May 04, 2009

I heard Obama on the news today about closing tax loopholes for international taxes, which make me thinking about taxes in general in the modern world. I work in the industry where location does not matter as much any more – you can provide remote services no matter where you physically reside and where your company is located. For many Web businesses the location is not critical too. You may wish to have Sales, Business Development and Marketing guys in the right places but for most of headquarters it does not matter a lot.

So what if we view ourselves as being free to work in any location and  create a company in any place while fairly paying taxes ?  In this case it becomes a basic “value for money” choice both as individual and as a company.

I think this is especially interesting in USA as States have their local taxes too,  Income and Sales tax are being most important.   It is very interesting where do the money go and what kind of value I’m getting for them.   California has State income tax which is a heavy burden (especially for long term capital gains,  which have low 15% federal tax rate but same state tax rate).   Comparing to Washington State (I lived there for 2.5 years) which has no income tax I do not see what benefits I’m getting but I surely feel the pain of extra taxes.

I’ve spent some in UK too.  Comparing to Washington state I had a feeling I have to pay a lot more in taxes while getting much less in return. UK was especially evil to foreign workers not allowing to claim any child benefit tax deduction.  This was one of the reasons for me to get back to US, though not the main one.

What kind of values are important for me as return for my tax payments ?  I do not want things which I can provide myself or purchase on commercial basics, this means I’m not looking for most of “socialistic” stuff which every developed country spends their taxes on.  I think unemployment has to be optional insurance  (working in the foreign country being unable to get benefits of your premium is especially tough). I also would see too see social security/retirement insurance etc being add ons you can purchase but you do not have to. I believe in responsibility of individual for his actions and I belive via tax system most of the countries reward irresponsible behavior.

The things which taxes should go in my opinion is envinronment, infrastructure, safety, society development.   The fact I feel safe for my life and my family is extremely important to me.     I also would like to see my taxes being spent caring for people who can’t accept responsibility for their actions.  I believe kids should be well taken care of because we can’t chose our parents as well as people who are physically or mentally sick from their youth and so could not make arrangments for their care.

If I would be alone, working remotely as I am right now I may have chosen to live elsewhere.  You can probably find a tropical paradise with cost of living 1/5th of california and significantly lower taxes, which would allow to save money substantially or have a very different quality of life.   With kids things like safety, education,  medical care,entertainment, their peers, envinronment are very important.

What is about company? The company has similar benefits to measure up.  The US company deals with good legal system, is respectful and easy to deal with for US customers, has access to loans and equity capital. These are all benefits.  The heavy corporate tax rate (which is higher than in UK) is what you’ve got to pay for that.

I would like to see people and companies paying their fair share of taxes.  Few people like to pay taxes and I’m not exception but I know this is required for country to work.  I would surely look at closing loopholes for people and companies looking to avoid paing their fair share of taxes. At the same time I would look to make sure the taxes look fair to the people paying them.  I belive there would be less reason for people to avoid taxes and more support for strong actions against individual and entities doing so if people will understand where their taxes go and feel they are getting fair value for their money.

… Also US tax system is so complicated.  Somebody should redesign it following KISS principle ?

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