Goldman Sachs paid tax at an effective rate of 0.6% in the year to 30 November 2008. If that is replicated this year that means that their tax freedom day fell on 2 January, but since most people weren't around then, I thought I'd mention it now.
And yet the Adam Smith Institute argue that Tax Freedom Day is on June 2nd.
Why do they spread such misinformation which so obviously ignores the fact that the tax burden is spread so unfairly in society?
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Richard,
Any idea what Tax Freedom Day for those who are on benefits -or- are not productive tax-payers would be?
A guess would be 01 January at 00:00:01, unfair distribution indeed.
Georges
Unfair Georges?
Do you believe taxing those without income? Is that your view of justice?
And – as a matter of fact – some of them have the highest effective tax rates of anyone in the UK – as all income distribution data shows
Richard
Richard-
I’m afraid you’re wrong about the amount of tax GS is paying. The tax number you’ve picked up on the 8-K is neither the actual tax paid nor the actual amount of tax expense incurred.
What is shown on the 8-K is the tax expense as calculated using FASB 109 ‘Accounting for Income Taxes’, which is required to be used for GAAP-basis financial statements.
Here is how tax expense is calculated under FASB 109:
The objective of accounting for income taxes are to recognize (a) the amount of taxes payable or refundable for the current year and (b) deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an enterprise’s financial statements or tax returns.
As you can see, taxes are recalculated to conform with income per GAAP, as opposed to income per tax code. Therefore, there is no direct correlation between actual tax paid (or incurred) and the tax expense computed per GAAP during any given fiscal period.
You should either (a) revise/correct your post(s) accordingly, or (b) use the amounts from the various GS tax returns from the countries where GS does business to compute tax expense.
(Using the GAAP-based number provides you no useful information with regards to the point you are attempting to make.)
Kenton
Thanks for commenting
But are you really arguing there is a complete disconnect between the accounts and tax owing?
I know, and you’ll see I know if you read The Missing Billions and Th Tax Gap, about the problems of accounting for tax, but your claim seems to be there is no connection between the accounting data and tax paid.
I accept they’re not the same, but they’re not that far out. And it’s the best figure we’ve got right now so it will have to do.
Richard
Richard-
I’m not arguing there is a disconnect between the accounts and tax owing… Nor am I claiming there is no connection between accounting data and tax paid. There is nothing to either argue or claim. If you read FASB 109 closely you will see the purpose of accounting for income taxes in GAAP-basis financial statements has nothing to do presenting actual tax expense. In GAAP-basis financial statements, actual tax expense is not meaningful.
It is this simple: When computing tax expense using United States Generally Accepted Accounting Principles, the expense is computed using income per GAAP (not tax code) and an estimated tax rate.
The amount of tax expense presented on Goldman Sachs’ financial statements is a theoretical number, and as such provides absolutely no taxes actually incurred or paid information. Unless you have compared the expense in the 8-K to the expense derived from the actual tax returns, you have absolutely no basis for claiming actual tax expense and GAAP tax expense are “not that far out” from each other.
My criticism of your original posts on the subject still stand. They are inaccurate and without merit and will remain so until you find and present Goldman Sachs’ actual tax expense figures. Claiming that you have to use the wrong number (the GAAP tax amount) to make your point about Goldman Sachs because it is the only number available is very strange indeed.
Kenton
Since the original tax expense figures are not on public record what are you suggesting? That no one say anything?
Sorry – in the real world we use the data we’ve got – and this stuff, inadequate as it is – has to do
Richard
If you are going to accuse corporations of “avoiding their obligation to pay tax” – which is exactly what you did in your original post – wouldn’t it make sense to actually know what the those corporations actually pay in tax?
That’s not asking too much, is it?
Or is it?
Using GAAP data to criticize a company for not paying taxes is like claiming that a company with 1000 employees doesn’t pay well or give good raises, because one janitor, who comes in with a hangover every morning and does mediocre work, doesn’t get paid well. There is no basis for your argument – none – zero – zilch. We aren’t even talking apples and oranges. We are talking apples and elephants. There is no basis at all for comparison.
John
That’s as good as saying GAAP does not provide meaningful data
In that case it has failed
If it does provide meaningful data my analysis is valid
If it does not then we need to reform GAAP so we do get meaningful data on tax
Either way I’m right and you’re wrong – absolutely wrong
Which option are you choosing?
Richard
Yes, GAAP often does not provide meaningful data. There is a professional certification called the CFA (Chartered Financial Analyst)in which the applicant spends 3 years trying to learn how to undo all the things accountants do to mess up financial statements.
Example: If I sell a loan to another bank, I follow one set of rules. If I sell the loan to an independent trust, and the trust issues securities using that loan as collateral, I have to follow a completely separate set of rules. Sometimes those rules mean that a person who has no significant interest in that loan has to consolidate the entire balance on their balance sheet – even though they carry no risk and have no particularly significant interest in the deal.
Yes, GAAP is seriously messed up.
Since Goldman will pay (or will have paid) in excess of $1.5 billion in corpoation tax in the UK alone, the actual (a opposed to effecive) tax rate must surely be well in excess of 0.6%.
I used their accounts
Ask them