VICE News: “Why Pay Your Taxes?”

This Vice News segment makes the normally dry and daunting subject of taxes (really tax policy) accessible and entertaining. Plus it features Lee Sheppard, who is the oxymoron of a tax celebrity (see this New York Times article) and is also a friend of NC.

While the fast-paced editing was fun, I found myself frustrated at points at the way the exploration of issues wound up being truncated. For instance, I would have liked to hear more discussion of the case for continuing to tax corporations. It wasn’t all that long ago that corporations paid a much larger proportion of total Federal tax receipts, and since the US growth rate was higher then, one can’t argue (as many try to) that lower corporate income taxes are necessarily pro-growth. In fact, corporate profits are now a record percent of GDP, and the low of labor share of GDP growth is increasingly recognized by economists and financial analysts as one of the major reasons this “recovery” is so weak.

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  1. adriftonstormyseas

    Lordy does Vice lay it on thick:

    Economic cliches:
    “The rich own an increasingly larger piece of the economic pie.”
    “If we increase taxes, we’ll turn into dirty goddamn Frenchmen.”

    Q: Why does the US have higher tax collection than “those European countries” [ie Greece, the country actually being discussed]
    A: The sucess of Nordic welfare state policies doesn’t scale to a country the size of the USA.

    This flip of elegantly distressed hair brought to you by BoA.

    1. Yves Smith Post author

      Sheppard did not make that insinuation. That was all Mr. 538, who looks to have natural hair color. Sheppard is notorious in tax circles for calling out abuses by the wealthy (she was on to the carried interest loophole way before it was fashionable) and has more recently been telling tax pros there is no reason to have Federal taxes for revenue reasons, it’s all about incentives and containing inflation when needed.

      1. MRW

        Sheppard is right. There is no reason to have Federal taxes for revenue reasons. The federal government doesn’t need the revenue. It creates the damn dollar. It issues the money it needs to run itself.

        Why is that so damn difficult to understand or accept?

        Last year, in fiscal year 2014, the US federal government issued $69,813,929,000,000 ($69.8 trillion). In brand new US money that your children and grandchildren don’t have to pay back.

        And what were total federal tax receipts for fiscal year 2014? $2,599,799,000,000 ($2.5 trillion).

        Tell me how taxes pay for anything.

  2. homeroid

    That vid was a bit fast an slick. Illegal and immoral is not something i can financially support. Nuff said.

  3. Skippy


    “Illegal and immoral is not something i can financially support. Nuff said.”

    I have absolutely zero clue to how you arrive at your opinion or how it specifically relates to the video.

    Skippy… unsubstantiated drive by…

  4. vidimi

    we need progressive taxation of both corporate profits and individual capital gains. flat taxes are ridiculous. most developed countries have adopted some form of progressive taxation of incomes, but to my knowledge, none has a progressive corporate or capital gains tax. this would need to be backed up by tarriffs on tax dodgers (i.e. if you wish to profit by selling to the well-off people of this country, you must pay your taxes here, otherwise we’ll hit you with duty).

  5. Carlos

    The bigger problem here is the free flow of capital around the world, the so called investment flows which are mainly speculation on stock markets, currencies and commodities. This is mainly to the benefit of the large financial institutions who run the casino, successful gamblers with asymmetric information and tax avoiders.

    If a country can’t control these capital flows adequately they will find it very difficult to implement a cohesive enforceable corporate tax policy. As it stands today Corporate tax is an anachronism from a time when capital was less free to zip around the planet in microseconds.

    We either need world wide co-operation on corporate taxation policy or greater national sovereignty, capital controls and appropriate tariff regimes to discourage tax shifting.

    I’m not holding my breath for WW cooperation so greater national sovereignty and a less globalized financial system is going to be my preferred option ….. going forward.

    1. Disturbed Voter

      You have a clear eye, and think outside the box. The only reason for taxes is politics, not economics. It has never been for economics, because thru corvee, even in ancient times, the sovereign can impel the labor of the citizens, in a pre-monetarized society. If the sovereign simply compelled each citizen to spend time working the “commons” … such that the results of that working actually benefited the common good, wasn’t just some egotistical pyramid building. Everyone including the sovereign should spend time cultivating the common fields, whether nominally owned by Pharaoh or by the priesthood of Amon Ra. Done fairly, there would be much more justice than our present monetarized system.

      And yes, a 20th century tax system built for a gold standard (1913) is completely obsolescent in the 21st century.

        1. Carlos

          I find it easier to think taxation drives acceptance of the money.

          The king pays the soldiers in his coin and demands tax from landowners who feed the soldiers.

          In older times it was just whip the asses off those who won’t fight.

          1. todde

            We can both be correct.

            Taxation does drive the acceptance of money


            Money was invented to replace bulky trade goods and human labor as it is easier to ship and store.

          2. Martin Finnucane

            In older times it was just whip the asses off those who won’t fight.

            I suspect that taxation was originally a tribute paid by shop owners and other plebs to buy themselves and their sons out of military conscription.

      1. Jim Haygood

        ‘And yes, a 20th century tax system built for a gold standard (1913) is completely obsolescent in the 21st century.’

        Actually, the income tax (Amendment XVI, 1913) was passed in the same year as the act authorizing the Federal Reserve, which took but 58 years to destroy the gold standard with its inflationary bond buying.

        A fiat-currency, progressively-taxed economy is thoroughly modern. It beautifully performs its function of financing permanent war. How is the news from the Syrian front, comrade?

        1. Disturbed Voter

          Well it is a conceit to divide time into segments, like Modern or Medieval. Time resists dividing. So by Modern, I mean post 9/11. If we had Twitter back in 1913, perhaps the bill for the Income Tax and Federal Reserve would have been defeated.

          Fiat currency already existed in the N Sung and Yuan dynasties of China … didn’t help them either. There is no free lunch.

        2. MRW

          Actually, the income tax (Amendment XVI, 1913) was passed in the same year as the act authorizing the Federal Reserve, which took but 58 years to destroy the gold standard with its inflationary bond buying.

          The gold standard was destroyed 21 years after 1913.

          inflationary bond buying

          Hunh? It’s not “bond buying.” It’s bond issuance and auction. The US Treasury ISSUES the bonds–which as J Pierpont Morgan told his clients were better than gold–and SELLS them at auction. To the public. With interest.

          So why are bonds better than gold? Treasury securities (bonds) produce interest. Gold doesn’t.

          Why does the US Treasury issue bonds?

          It issues bonds in the amount of money that Congress spends (appropriates).

          Why do it?

          Because it restores the money supply to balance. The money supply is increased when Congress spends. After Congress spends, after the money is in people’s bank accounts, the bonds take an equivalent amount of money from the real economy until the bonds mature, thereby temporarily restoring the money supply to balance (until they mature). This controls inflation; it doesn’t add to it. The bonds are not required to pay for the spending.

          Does the federal government (US Treasury) need to do this?


          Then why does it do it?

          It started doing it after WWI to continue the success of the Liberty Bonds during the war, which were created to protect the US gold supply. Besides, people loved them. Gold didn’t pay interest. Bonds did and were guaranteed by the federal government, which gold wasn’t. If you lost a bar of gold, you were shit out of luck. But the real purpose was to protect the gold supply needed then to pay international debts and military cost overseas. It’s a matter of habit that they’ve continued.

      2. Procopius

        Interesting you should mention that. Corvee labor in Thailand was examined by the economist, Dr. Pasuk Phongpaichit, in Thailand: Economy and Politics, and a couple of other books. It was hated far more than money taxes. The reason King Rama IV encouraged Chinese immigration in the mid-19th century, was that he was losing population as people fled the kingdom, and corvee labor wasn’t able to do certain things that required certain skills. People sold themselves into slavery to avoid the corvee (slavery was not the same as the race-based slavery in the U.S. and lasted until 1905. It was bad, but not that bad.). The monarchs were forced to change the whole economy to a money basis, relying heavily on foreign trade, and adopting institutions from Europe. King Rama V received petitions begging him to allow people to pay a money tax in lieu of the corvee. Of course, the sovereign didn’t participate in cultivating the fields, which was what the “phrai”, the citizens, wanted to do rather than working on government projects.

  6. financial matters

    If governments lose their ability to tax I think they lose their validity and decrease the strength of their overall monetary system.

    Being able to print money is a good thing but people also need to trust that it will have value and be spent wisely.

    Corporations get many benefits from public funds and should contribute back to the public purse. There are many ways to do this including paying a living wage.

    I think that progressive tax rates are naturally supported by the idea that taxes give value to money but aren’t needed as revenue for spending. Tax havens for the wealthy and exorbitant corporate profits with minimal tax combined with the various equivalents of a high VAT tax are not a blueprint for a well functioning society.

    1. Synoia

      Government enforce their writ with violence.

      The alternative is anarchy. (See Kings Peace and Rule of Law).

      We do not have the best system. We have a variation of “least worse,”.\ with some degrees different from “least.”

      1. financial matters

        Not saying that it’s the only way but I think one thing that defines an ‘optimal currency area’ is a community with shared beliefs. They agree to certain rules and those are enforced. Maybe similar to traffic laws.

        I think that’s why it’s important to maintain that social bond if you want the currency to maintain its value.

        I think it’s similar to the breakdown in social justice we’re seeing when laws aren’t enforced equally.

  7. mikeyrem

    So I’m definitely an economics neophyte, but I am curious to hear more about the corporate tax as well. The argument I’ve heard (repeated by the guy from WSJ) is that taxing corporations obscures who is actually bearing the tax burden: in all likelihood, the overpaid executives (who maybe we’d like to be taxing more) just pass on the tax to the workers at the bottom of the chain in the form of lower wages, no?

    I’ve actually found that argument fairly persuasive, but I’m sure there’s another side to the question, or something fallacious with that argument??

    1. ambrit

      If one were to view ‘money’ as a means to power, then the taxation of wealthy individuals would reduce the individuals ability to challenge the central authority. Regardless of the ‘trickle down’ theory of wages, ‘overpaid’ executives, and their overlords, the rent extracting cliques, have always striven to either coopt or stymie the central authorities. Who holds the reins of power determines the policies of the society. In so far as the central authority truly represents the needs of the masses, a more equitable social system results. Otherwise, dystopia becomes the guiding pattern.
      The true tax burden will always be obscured. What is more important is to what ends those “taxes” are dedicated.

    2. Robert Frances

      It’s true that artificial entities like corporations, trusts and partnerships don’t “pay” tax. Only people pay tax. However, corporations (‘large businesses’ is a better term) can be very efficient tax “collectors” that disperse the tax burden throughout the economy rather than concentrate it among a smaller tax base.

      In most cases a corporation (and business entities in general) will pass along any tax to its customers in the form of higher prices. If they can’t pass along the tax for competitive reasons, then the corporation shareholders might end up effectively paying the tax in the form of lower dividends (or lower stock appreciation). This assumes the corporation can’t shift the tax burden onto its lowest and middle-income workers. And yes, the highest paid executives are likely to avoid any corporate level taxes since the usual way to transfer business taxes is: customers, lower and middle-income workers and finally shareholders.

      Corporate “profit taxes” are actually one of the worst types of taxes since very large businesses can relatively easily shift profits and costs into separate legal entities. High profits are shifted to low-tax jurisdictions (ie, Caymans, Netherlands, Hong Kong, etc,), and high costs and lower profits are reported in higher tax locations like the US and Europe. A better tax system would eliminate the corporate profits tax altogether and replace it with a graduated tax (say 1-6%) on business gross receipts (exempting small companies), along with high taxes on gross rent income and capital gains, especially capital gains from investment real estate since real estate gains really come from the community and not the individual property owners.

      The advantages of a gross receipts tax are: (1) it’s virtually impossible for businesses to avoid absent outright fraud; (2) it rewards exporters since the tax wouldn’t apply to exports (which helps domestic businesses and their workers), and (3) it captures tax from large companies that produce goods and services overseas but sell them into the local market. A GR tax also significantly reduces the need for expensive tax preparers and a corresponding small army of government auditors who currently have to review every business transaction to ensure that sales and costs were reported correctly in very large, complicated corporate structures. (Of course only a very small percentage of businesses are audited each year which increases the probability of taxpayers playing audit roulette since high corporate tax rates encourage tax “planning.”) A GR tax is relatively simple to calculate and audit: what were the business sales in each location and what is the graduated tax rate that applies? And since a GR tax uses a relatively small tax rate there is far less incentive to create convoluted business structures, where the primarily purpose is to to confuse and obfuscate business transactions so that the current profits tax can be reduced.

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