Rich Tax Breaks Bolster Makers of Video Games

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Hmmm, I'm kinda split on this one. I guess if I had to choose which multi-billion dollar corporation was going to get a tax break, I'd rather see the video game industry get it versus banks, oil companies and so on.

Those tax incentives — a collection of deductions, write-offs and credits mostly devised for other industries in other eras — now make video game production one of the most highly subsidized businesses in the United States, says Calvin H. Johnson, who has worked at the Treasury Department and is now a tax professor at the University of Texas at Austin.
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For the most part we just get double taxed because companies pass it on to the consumer in the end anyway.
 
I am less worried about ^^^ this than the fact that companies like Google as an example have an effective tax rate of 2.4%, GE 7% etc.
 
the problem with any industry that has to rely on tax breaks and subssidies is that eventually you run out of the free money or your tax breaks dry up.

you better hope that you can make it on your own before that happens.
 
Reminds me a quote from a book: "We businessmen believe in the Free Market, but keep those subsidies coming! I need to stay in business!"
 
I'm too tired from the last thread to start into this again. Boo taxes yadda yadda yadda.
 
Now, just for full disclosure maybe the NYT should run a story discussing what tax breaks and incentives they use?
 
Every business and industry should be subsidized equally or not at all.

"Free market economy" my ass...
 
bucket said:
Every business and industry should be subsidized equally or not at all.

"Free market economy" my ass...
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I pretty much agree with this...

If a company can't stay in business on its own, then it needs to die.

All subsidies are is taxes that get passed onto the consumers.

Limited time subsidies may be O.k. though.. .Incentives to get companies to build plants, etc. in a certain area. However, accompanied agreements that the company won't up and move for a good amount of time once the subsidy runs out should be included as well.

Otherwise, the company will just shop around for other places to move to where they can get a subsidy once the current one runs out.

But that there just makes too much sense so it will never happen.
 
trooper11 said:
the problem with any industry that has to rely on tax breaks and subssidies is that eventually you run out of the free money or your tax breaks dry up.

you better hope that you can make it on your own before that happens.
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They can make it on their own just fine. They made $1.2 billion in PROFITS the article said, yet through a combination of tax credits, tax deductions, executive stock option tax benefits they were able to show a net loss in America, and only pay $98 million in countries outside America.

What's typical is things like a company developing something, selling the rights to it to a subsidiary in a tax haven country for $1, then paying that subsidiary millions and millions for the right to use the 'other' company's intellectual property. That way in the US they have a loss, and don't pay taxes here.

And for those that say - 'Well a business just passes taxes on to the consumer anyway, so it doesn't matter.' That's actually false. A business will charge whatever consumers will pay. If they're being taxed at 0% they're still going to charge whatever the maximum they think people will pay. It's like the whole argument - 'If we only had lower taxes, businesses would hire more people!' It just isn't true. A business will only hire somebody, if they need somebody. If you take a company being taxed at 10%, and lower it to 5%, they aren't going to take that extra money and hire more people. They're going to report higher earnings, then use that as a reason for higher executive bonuses.
 
Ualdayan said:
They can make it on their own just fine. They made $1.2 billion in PROFITS the article said, yet through a combination of tax credits, tax deductions, executive stock option tax benefits they were able to show a net loss in America, and only pay $98 million in countries outside America.

What's typical is things like a company developing something, selling the rights to it to a subsidiary in a tax haven country for $1, then paying that subsidiary millions and millions for the right to use the 'other' company's intellectual property. That way in the US they have a loss, and don't pay taxes here.

And for those that say - 'Well a business just passes taxes on to the consumer anyway, so it doesn't matter.' That's actually false. A business will charge whatever consumers will pay. If they're being taxed at 0% they're still going to charge whatever the maximum they think people will pay. It's like the whole argument - 'If we only had lower taxes, businesses would hire more people!' It just isn't true. A business will only hire somebody, if they need somebody. If you take a company being taxed at 10%, and lower it to 5%, they aren't going to take that extra money and hire more people. They're going to report higher earnings, then use that as a reason for higher executive bonuses.
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It makes me wonder why we tolerate these tax havens. No other countries like them since all they do is steal their tax money and they are often small like Luxembourg and Lichtenstein and have very little else in their econamy other than tax lawers and bankers. If EU and the US simply put a blockade on those countries what could they do? It isn't far that those countries can live on other countries money when they create almost nothing of their own.
 
dagas said:
It makes me wonder why we tolerate these tax havens. No other countries like them since all they do is steal their tax money and they are often small like Luxembourg and Lichtenstein and have very little else in their econamy other than tax lawers and bankers. If EU and the US simply put a blockade on those countries what could they do? It isn't far that those countries can live on other countries money when they create almost nothing of their own.
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Because all the rich bastards living there have plenty of money to pay to lawyers, and lobbyists too get favorable laws written for them here, that's why.

Then they're those who live on the run for 20 years to avoid paying taxes. You really have to be an angry or bitter person to hide for 20 years just to avoid paying taxes.

ComputerLand founder William Millard found 20 years after going missing; owes $100 million in taxes

Authorities believe they may have tracked down one of the world's most wanted tax cheats, ComputerLand founder William H. Millard, after more than 20 years on the run.

The eccentric millionaire was tracked down in the Grand Cayman Island, the Wall Street Journal reported on Saturday. He was reportedly spotted living in a yellow mansion with his wife.

He had last been seen on the remote Pacific Island of Saipan in 1990, but has been able to avoid authorities for more than two decades.

He left ComputerLand in 1987 after a long battle against investors, moved his family to Saipan – and even began building a castle on the island's coastline, according to the Journal.
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More at link...
 
This is a major problem when you have a tax code that looks like a block of imported swiss cheese. Giving everyone and their mother a tax break. Moreso the rich then anyone else. When my sisters husband (Who is a orthopedic surgeon) makes 8 times as much money as my sister (who is a nurse) and pays an effective tax rate of 9% compared to his wife (My sister) who makes around $100,000 a year and is taxed higher....something is really wrong with this picture...
 
The Cobra said:
This is a major problem when you have a tax code that looks like a block of imported swiss cheese. Giving everyone and their mother a tax break. Moreso the rich then anyone else. When my sisters husband (Who is a orthopedic surgeon) makes 8 times as much money as my sister (who is a nurse) and pays an effective tax rate of 9% compared to his wife (My sister) who makes around $100,000 a year and is taxed higher....something is really wrong with this picture...
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Actually the "poor" get so many breaks that the over 50% of the bottom 40% of wage earners actually have a negative tax rate and their refund exceeds their withholdings, sometimes by several thousand dollars (this is above and beyond anything benifits they recieve from various social programs during the year.)

Ironically taxes are treated the exact opposite as prison time by people. Compare what happened with cocaine and crack, when it was noted the disparity in sentences people pushed for the sentence for crack be reduced, but if someone pays less taxes they have to pay more. lol!

Seriously though, the difference of opinion on this often boils down to people's definition of fairness. Some feel everyone should pay the same amount, others feel everyone should pay the same percentage and there are some who the rich should pay even higher percentages because they can afford it. We'll never have a national agreement on these items, and politicans know this, but they can't help playing class warfare to turn people against each other to disguise their ineptitude. (please note how many members of Congress scream about various tax breaks and/or tax rates and yet it's the very same Congress that passed these things (with support from many of those members of Congress complaining.)
 
There are no "rich" and no "working class", just "job creators" and "wellfare bums". Right?
 
DarkStar_WNY said:
Actually the "poor" get so many breaks that the over 50% of the bottom 40% of wage earners actually have a negative tax rate and their refund exceeds their withholdings, sometimes by several thousand dollars (this is above and beyond anything benifits they recieve from various social programs during the year.)
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I'm much less worried about the poor person making $50k/yr with an effective tax rate of 0% than I am about the millionaire/billionaire making $40M/yr with an effective tax rate of 17%
 
sfsuphysics said:
I'm much less worried about the poor person making $50k/yr with an effective tax rate of 0% than I am about the millionaire/billionaire making $40M/yr with an effective tax rate of 17%
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How many kids would you need to have to not get taxed on 50k?
 
Yes, the low class effective get a "negative" tax %.
and
Yes, the upper class are taxed too little (thanks to these tricky incentives).

It's the the hardworking, middleclass, who doesn't cheat, doesn't steal, doesn't lie, doesn't use some crazy loophole to avoid half his taxes; that gets screwed.

If you're making under 40k a year in America, you're better off sitting on unemployment and just doing work under the table on the side. (if at all) That's a sad state of affairs.
 
I don't get it. Why do people hate the oil industry? Who doesn't profit from cheap and available gas? Not to mention all the other things that are made available thanks to oil.
 
total0 said:
I don't get it. Why do people hate the oil industry? Who doesn't profit from cheap and available gas? Not to mention all the other things that are made available thanks to oil.
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Video games are made of oil?
 
total0 said:
I don't get it. Why do people hate the oil industry? Who doesn't profit from cheap and available gas? Not to mention all the other things that are made available thanks to oil.
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Gas is available... not very cheap. Don't worry though, those oil companies are making record profits.

sfsuphysics said:
I'm much less worried about the poor person making $50k/yr with an effective tax rate of 0% than I am about the millionaire/billionaire making $40M/yr with an effective tax rate of 17%
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LOL
 
TwistedAegis said:
You know what are even more lovable? Whales! And they're huge, there is no way we'll ever run out of whale oil, my lamp oil of choice.
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Oh, and don't get me started on buffalo chips...good thing we have so many of them, it would be impossible to kill them all off.
 
I have a few issues with this article.

Those tax incentives — a collection of deductions, write-offs and credits mostly devised for other industries in other eras — now make video game production one of the most highly subsidized businesses in the United States
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I think the distinction between a tax break and a subsidy is an important one. A subsidy is when government pays economic actors in an industry because the market (allegedly) will not support them. A prime example is subsidy payments made to farmers for being in the farming industry. A tax deduction is not a subsidy, but a tax deduction. Letting someone pay less tax, or keep more of the money they earned, is not the same thing as paying someone money.

When the tax code was rewritten in 1954 — nearly 20 years before the first commercially successful video game was released — Congress included a new break allowing companies to deduct all laboratory-based research and experimentation costs immediately....

In 1969, the I.R.S. expanded that tax break to allow companies to deduct the cost of software development, which was a small part of a business that was then dominated by bulky mainframe computers. When the video game industry sprouted in the early 1970s, game developers reaped substantial tax savings because most of their costs were for software development.
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These two paragraphs (meat of first omitted for brevity) seem to imply that it would be more conceptually correct to spread the deduction of R&D costs out over several years instead of deducting them as incurred. However, GAAP specifically disallows capitalization of most R&D because of the numerous uncertainties in developing and selling a new product. Put simply, you should only capitalize (make an asset on the balance sheet instead of expense on income statement, which reduces profit) something you expect to receive future benefit from. If the money you are investing is speculative, it is more conservative to expense right away. FASB decided R&D was too speculative, with some complicated exceptions for oil well development and software (can only capitalize after technological feasibility established and revenues from product estimable).

I realize tax accounting tends to be done on closer to cash basis than accrual basis, but I don't see why companies should not be able to deduct their R&D expenses. The truth is they spent the money in a good faith effort to produce a product, and don't know for sure it will sell/pay off. To me it seems fair that they pay lower taxes in the years of heavy R&D, and pay higher taxes if/when the product they developed sells well.

I was able to agree with something in the article as well - the tax code has far too much complication, and as a result too much lobbying and political horse trading occurs. For 2010 the cost to comply with the federal tax code was 310 billion, or 2% of all economic output that year. To me that is incredibly wasteful. I would like to see a broader corporate tax base - lower marginal rates applied more evenly. I suspect a big portion of this problem is simply how large the tax take is now - 25-27% of GDP depending on how you count it. I think it would be less contentious if it weren't so damn massive!
 
LeninGHOLA said:
Does Steam lube their intertubes with petroleum jelly to improve my download speeds?
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ha.. if the only games you have are on Steam.. I feel sorry for you. don't get me wrong.. I like Steam.. but they don't have every awesome game.

In any case... tons of stuff in your computer and pretty much everything (not everything) else you probably have has some amount of plastic in it.
 
cyclone3d said:
ha.. if the only games you have are on Steam.. I feel sorry for you. don't get me wrong.. I like Steam.. but they don't have every awesome game.

In any case... tons of stuff in your computer and pretty much everything (not everything) else you probably have has some amount of plastic in it.
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Nope, not all of them are on Steam, though I haven't purchased a game retail in 2+ years. There are plenty of good DD services now.
 
RustedAngel said:
I realize tax accounting tends to be done on closer to cash basis than accrual basis, but I don't see why companies should not be able to deduct their R&D expenses. The truth is they spent the money in a good faith effort to produce a product, and don't know for sure it will sell/pay off. To me it seems fair that they pay lower taxes in the years of heavy R&D, and pay higher taxes if/when the product they developed sells well.
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I think that the article was trying to say that the definition of R&D is too broad. Is EA creating better client-side predictions in their netcode, which they probably would have done anyway, R&D? And even so, is that R&D that we should be targetting for special treatment with tax incentives?
 
LeninGHOLA said:
Nope, not all of them are on Steam, though I haven't purchased a game retail in 2+ years. There are plenty of good DD services now.
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Gosh, now that I think about it other than collector stuff I pick up for nostalgia like old DC games I literally haven't bought a game at retails since the steam store open up. I think maybe Morrowind? Maybe? I've bought D2D and other sites besides steam, but retail? Couldn't be less than 4 years.
 
piscian18 said:
Gosh, now that I think about it other than collector stuff I pick up for nostalgia like old DC games I literally haven't bought a game at retails since the steam store open up. I think maybe Morrowind? Maybe? I've bought D2D and other sites besides steam, but retail? Couldn't be less than 4 years.
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Shit it's been like 8 years.
 
How is keeping more of the money a company earns the same as a subsidy? I can understand calling an arrangement where taxpayer money is given to companies via the government a subsidy, but if the money is actually made by the company then that's something else entirely, and assuming that the money a company earns automatically belongs to the government reveals a Communistic and totalitarian bias. And just because a company pays a tax rate that's below the average of what an individual pays doesn't negate the fact that every individual who works for the company also pays individual income, medicare, social security, and often state income taxes, at a rate comparable to what workers across the nation in similar industries pay.
 
Deadly Ramon said:
How is keeping more of the money a company earns the same as a subsidy? I can understand calling an arrangement where taxpayer money is given to companies via the government a subsidy, but if the money is actually made by the company then that's something else entirely, and assuming that the money a company earns automatically belongs to the government reveals a Communistic and totalitarian bias. And just because a company pays a tax rate that's below the average of what an individual pays doesn't negate the fact that every individual who works for the company also pays individual income, medicare, social security, and often state income taxes, at a rate comparable to what workers across the nation in similar industries pay.
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If we both own companies and make $50k and the tax rate is 10%, we should both pay $5,000. However, your company manufactures rainbows, while mine produces oil sludge, thus the gov't in the end gets only $1,000 while it still gets $5,000 from me. How would you consider that?
 
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