Why you should be angry with Apple's tax shenanigans

Tim Cook's corporate tax proposal: "Not zero."

Financial trends and news by Faith Merino
May 21, 2013
Short URL: http://vator.tv/n/2f99

Tim Cook took to Capitol Hill Tuesday to defend Apple’s complex matrix of tax dodging trickery. Several times throughout the hearing, he was asked what kind of corporate tax rate we should have in the U.S. to keep large, multi-billion dollar companies like Apple from shunting their money overseas. Each time the question came up, Cook artfully avoided giving a concrete number (which I would imagine is the first rule of Negotiation 101), and suggested instead that “it doesn’t have to be zero.” Why, Mr. Cook. How magnanimous of thee.

Cook, along with Apple CFO Peter Oppenheimer and Peter Bullock, head of Apple’s tax operations, spent Tuesday morning answering (and non-answering) questions posed by the Senate subcommittee. Several of the senators on the panel emphasized that they use Apple products, but while some, like Rand Paul, were philosophically supportive of Apple’s sketchy tax practices, others delivered bruising reproaches.

The questions were aimed largely at Apple’s use of several Irish subsidiaries to avoid paying taxes on at least $74 billion in profits between 2009 and 2012. As Tim Cook explained during the hearing, Apple went to Ireland back in 1980, when it was just a $100 million company. At the time, Ireland was looking to attract big tech companies with low tax rates, so it worked out a special deal with Apple that included a corporate tax rate of less than 2%. The U.S. corporate tax rate is 35%.

Apple isn’t the first company to use offshore subsidiaries to avoid U.S. taxes, but their system is much more brazen, considering the fact that the company never set up any offices or had any employees working in Ireland.

Senator Claire McCaskill made her position bracingly clear: “If you don’t tax plan, you’re incompetent as an American business.” (McCaskill has made headlines in recent months for calling bullshit on military policies that allow commanders to overturn jury-decided rape convictions leveled against other personnel at their own behest.) But McCaskill posed a hypothetical for Tim Cook:

“If we simplify our tax code, what’s to stop another country from undercutting us again?”

“I’m not proposing zero,” said Cook. “My proposal is that we eliminate all corporate tax expenditures into a very simple system, and have a reasonable tax on bringing money back from overseas. If we did, many companies would bring back capital into the United States and it would greatly improve our economy.”

Now for some real-talk: the average U.S. taxpayer had to foot an extra $1,026 to cover the gap left by U.S. companies that are squirreling their money away in offshore tax havens. The average small business pays an extra $3,067 to make up for the lost money that large corporations are keeping in overseas accounts.

In California alone, corporations and wealthy individuals avoided paying $7.15 billion in taxes in the 2011-2012 fiscal year. For the average California taxpayer, that equates to a 15% surcharge on your state income tax bill.

Every year, corporations and wealthy individuals avoid paying an estimated $150 billion in taxes by exploiting loopholes in the U.S. tax code.

Apple used the “check-the-box” loophole (which allows multinational companies to disregard sub-entities that are normally taxed) to avoid paying $13.8 billion in taxes.

Senator Rand Paul (R-KY) brought his angry face to the hearing, accusing the subcommittee of bullying “one of America’s greatest success stories.” He went on to say, “I frankly think the committee should apologize to Apple.” To that, Senator Carl Levin (D-MI) responded, “you are free to apologize if you wish.”

Not to shit all over Senator Rand Paul’s show, but we’re having this discussion at a time when child poverty has reach record highs, with some 17 million children affected. More than 20% of U.S. households with children are food insecure. Among black families, that rate rises to nearly one in three.

While the U.S. generates roughly one-third of the world’s GDP, it has one of the highest rates of child poverty among developed countries—coming in second only to Romania. The United States’ child poverty rate is actually higher than that of Greece (23.1% to 16%, respectively). And unlike other developed countries, the United States actually has a disproportionately higher rate of child poverty than overall poverty. While 23.1% of U.S. children are living in poverty, only 13.7% of 18- to 64-year-olds are dealing with the same struggles. In most other developed countries, the child poverty rate is roughly the same as the overall poverty rate.

This isn't to say that it's Apple's (or any single corporation's) sole responsibility to feed the hungry children of the world. But the general thinking among people like Paul Rand is that if you reduce the corporate tax rate to 5% (Rand's suggestion) or "not zero" (Cook's suggestion), that it will inspire businesses to bring their money back to the U.S., which will spur economic growth--which will...wait for it...trickle down to the poor. 

Of course, the problem with the "trickle down" theory is that it never worked in the first place. I'll spare you a rehash of how Reaganomics actually widened the gap between the rich and the poor in the 1980s, and I'll leave you with the fact that under Reagan, the number of homeless people grew so steeply that it reached crisis-level proportions. 

Meanwhile, Apple already enjoys profit margins of 37.5%. Apple isn't funneling it's money away because it needs to. It's dodging taxes because it--like every other company on the planet--wants to be as profitable as humanly possible. Like Senator McCaskill points out, Apple isn't going to stop funneling money away if the U.S. corporate tax rate is reduced to 5%, because Apple and other companies will be drawn to tax havens that promise even lower rates--like 0.6% (what Apple paid on average via its Irish subsidiaries). 

So, thank you, Tim Cook, for assuring the world that we don’t have to lower the corporate tax rate to 0% for Apple to pay its fair share. And hey—those roads that you’re driving on every day on your way to work: you’re welcome. 


Image source: abcnews.go

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