Thursday, May 23, 2013

Chronic Dependency: Apple’s Reliance on the US Government

Chronic Dependency: Apple’s Reliance on the US Government

The Chairman of Apple Computer, Timothy D. Cook, appeared before the Senate Permanent Committee on Investigations to explain the company’s tax strategies.  Apple, like many multinational companies, has created a web of foreign subsidiaries in order to minimize the company’s overall tax burden.  The only thing that distinguishes Apple from other companies is the size of its cash balances.  The company has been so profitable that it has amassed $145 billion in cash, much of it overseas.  The company asserts that all of its tax avoidance strategies are legal, and that claim is probably true.  However, Apple has gone to extraordinary lengths to avoid paying taxes, as Joe Nocera writes in today’s New York Times.[1]
Seedlings (2001)
Mr. Cook had two major pieces of advice for Congress.  First, he called on Congress to lower the corporate tax rate from 35% in order to encourage companies to report more US income.  I doubt a lower tax rate will have any impact whatsoever.  As long as there is a way for multinationals to eliminate a large portion of their tax liability through overseas subsidiaries, companies will develop strategies to lower their tax burdens.  Second, Mr. Cook urged Congress to modernize the tax code to reflect the digital era.  Frankly, I’m not sure what this means.  While the corporate tax code is extremely complicated, that’s largely the result of the cat and mouse game played by companies and the loopholes they’ve managed to push through Congress.

The low effective US tax rate enjoyed by Apple and other multinationals merely reflects a broader problem.  These companies are among the biggest free riders on the planet.  Apple’s global reach is built on investments made by US taxpayers.  Who creates the global security umbrella that allows US multinationals to operate?   Whose embassies, consular offices, and passports provide protection?  Who defends US multinationals when foreign companies engage in predatory pricing or digital espionage?  And who provides export credits to support US multinationals?  The United States.  Your tax payments are massively subsidizing these companies.  Moreover, it is our banks and banking laws that provide protection for Apple’s cash deposits, which are housed in New York even though they below to offshore subsidiaries.

Apple would not be able to run its supply chain in China or other emerging economies or sell products in dozens of countries without the extraordinary support of the US government.  And yet, Apple hardly pays its fair share for these services.  As a result, Apple’s incredible profitability is built, in part, on the beneficence of the American taxpayer.  Rather than developing schemes to avoid taxes, Apple and its multinational brethren, as good corporate citizens of the United States, should be clamoring to pay their fair share.


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