My Solution for the Problem of Tax Havens

CBS/60 Minutes did a segment on Corporate Tax Havens http://www.cbsnews.com/stories/2011/03/25/60minutes/main20046867.shtml And again I got to thinking about the "Free Rider Problem" and especially the "Race to the Bottom Problem". Please, please, please become familiar with both phenomenons. If you already know about them then you skip to the HISTORICAL PERSPECTIVE or MY SOLUTIONS. "Free Rider Problem": "free riders" are those who consume a resource without paying for it. The name "free rider" comes from a common textbook example: someone using public transportation without paying the fare. If too many people do this, the system will not have enough money to operate. "Race to the Bottom Problem": A race to the bottom is a socio-economic concept that is argued to occur between countries as an outcome of regulatory competition. When competition becomes fierce between nations over a particular area of trade and production, countries are given increased incentive to dismantle currently existing regulatory standards. HISTORICAL PERSPECTIVE: In modern America, corporate taxes make up about 12% of federal tax revenue. But in the 1950s it was about double that (24%+). So cutting the corporations' share in half does indeed, necessarily, lead to less revenue and therefore, ceteris paribus, it leads to greater budget deficits. http://www.taxpolicycenter.org/briefing-book/background/numbers/revenue.cfm FACT - GE paid ZERO taxes in 2010 on $5.1billion in PROFIT (not revenue). http://news.yahoo.com/s/yblog_thelookout/20110325/ts_yblog_thelookout/g-e-paid-no-taxes-on-5-1-billion-in-profits GE got the benefits of our tax dollars (at least in the form of US Military protection on its shipping and overseas operations from pirates, terrorists etc.) and yet it paid NOTHING in taxes! That is a quintessential example of a "free rider". So what about everybody "paying their fair share"? Let's keep in mind that by cutting tax rates for corporations and capital gains and personal income taxes for the wealthy we are necessarily pushing a greater burden on everybody else. This is a de facto transfer of wealth from the poor & middle class to the super-rich (reverse Robin Hood) compared to previous tax structures. A conservative Libertarian sophist can try to make the (specious) argument that it isn't an actual transfer from poor to the super-rich because the poor don't have the money and therefore what I call a "transfer compared to previous tax structures" is really just a lessening of the previous transfer of wealth from the super-rich to the poor. But that misses the point because in a social contract (which is all that government/taxes/public services are, in practicality) everybody knows the rules of the game and by playing you, at least tacitly, agree to those rules. When we had higher tax rates on the super-rich for decades the super-rich were agreeing to those higher tax rates (and de facto progressive transfers to the other classes of Americans). By reducing those tax rates the super-rich and the corporations are "negotiating a better deal" for themselves at the expense of the poor, middle class and even the regular-rich. It is my argument that everyone (other than the super rich) should stop allowing such negotiations because we live in a democracy. Everyone who makes under $1million a year should pressure their congressmen & senators to stop shifting the tax burden from the super-rich to the rest of us. MY SOLUTIONS: 1) Raise the marginal income tax rates on Tax Attorneys to 90% (if they make more than $200k per year). These people do not provide a valuable service to America or Americans. Just the opposite. They exist to increase federal budget deficits and thus deprive Americans of public services & national security. Time to tax them for the damage they do. These are very smart people who are wasting time & talent "cutting up the pie" and therefore they are not "growing the pie". This is a tremendous opportunity cost. Time to discourage smart people from doing damage for personal profit. 2) Start instituting tax systems and tariffs/protectionism that are identical to China (at a minimum but realistically we should still add greater protections for the American industries that have an advantage internationally such as anything with Intellectual Property). ALSO - Why can't Americans own majority shares of Chinese companies? We should use our current greater wealth to enjoy the upswing of non-Western countries' development. Let's threaten a trade war! The current trajectory of "race to the bottom" for regulation & taxes leads, inevitably, to greater pollution and deficits. We have to get off this trajectory. 3) Institute a two-tiered tax rate ON EXECUTIVES' PERSONAL TAXES based on whether they abide by the following new rules. So if they don't abide by the new rules (and insist on using the current system) they have to pay 70% personal income tax rates and if they do abide then they need only pay regular income tax rates (35%). Let's use executives notoriously selfish behavior (e.g. compensation schemes that are against shareholders' interests) in our favor. New Tax Rules - a) For all companies doing selling products or services in the USA, all revenue and ALSO existing cash on balance sheets (over some arbitrary percentage or amount) is taxed regardless of the country where it was supposedly earned. This prevents the bogus tax havens 60 Minutes exposed. Coke thus can't move it's secret recipe to a sister-company in Switzerland and send its profits there saying the US-based company thus didn't earn anything. The ramifications might include a "race to the top" with other countries instituting the same system and thus countering the "race to the bottom" of ever-lowering taxes that result in greater deficits for every country. b) Create a low percentage SECONDARY AMT (alternative minimum tax) for corporations based on GROSS SALES/REVENUE (not profits). So instead of 20% taxes on profits it would be a minimum of 3% of revenue (from all sources in all countries). c) Create a TERTIARY AMT based on executive compensation. Aggregating all of the executive compensation (all salaries over say $500k) creates a theoretical "Executive Compensation Pool". This ECP is necessarily from the corporate profits (or should be otherwise the company is virtually necessarily overpaying its execs since a shareholder would virtually never voluntarily pay an employee more than the value he provides). The Tertiary AMT could be really high (maybe over 80%) because the company can't claim "poverty".  They were going to give that cash(profits) to the execs as compensation so they could just as easily pay it in taxes. CONCLUSION: By creating secondary and tertiary AMTs there are more ways to collect tax revenue and fewer loopholes for corporations to exploit. This will lower the deficit and make things more fair for everyone. Why should GE pay ZERO taxes and you pay full taxes?