I see you are changing the topic and quoting something I wrote about social security to talk about corporate taxes. But thats OK. Ill talk about Social Security a bit first.
This is a summary from the CBO that comes up with the year 2038 as when the
trust fund is exhausted. The bolding is mine.
http://www.cbo.gov/publication/416446
Social Security is the federal government's largest single program. About 56 million people will receive Social Security benefits this year, the Congressional Budget Office (CBO) estimates. About 69 percent are retired workers, their spouses, and children, and another 12 percent are survivors of deceased workers; all of those beneficiaries receive payments through Old-Age and Survivors Insurance (OASI). The other 19 percent are disabled workers or their spouses and children; they receive Disability Insurance (DI) benefits. CBO projects that in fiscal year 2011, Social Security's outlays will total $733 billion, one-fifth of the federal budget; OASI payments will account for about 82 percent of those outlays, and DI payments, about 18 percent.
View more presentations from Congressional Budget Office Social Security has two primary sources of tax revenues: payroll taxes and income taxes on benefits. This year, roughly 97 percent of tax revenues dedicated to Social Security will be collected from a payroll tax of 12.4 percent that is levied on earnings and split evenly between workers and their employers at 6.2 percent apiece (except for self-employed workers, who pay the entire 12.4 percent tax on earnings themselves). The payroll tax applies only to taxable earningsearnings up to a maximum annual amount ($106,800 in 2011). Some Social Security benefits also are subject to taxation: This year, about 3 percent of Social Security's tax revenues will come from the income taxes that higher-income beneficiaries pay on their Social Security benefits. Tax revenues credited to the program will total $687 billion in fiscal year 2011.
Revenues from taxes, along with intragovernmental interest payments, are credited to Social Security's two trust fundsone for OASI and one for DIand the program's benefits and administrative costs are paid from those funds. Legally, the funds are separate, but they often are described collectively as the OASDI trust funds. In a given year, the sum of receipts to a fund along with the interest that is credited on previous balances, minus spending for benefits and administrative costs, constitutes that fund's surplus or deficit.
In calendar year 2010, for the first time since the enactment of the Social Security Amendments of 1983, annual outlays for the program exceeded annual revenues excluding interest credited to the trust funds. CBO projects that the gap will continue: Over the next five years, outlays will be about 5 percent greater than such revenues. However, as more members of the baby-boom generation (that is, people born between 1946 and 1964) enter retirement, outlays will increase relative to the size of the economy, whereas tax revenues will remain at an almost constant share of the economy. As a result, the shortfall will begin to grow around 2017.
CBO projects that the DI trust fund will be exhausted in 2017 and that the OASI trust fund will be exhausted in 2040. Once a trust fund's balance has fallen to zero and current revenues are insufficient to cover the benefits that are specified in law, the corresponding program will be unable to pay full benefits without changes in law. The DI trust fund came close to exhaustion in 1994, but that outcome was prevented by legislation that redirected revenues from the OASI trust fund to the DI trust fund. In part because of that experience, it is a common analytical convention to consider the DI and OASI trust funds as combined. CBO projects that, if legislation to shift resources from the OASI trust fund to the DI trust fund was enacted, the combined OASDI trust funds would be exhausted in 2038.
The amount of Social Security taxes paid by various groups of people differs, as do the benefits that different groups receive. For example, people with higher earnings pay more in Social Security payroll taxes than do lower-earning participants, and they also receive larger benefits (although not proportionately larger). Because of the progressive nature of Social Security's benefit formula, replacement ratesannual benefits as a percentage of annual lifetime earningsare lower, on average, for workers who have had higher earnings. As another example, the amount of taxes paid and benefits received will be greater for people in later birth cohorts because they typically will have higher earnings over a lifetime, even after an adjustment for inflation, CBO projects. However, initial replacement rates will be slightly lower, on average, for people in later birth groups because their full retirement age (the age at which they can receive unreduced retirement benefits) will be higher. The increase in that age is equivalent to a reduction in benefits at any age at which benefits are claimed.
You will notice that this is based on a
total rate of 12.4%. It must be that Alzheimers kicking in that you so kindly diagnosed me as having, but I seem to remember a ruckus up in Washington late last year about extending that 2% reduction in the part that the employee pays. That would mean the effective rate is actually 10.2% if we keep extending it. Wonder what will happen once this election year is over with?
The CBO has to use the laws that are on the books when they do their analysis. When they ran these numbers, the 2% reduction was supposed to expire. Thats why they used 12.2%, not 10.2% for the life of the program. They did combine the DI and OASI trust funds to come up with the 2038 date. That sure made it simpler for this old fogeys brain to handle.
It must be my illiteracy that you so kindly diagnosed me with, but I thought I read that the outgo is going to start exceeding the income significantly in 2017 at that 12.2% rate. And I thought I read they are looking at the Trust Funds for funding when talking about outgo exceeding income. That means they have to start cashing in those bonds which are backed by the full faith and credit of the US Government. That means the Federal government will have to come up with the cash to pay for those bonds. I wonder where the Federal government is going to come up with extra cash to redeem those bonds. Maybe you could help me figure that one out.
On corporations avoiding taxes by incorporating overseas. Yes they do that. Its called tax avoidance, not tax evasion. There is a big difference. One is legal; the other can get you in big trouble.
I dont think you are implying that these corporations are evading paying payroll taxes on US workers. If you actually know of any doing that, you should bring a law suit. Thats illegal. Or are you implying that the corporations should pay US payroll taxes on foreign people working in foreign countries? Im not 100% sure exactly what taxes you are talking about and I dont want to put words in your mouth. Ill assume you are not talking about payroll taxes, but income and corporate taxes. I'm easily confused so I could be wrong.
When I was living in Louisiana, I sometimes worked in other states or outside the US. I had to pay Louisiana State income tax on money I earned in Louisiana. If I earned that money in Texas or Mississippi, I had to follow their laws as far as income tax. I did not have to pay Louisiana State income tax on that money, just the money I earned in Louisiana. When I worked overseas, I had to follow the country I was working in's laws as far as what income taxes I paid. Since I was paid by a US company in US dollars, I also had to follow the US laws. There are specific laws covering how that was handled. Usually I was protected against having to pay income tax twice. Generally, I could deduct taxes paid to a foreign country on my US taxes, but sometimes those rules changed. I remember when they made that total deduction went from unlimited to maxing out at $75,000 a year. I dont know what those laws say now. I havent worked overseas for several years. Im really glad that part of my benefits for those overseas jobs was that a nationally known accounting firm actually prepared my taxes. Some of that could get pretty complicated, especially the carry forward provisions.
It is a fairly common practice for the various states to offer tax incentives to lure companies to create jobs in their states. Some cities and counties do that too. I remember quite a few news stories where the local and state governments were going to forgive certain taxes to try to lure a certain car assembly plant to Louisiana. It may surprise some people, but some countries do that too. The Bahamas is one well-known one. Its not unusual for companies, especially multinational companies, to incorporate in the Bahamas or somewhere else to tax shelter certain monies and set up subsidiaries or some other legal entity to actually do business in the US. That brings corporate taxes to the Bahamas and helps their economy. Legally, this makes the ones that do this a foreign corporation, not a US corporation, and subject to the corporate laws of the country they are in.
The US Government can and does apply certain taxes on these subsidiaries and other legal entities doing business in the US. Where they run into legal trouble is trying to tax a foreign company for money not earned in the US.
Its kind of a balancing act. The international company I worked for could invest money for projects in many different countries around the word. I helped evaluate which projects would go forward and which would not. My part of it was to estiomate costs to set up and operate specific projects, but I sat through a lot of boring presentations about how the tax structure would affect profit. I saw several US projects not go forward and that investment money spent overseas because of how taxes would affect profit. I also saw some US projects go forward even though the potential profits were not as high. The risk associated with political instability was a big factor in some of those decisions. As I said, a balancing act.
Corporations have a responsibility to their stockholders to maximize profits. If they are working in many different countries, they should look at how taxes affect their profit margins. For some, business is business. If they can make a better return for their stockholders, they will incorporate overseas and avoid certain US taxes. There are some that could, but dont. Why? You would have to get with them and try to get a straight answer. Good luck with that, but it is probably related to the bottom line.
If you have specific proposals for reform in the area of corporate taxes to address some of this, Id love to hear them as long as they take into account the overall effects. I know this will be subjective based on the assumptions you use, but you if you list your assumptions, I can make my own evaluation of how valid they are. It would be nice if these specific proposals took into account international laws and the treaties we have with certain countries covering these items, but I don't want to ask too much. Just a general broad-brush We ought to do something is not real specific in my opinion.
Editted to add: My apologies to anyone offended to a light-hearted reference to Alzheimer's. Someone very close to me has suffered from advanced Alzheimers for a while. I know it is not a joking matter.
