not be accurate. It would not be feasible for a company as large as Google to shift the amount of income they would need to shift to reduce their tax rate by approximately 90%. I would think anyone with business sense would realize that. The headline was referred to on both CNBC and Fox Bus. Unfortunately as you point out this type of thing is more the rule than the exception in business journalism and I find it just a prevalent in Science reporting also.