Tuesday, May 21, 2013
The Tax Assault on Apple for Being Successful
Apple, thanks to the late Steve Jobs’ brilliance, has become the most successful technology company in the world. Apple has enriched America, Silicone Valley, and consumers. Apple has been successful, selling an essentially commodity product at a luxury price. Investors have been rewarded. It has amassed a cash horde of over $148 billion, of which 2/3 is overseas. Apple is the leader in one of the few industries in which America remains a leader in the global economy. Success has a price though. No good deed goes unpunished and seemingly every great American success story, especially if an economic success, needs to be trashed. Success arouses jealously in those less successful and draws out the demagogy in politicians. Apple pays little in income taxes. Its products are manufactured offshore and hence pass through several offshore corporations, often in Ireland. The transactions are structured to minimize the corporation’s tax bite. $74 billion in profits was parked overseas between 2009 and 2012. Once again it has outshined its competitors in offshore profits. All of which is legal under current United States tax laws. As long as the profits technically remain offshore, they are not subject to U.S. income taxes. The tax rate is 35% if they are repatriated to the US. Amazon, Google, HP, Microsoft, and Starbucks engage in the same “gimmicks” and “schemes” Apple has not pioneered the aggressive interpretation of the tax laws to minimize its taxes. Indeed, Apple has not been a industry pioneer since Steve Wozniak designed the first Apple computer, a true pioneer in the micro computer industry. Steve Jobs’ genius was to see the technology before his competitors, starting with the mouse. He instilled quality and design into his designers. The underappreciated MP3 became the IPod and the ITouch, the smart phone became the IPhone, a smaller tablet emerged as the IPad. All of these, plus the traditional Apple computers, took advantage of ITunes, his creative genius at work. For this, Senator Carl Levin (D Mich) pilloried Timothy Cook earlier today at a Senate Hearing. Senator McCain (R Ariz) is also outraged. He calls Apple the “most egregious offenders” as one of the “largest tax avoiders.” Apple’s Tim Cook simply replied that Apple pays all the taxes it legally owes, $6 billion in corporate income taxes for 2012, an effective tax rate of 30.5%. The Apple tax ploy is unfortunately unavailable to those of us who live on a salary, reported to the IRS, or companies whose business is mostly in the United States. Apple also, pursuant to generally accepted accounting principles, declares higher taxes on its shareholder reports than it actually pays to the IRS - again perfectly legal and common in the business world. Apple has decided to return $100 billion to shareholders in upcoming years through dividends and stock buybacks. It will not do so by bringing the overseas dollars back to the US, but by selling $17 billion in bonds, the interest on which is tax deductible, reducing Apple’s future tax bill to the IRS. Only with the screwed up corporate tax policy in the US does such an irrational corporate financial scheme make sense. Congress can always change the tax laws, such as by lowering the tax rate on corporate profits repatriated to the United States, but that would be “unfair” to the President and his accolades, who would prefer to redistribute, even if there is nothing to redistribute.