Democrats are going to demonize Apple as a non-taxpayer when there are so many US corporations from which to choose? What, did Obama's last fundraising swing through Silicon Valley disappoint?
The Times had an amusing and comprehensible example of a legal tasx minimization ploy:
Atop Apple’s offshore network is a subsidiary named Apple Operations International, which is incorporated in Ireland — where Apple had negotiated a special corporate tax rate of 2 percent or less in recent years — but keeps its bank accounts and records in the United States and holds board meetings in California.
Because the United States bases residency on where companies are incorporated, while Ireland focuses on where they are managed and controlled, Apple Operations International was able to fall neatly between the cracks of the two countries’ jurisdictions.
So for tax purposes Apple was nowhere. That is assuming the Times has this right, and in my experience they have a hard time on issues of tax and finance.
They also allude to a dumb but widely offered argument, to wit, that corparations that leave cash overseas to avoid taxes are inevitably under-investing in their US operations. That could make sense in the case of small businesses that lack ready access to our capital markets. However, the notion that Apple is constrained in its investments by a lack of internally generated cash is absurd. To their credit, the Times presents the research making that point:
As companies’ earnings have accumulated offshore, many executives have been pushing more aggressively for a tax holiday that would allow them to bring back funds at lower tax rates. Apple has recently announced that it will return $100 billion to shareholders over three years through a combination of dividends and purchases of its own shares. Though Apple has enough cash on hand to pay for those initiatives, the company recently announced it would take on $17 billion in debt, rather than bring overseas money back to the United States to avoid paying repatriation taxes on those returning funds.
“If Apple had used its overseas cash to fund this return of capital, the funds would have been diminished by the very high corporate U.S. tax rate of 35 percent,” Mr. Cook is planning to testify, according to the prepared text. Apple “believes the current system, which applies industrial era concepts to a digital economy, actually undermines U.S. competitiveness.”
Critics, however, say these so-called repatriation holidays, which bring back funds at lower tax rates, do virtually nothing to stimulate the economy and benefit only corporations, their executives and shareholders. Congress enacted a repatriation holiday in 2004, allowing corporations to bring back about $300 billion from overseas and pay just 5.25 percent rather than the regular 35 percent corporate rate.
But a study by the National Bureau of Economic Research found that 92 percent of the repatriated cash was used to pay for dividends, share buybacks or executive bonuses.
“Repatriations did not lead to an increase in domestic investment, employment or R.&D., even for the firms that lobbied for the tax holiday stating these intentions,” concluded the study, which was conducted by a team of three economists that included a former Bush administration official. Tuesday’s hearing on Capitol Hill, along with the disclosures about Apple’s tax policies, are likely to make lowering repatriation taxes a more difficult proposition for lawmakers to stomach, Congressional staff members said.
BIG FINISH: The most creative minds in Silicon Valley study and create computer code, the most creative minds in Wall Street study, and lobby for changes in, the tax code, and the result is Apple.