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Editorial: Apple isn’t the problem; Congress is

On Tuesday, appearing before often irate members of the Senate Permanent Subcommittee on Investigations, Apple CEO Tim Cook was “nowhere man,” defending Apple subsidiaries that, for tax purposes, live in a “nowhere land” beyond the reach of any nation’s tax collectors. But unlike the “nowhere man” in the Beatles song, Cook had a point of view. If Congress is unhappy with Apple for minimizing its tax liabilities, it should reform the tax code. We agree.

What Apple did to escape taxation on an estimated $44 billion in profits was perfectly legal under the tax code created by, you guessed it, the same Congress that called Cook onto the carpet. In fact, Apple has been using a tax structure that makes use of gaps in the law in the United States and Ireland since 1980. The company pays a whopping $6 billion per year in federal taxes but, according to Michigan Sen. Carl Levin, the committee chairman, it successfully escaped paying $9 billion more in taxes in 2012 alone. But don’t blame Apple for that; blame Congress.

For decades Congress has been unable to agree to any of the sweeping tax reform proposals put before it, including one co-authored by former New Hampshire senator Judd Gregg. All had downsides but any would be better than what exists now: an incomprehensible behemoth of a tax code riddled with loopholes and exemptions whose structure contributes to America’s ever-widening income gap.

Apple is hardly alone in its use of complicated and esoteric tax strategies to minimize its tax liability and maximize value for its investors. Most major corporations shelter profits in offshore tax havens to escape the nominal 35 percent tax on corporate profits.

That high tax rate e_SEnD although almost no one pays it – is also why Apple keeps two-thirds of its $150 billion cash hoard overseas. That’s money that can’t be taxed or used to create jobs in the United States. The total corporate cash hoard parked offshore is estimated to be $1.9 trillion. Thanks to the tax code’s perverse disincentives, companies, Apple included, are better off borrowing money when they need it to expand than repatriating funds and paying taxes on the money.

Apple wants Congress to reform and simplify the tax code, even if it means that the company will pay more in taxes, Cook said. And the company should pay more. Corporate tax collections, thanks to effective lobbying, campaign contributions and successful tax avoidance strategies now make up just 10 percent of federal tax collections. The taxes corporations escape must be paid by others, including middle-class taxpayers whose incomes in real terms haven’t improved in years.

The corporate tax rate should be lowered, loopholes and deductions severely limited or eliminated, and all income, whether from wages, dividends or capital gains, taxed at the same rate. Ideally, to prevent restructuring shenanigans, that rate would be the same for corporations and individual taxpayers in the top bracket.

Tax reform should be progressive, work to shrink the vast gulf in wealth between the super-rich and everyone else and reduce, perhaps through a low tax rate on repatriated money, the incentive for companies and wealth individuals, to park cash offshore.

Accomplishing that sounds like a tall order, but major tax reform has happened before and it could again if the public focuses its ire not on corporate tax-avoiders like Apple, but on the Congress that makes it easy for companies to escape paying their fair share.

Legacy Comments36

The readers need to be informed that every one of the "Green" tax breaks GE took were given to GE by Obama and the democrats & The Chairman of GE - Jeff Immelt is head of Obama's jobs council

G.E. paid no taxes in 2010, not because of "green" tax breaks, but because of the losses its financial services arm incurred due to the financial meltdown of 07-08. Powerful lobbyists are a corrupting influence on both parties in Washington. For someone ever ready to defend "Citizens United", your post is not just blindly partisan, but hypocritical.

This is insane. If you think Apple is greedy, etc, don't buy their products. They are successful because you do buy their products. If you do not make a profit in business, the business fails and nobody will invest in it. We have seen a lot of companies leave the US. If the govt wants to control business profits in the name of fair share, those companies will leave also. Keep going after business folks. And you wonder why they are reluctant to expand, hire etc. They are just sitting back and waiting to see how many more taxes, regulations, etc you have in store for them. You are also doing it to small business.

Rabbit, it is not the fact that Apple is greedy, the prevailing view of liberals is that Capitalism is bad and honestly, they want some hybrid economy where everyone has equal income and companies break even. What they don't understand are the basics of "economy" which is based on GDP. GDP can only be increased through investment of shareholders and shareholders will not invest without a return. The arrmchair quarterbacks here are pretty much ignorant when it comes economy. Investors are NOT here to provide jobs and companies go off shore due to things like unions and the general lack of work ethic of the American worker.

Do businesses not bear any responsibility for supporting the government that supports them? In other words, should they not contribute to educating their workforce through public schools, for building and maintaining roads and bridges that carry their goods to customers, for providing police and fire protection, for operating in an environment with laws and courts to protect them and their patents, for operating in a free, democratic society with an open flow of ideas, for providing their employees with clean air, water and food? According to this column, corporate contributions make up just 10% of federal tax collections. I don't think that's enough and yes, I realize they pay local taxes too. What that means to me is that middle-class American tax payers have had to shoulder the majority of that tax load. I don't think Apple is evil. In fact, I am pecking away on one of their products right now. There are other companies far more obsessed with profit that I absolutely refuse to patronize. Mauser is right that much of this is the result of a relentless pursuit of increasing value for stockholders. It is no coincidence that CEOs are frequently paid in stock options. Many companies even have in their mission statements that they want to "increase shareholder value" or some such thing. There is no regard for doing the right thing. Would more businesses leave if we eliminated all these loopholes in our tax code? Maybe. But some would HAVE TO stay to continue doing business here. It's not a black and white issue. I think the real answer is to educate Americans about this issue and encourage them to support local--or at least American businesses and buy American-made products. One of the reasons I bought an Apple computer is because their tech support is here in the USA. Compared to talking to someone with HP in India for example, it's absolutely fantastic!

You are all wrong, it's not Apple or Congress. The guilty party in all this are the stockholders. Stockholders only care about THEIR bottom line, they don't care about outsourcing jobs, integrity, obeying the spirit ofv the law as opposed to the letter of it. They only care about one thing - more money in their pockets. So blame Apple or blame Congress but the real criminal behavior here is the greed of investors. The business of business is to keep investors happy not to provide jobs and services in todays world.

Mauser, I think you're right about greed but it's more on Wall Street than small fish like me. For all I know, I could own some minute portion of Apple stock through my 401k. I think the real problem is that the tax code has been bent to Wall Street's favor by lobbyists and crocked/greedy politicians.

Considering that we have the highest corporate tax rate in the industrialized world, I believe you are incorrect. "Greed" is hyperbolic rhetoric created by the Left in the absence of a real understanding of economy or lack of interest in an honest conversation about taxes and economy. Taxes to progressives represent a never ending well as they keep reeling up buckets and buckets of cash to spend as they feel fit.

The EFFECTIVE corporate tax rate in the US is on par with most industrialized countries. From Forbes: And taxes to me are the price we pay to live in a civilized society. I don't enjoy paying taxes either. But it's a responsibility I'm willing to shoulder. And let's not forget this: the US spends more on defense than the next 10 highest-spending countries COMBINED. Is this really necessary? Nobody chews through tax dollars like the Pentagon. programs eclipse what we spend on defense. No where in the industrialized world are corporations "regulated", "fined" for minor infractions than in the United States. Now to taxes, I don't mind paying taxes but when does the spending and spending increases year after year end? When is it enough money. We have a life span of approximately 80 years and we spend most of it fighting about keeping our own money. It is silly. Everyone needs to pull their weight and only about half of those able to do so are doing so now.

Still waiting for that "honest conversation about taxes and the economy." As has been discussed on here many times, and as Apple and GE both demonstrate, loopholes and deductions enable many corporations to avoid paying anywhere near the nominal rate. Since the 1960's, corporate taxes as a share of total revenue have been in decline. Couple this with the fact that many of the wealthy now pay a lower rate than middle income earners, and people are justified in thinking the game is increasingly rigged against them. Stagnant incomes for most Americans, while healthcare and higher education costs rise faster than inflation, have put many Americans into debt just to stay even. While worker productivity has risen dramatically, most Americans are getting a smaller share of the pie than ever before. It's the middle class and blue collar workers who keep the economy going, as Henry Ford demonstrated long ago when he paid his workers enough that they could buy Model A's. Almost all the gains from growth over the past 3 decades have gone to the top. At the same time, their taxes have been lowered. From WW2 until 1981, the top marginal rate never dropped below 70%. But by 2011, the 400 richest Americans paid about 17%. Meanwhile, most of us are paying a bigger % of income for regressive payroll, property, and sales taxes. Follow the money to see where the power lies; the ever increasing ability of the wealthy to bend the levers of power to its will is corrupting our democracy--the gridlock that currently exists is bought and paid for by those who seek a return to the 19th century--no regulations, no unions, no minimum wage.

What did Exxon, Conoco Phillips and Chevron pay in combined taxes??...and what was the rate they paid?? Asking for a friend.

Exxon-Mobil's federal corporate tax rate in 2011 was 17.2%.

In the early 1950's, corporate taxes were 5-6% of GDP. In 2010, they were 1.3% of GDP.

Cool page in the NYT..

To GWTW below, great link. Bruce, take a look at that chart. One of the issues is that none of us here are really accountants. There are so many variables involved in running a corporation, reinvestment, expansion, new projects, new technology and yes the energy companies are working on alternative energy. Just looking at taxes paid as a product of income is disingenuous. Taxes paid depend on many things. Good link GWTW.

You're right, it was a good piece on corporate taxes--the chart COMBINING federal, state, local and foreign taxes was well done. Especially noteworthy was this from the article: "But it [federal corporate tax code] has so many loopholes that the effective corporate tax rate in the United States is slightly lower than the average for rich countries. The decline in corporate-tax collection in recent decades has contributed to budget deficits. It has also aggravated income inequality: a company’s shareholders ultimately pay its taxes, and with a smaller tax bill, shareholders, who tend to be much more affluent than the average American, see their wealth increase."

Loopholes...In terms of dollars the largest share go to ordinary folks...

Reply to GWTW below: "Loopholes...the largest share go" not to "ordinary folk" but to the Mitt Romneys of the nation. It's hard to take comments like yours seriously when we live in a nation where the top 1% of wealth-holders control 40% of the nation's wealth. Even allowing for a distinction between income and wealth, your comment is wrong. Loopholes (whether unintended consequences or intentional omissions) allow the rich to conceal wealth in places like the Cayman Islands. By contrast, the EITC, for example, is not a "loophole", but an intentional feature of the tax system."

Note: The major stockholders in most major corporations are other corporations.

While I can't speak about Apple's particular tax filings, I can share some of the most often used loopholes employed by American companies. First, American businesses do not have to pay taxes on money earned offshore as long as it stays there (hence Apple's $1.9 trillion offshore piggy bank). Second, taxes paid to another government is deducted from taxes paid to the US. This is another way of sticking American taxpayers with the responsibility to come up with this additional revenue they missed out on. This is particularly beneficial to China where their communist leaders can smugly point to Lenin's quote: "the capitalists will sell us the rope with which we will hang them". The Chinese use these American taxes to further improve their infrastructure--while ours is falling apart. Third, a company can borrow money in the US and deduct the interest from it's taxes. Simultaneously it can collect interest on the money it's keeping offshore and avoid paying taxes on it. No wonder money and jobs keep the US.

can any democrat tell me where corporations get their money to pay taxes?

They get it from overcharging the consumer so as to give themselves larger bonuses

The answer is the flat tax for businesses and individuals. Everyone would pay something and revenues would increase.

Just pointing out: we already have a flat tax within each bracket. A single flat tax rate is neither fair nor would revenues increase.

I am concerned about the bottom 50% of the taxpayers who pay virtually no income tax and due to some of those dreaded loopholes which you dislike, often get back more than they pay in, in the form of a refund. Everyone should have to pay something in. No, payroll taxes don't count as they fund peoples retirement (do you want that to be unfairly balanced as well?) A flat tax is fair and when first presented, this very excellent, comprehensive explanation by experts was written. It dates to the Clinton era but is still is pertinent today:

That such a large percentage of Americans pay little or no income tax is by design--it's not a loophole. What's more, the main reason for this, the EITC, is a CONSERVATIVE idea--it originated with Milton Friedman, and went into effect during the Reagan years. Reagan was a hearty endorser of this tax credit. And payroll taxes do indeed "count" as taxes. One more time: add payroll taxes to sales and property taxes, and the many other taxes and fees people pay, and many of those who may quality for the EITC, pay a greater % of their income to taxes than the Mitt Romneys of this nation. The flat tax is fair?--in your dreams. It is neither fair, nor is it revenue-neutral, as many proponents claim. The fairest system is one based on one's ability to pay, and will have MORE brackets at the top than we have today, since the income curve rises so steeply at the upper end.

Definition of a tax loophole: "Unintended weakness in the legal provisions in the tax system used by taxpayers to avoid paying tax liability."

Apple can claim that it pays 6 billion in taxes but what do they actually pay after all of the writeoffs. In 2011 GE made more in profit than the budget of NH , 12.3 Billion. They had an effective corporate tax rate of just under 7% but after all was said and done they ended up paying zero in taxes because of all the tax credits they got.

That information on GE is simplify NOT true. See this link for an educated and factual account about GE taxes.....

I read the link on the surface the GE numbers were inflated but GE didn't get the reputation for manipulating tax loopholes for nothing. The absolute bottom is that they only pay a token tax bill when compared to your average company. Our tax laws make it advantageous to ship production to foreign countries to escape paying US taxes. So let's face it, Congress will never address this issue because of the money involved. What they will do is the usual chest beating and indignation followed by hearings and special committees. Which once you strip away the political speak, leaves you with the usual no action planned - no action taken.

Apple just testified before the Senate sub committee. They paid 6 billion in Fed taxes. Don't you think it would have been pretty easy to prove they did not? Which would mean they lied. Discuss how many jobs they provide etc. That was my question. 6 billion in taxes and 47,000 jobs. Is that fair?

Apple has 47,000 employees in the US. 12,000 which are engineers. Rest is retail and tech support. They pay 6 Billion in fed taxes every year. How does that equate with them not paying their fair share? They could actually have all of their engineers overseas. That would mean 12,000 folks lose their jobs. Be careful with the greed folks. At some point if you keep going down this path, corps will do most of their business overseas. I agree that we have to streamline tax codes. Listening to the IRS hearings, someone said there is 70,000 tax laws. But the left going after the moneymakers will at some point have those money makers leave.

The problem isn't just Congress. The NH legislature has the power to change the Business Profits Tax law to close this billion dollar profit shifting loophole. Indeed, the loophole was closed in 1981 when the legislature changed the BPT and adopted worldwide combined reporting. However, the loophole came back in 1986 when Republican Governor John Sununu pushed the legislature to restrict worldwide combined reporting by adopting water's edge combined reporting which excludes the profits of foreign subsidiaries from NH's tax base. Our ire should be directed at Gov. Hassan and the legislature for allowing this awful tax loophole to continue. After all NH has the support of the US Supreme Court which sanctioned worldwide combined reporting in their Colgate-Palmolive and Barclays Bank decisions by votes of 9-0 and 7-2!

Our Byzantine tax code is largely the result of decades of special interest lobbying in Washington. Yes, it needs to be rewritten--the sooner the better. To decrease the chances of this from happening again, term limits should be imposed and perhaps publicly-financed elections instituted. Politicians should be beholden to their constituents, not lobbyists who bank-roll their elections. Finally, as someone on this forum said a couple of days ago, former politicians should be banned from working for lobbyists. Sadly, I just don't see this happening any time soon. The public is just not outraged enough...yet. Lobbyists work their "magic" behind the scenes, quietly whispering in Congress's ears, changing laws day by day, one bit at a time then retreating to their offices to watch their stock options rise in value. Isn't America great?

~~$1.9 trillion kept away from taxation, yet these are the same companies asking the US to rebuild roads and bridges, airports, supply police and fire protection, and have a military to protect them. They want it all but deliberately hide the money in offshore accounts that support those issues...

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