Timothy Cook Goes to Congress: Slicing Up Apple

Image representing Apple as depicted in CrunchBase

Image via CrunchBase

Congressional grand standing has not been limited to President Obama’s “trifecta of trouble”  this past week.   Wednesday Tim Cook, the  CEO of Apple, was called on the Senate carpet to defend Apple’s  lodging billions of overseas profits abroad instead of bringing the money home to be taxed.  Most notably Apple has a shell company in Ireland where they hold some 30 billion in untaxed dollars.

In an indirect way this hearing brings up a key problem with our economy, an incredibly complex tax code which makes what Apple is doing a good business decision and not “pernicious” as John McCain (R.) said or cause “real harm” as Carl Levin (D.) suggested at that Senate hearing.

It is the sort of thing that makes Apple look bad, but the company is an “iconic U. S. firm” and pays possibly the highest amount of any corporate taxes in the U. S.   Also, what they are doing is not illegal.   In fact, as Matt Miller points out in an editorial, “Cook and his colleagues have a fiduciary duty to minimize Apple’s taxes under the law.”

The problem here is not Apple, but a tax code that does not incentivise corporations making profits overseas to bring those profits home as our corporate tax rate is the highest in the world (at least in theory; corporations have phalanxes of lawyers to reduce the “effective rate”).   The key underlying factor in all of this is:   ” The fate of companies and countries in a global age now diverge. The success of U.S.-based multinationals no longer assures the prosperity of American workers.”

How can that be changed?  The key is to “realign the interests of companies with those of the country.”  Miller, a political centrist who concentrates on ways in which the two parties might actually work together,  offers one suggestion about adjusting individual corporate tax rates in his editorial….

….while the more conservative Kyle Smith in Forbes likes Tim Cook’s notion of reducing the corporate rate for overseas earnings to around 10% to entice that money back home….

…..and on the liberal side of the spectrum Matthew Yglesias argues in Slate that we should stop taxing corporate profits because they are too slippery to get a handle on,  and just raise taxes on individual incomes instead.

What I find so interesting in these three articles is that right, center and left can all agree upon this much:  Apple (and other corporations) are not the culprit;  our byzantine tax code is.

Finding such agreement is great, but reforming the tax code, while so necessary, is a classic case of the devil being in the details.    Almost everyone agrees reform is needed, but nobody wants to lose what the present system gives them or allows them to keep.   Over decades reforming the tax code has meant  interest groups lobbying for more exceptions for themselves.  The number of pages in the tax code and regulations doubled from 26,300 in 1984 to 54,846 by 2003 to around 74,000 now.

Keep this in mind when listening to members of either party or political commentators talk about the necessity of reforming the tax code.  They make it sound like a panacea, but if anything useful to more than a few can actually be agreed upon by Congress, it won’t be agreed upon any time soon.

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