More on USA vs Apple

apple-legalTim Worstall, writing at Forbes, has penned a great column regarding what Tim Cook should say to the Senate next week, but won’t.  I wish I had written something half this good!

Check it out here:  What Apple’s Tim Cook …, or just continue reading after the break.

What Apple’s Tim Cook Should Say To The Senate Subcommittee: But Won’t

Apple‘s Tim Cook has been called to give evidence to the  Senate Permanent Subcommittee on Investigation over  the company’s tax affairs. The statement he should make is really very simple indeed but unfortunately I think he’s most unlikely to make it.

Tech firm Apple is the target of a Senate hearing next week investigating offshore tax practices.

Apple CEO Tim Cook is expected to testify at the Senate Permanent Subcommittee on Investigation’s hearing Tuesday, POLITICO has learned.

Apple has been under fire for its tax practices. The company recently avoided paying as much as $9.2 billion in taxes by buying back stock with debt instead of offshore cash, Bloomberg reported. Apple has a reported $100 billion in offshore funds.

The hearing is part of the panel’s continued examination of how companies shift profits offshore and how that impacts the tax code.

The correct statement is as follows:

Actually telling the truth in the Senate is most impolitic so of course he won’t actually say that. But wouldn’t it be wonderful if he did?

Here’s what the real background is. The implication that companies, or at least that Apple is, shifting profits offshore is entirely unfounded. What is happening is that Apple isn’t bringing profits made outside the US back into the US. There’s no particular reason that they should: indeed, I’ve long argued that there’s no particular reason why the US government should have a slice of the profits made by making something in China and selling it in China, or Europe.

There is however a very good reason why Apple isn’t bringing those profits back: if they do they’ll have to pay the US corporate income tax. Which is one of the highest in the world. So, Apple leaves the profits offshore and does not have to cough up to the IRS: bring it back and they do. It’s reasonably clear what the incentives are here then: don’t bring it back and don’t pay the tax.

As I say, given that these are the tax laws that the Senate (and House of course) are responsible for it’s really rather odd to have members of the Senate (or House of course) getting angry about people following the incentives in the laws they themselves have made.

After that, there is of course what should be done about the taxation of corporate profits. To which the logical answer is abolish them. It’s not actually the company that pays them after all: we’ve known this since 1899 when it was first pointed out. It’s some combination of the workers and shareholders who do bear the burden of the corporate income tax. The only reason we’ve ever collected the money at the corporate level is because that’s an easy place to get it from. But as we’ve all noticed it’s not so easy anymore. If convenience was the original reason and now it’s not convenient then logically we should try some other method.

That other method would be to simply abolish the corporate income tax altogether. At the same time, importantly, we should tax dividends and capital gains on stocks at whatever the marginal income tax rate of the recipient is. It’s not entirely obvious that this would actually lead to any revenue loss: and it would most certainly bring back that near $2 trillion in profits that US companies have stashed offshore. Sounds like a bit of a winner as a policy to me. But I do acknowledge that all too many don’t get the point that companies don’t currently pay the tax themselves, so they would feel that this was somehow cheating. Even though many don’t understand the point it is still true.


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