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.