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Tim Cook Calls Apple's Tax Questions 'Political Crap' (cbsnews.com)
nerdyalien writes: Apple CEO Tim Cook dismissed as "total political crap" the notion that the tech giant was avoiding taxes. Cook's remarks, made on CBS' 60 Minutes show, come amid a debate in the United States over corporations avoiding taxes through techniques such as so-called inversion deals, where a company redomiciles its tax base to another country. Apple holds $181.1 billion in offshore profits, more than any other U.S. company, and would owe an estimated $59.2 billion in taxes if it tried to bring the money back to the U.S., a recent study based on SEC filings showed. The current tax code was made for the industrial age, and not the "digital age," Cook said.
"We have a moral and legal obligation to pay the government as little tax as possible.
Which is all quite true.
Not it isn't. Simply declaring something to be true does not make it so. Do you have any evidence that anyone, ever suffered legal consequences for not minimizing their tax bill to the greatest extent possible? No? Didn't think so. That means your "legal" quote is flat-out wrong.
As for moral, that's just junk too.
The fact that closing loopholes is hard because people with a lot of money can spend almost arbitrarily large amounts trying to find loopholes doesn't mean that exploiting them is magically justified. The country you set up your profitable business in only works because of the taxes paid. Trying every means to avoid them is free loading and is not morally justified.
SJW n. One who posts facts.
Apple's tax arrangements have been in place for over 30 years, they are hardly new. It is also pays more US tax than any other company.
Essentially they have subsidiaries in low tax countries ( Ireland and Singapore) that control the buy price of the international sales in the other non-US countries their kit is sold in. This is commonly called transfer pricing.
This effectively holds international profits in low tax foreign locations.
Apple doesn't do the next logical step in financial engineering, which is to move the companies IP to a zero tax location , and license it back to the other subsidiaries , at a rate that simply transfers all profit to a zero tax location (eg Bahamas) . Many companies do take this extra step.
Part of the goal of companies in doing this is that the US is almost unique , in that it taxes the profits on foreign sales, after they have been taxed in the country of sale. Very few other countries do this. Most countries don't double tax like this.
This legal situation with US tax law encourages the kinds of thing Apple has done for over a quarter century, as well as far worse. It encourages companies to minimize tax earns in foreign countries, and minimize the fraction of profits they bring back to the US. It's an everybody loses outcome, the country stuff is sold in has its corporate income tax takings reduced, and the funds are never repatriated to the US, living in limbo offshore, reducing US government tax income as well.
If the US adopted tax law consistent with most other countries, there would not be a double taxation incentive to avoid the return of funds early on international sales to the US.
Tax money is your money too. So less tax for companies means more tax for you. And I'd rather have more expensive iPhones than higher taxes, because if I don't buy iPhones, why should I pay more taxes so that others can get cheaper iPhones.
Actually who pay the taxes doesn't matter much, however big companies doing tax avoidance are unfair. Smaller, local companies still get to pay full tax, effectively paying for others trickery.
Some people actually seem to believe that "Corporations run at whatever profit, period", and would like to imply that those corporations owe nothing to the society they are based in.
Of course that's total nonsense as a moment's reflection will show.
Corporations aren't islands. They are built on a solid foundation provided by society, embedded in that society, fed and protected by that society. In Apple's case that would be the US. They owe that society for all the things they cannot do or provide for themselves but are only too happy to take for granted.
An educated workforce, the ideas that they built their business on (more often than not based on government or semi-government research at some stage), a legal system that grants them all kinds of rights (contract rights, property rights, copyrights, patents) and protects them if and when those rights are infringed on (both nationally and internationally), a huge part of their market (no company can exist without clients affluent enough to purchase its products/services), a culture in which their products are valued (what's Apple's market share in India?), an ecosystem of suppliers and service-providers, a reliable currency, network and communication infrastructure, roads, ports, transport, housing for its operations and its workforce, etc. etc..
The bill that society at large presents to them for all that vital infrastructure is known as "Tax". And, companies being companies, would rather minimize that bill any way they can.
CEO's for example are paid to help their company increase its revenue and reduce expense. The issue of what's fair or reasonable never even comes up. Any anything that increases profitability (and doesn't result in said CEO being convicted and/or jailed) goes. Companies have no responsibility for anything whatsoever except their bottom line. Of course they understand that they can't do without the society they are rooted in. Only, as with any supplier, they try to talk the price down. Even if that hurts the society they are so busy benefiting from. That doesn't make them "immoral", but it does make them firmly "a-moral".
It is in that light that we should view their comments about "Tax being just political bs.". It's their job to say that; it's in their interest to say that; they're paid to say that. So that's what they say. They might even believe that (a job requirement perhaps?). They couldn't be less concerned with considerations as to whether that's true, reasonable, or fair.
The sad and risible fact is that there still are Americans (not being CEO's) who haven't spotted these simple facts and actually lend credence to rah-rah-taxes-are-a-waste sloganeering.
Stocks wont work very well if you start getting punative on the holder. Besides driving people away from investing in the market, it would become a weapon to drive undesired investors from a company. Just imagine next year when your 401k causes you to go bankrupt just trying to pay the estimated taxes on one of your holdings that you probably didnt even know you had. Or did you mean to narrow the definition to mean "other people than yourself"?
I think you underestimate just how much I just dont care.
Apple have $59.2 of tax money, owed to the government, locked away in their offshore bank account? Ok.... Then why doesn't the government just print / reissue that money? - Would it really make any economic difference, if apple paid the tax they owe, or the government just reprints it? A dollar is a dollar whatever way it gets produced! Then if apple do one day pay up, then just destroy the money they give back. Why is this such a problem?
You don't actually understand why capital gains are taxed at the rate they're taxed, do you? The percentage can, arguably, be discussed but first you should understand the reason that the rates are as low as they are. The reason they're low is because you want me to keep my money invested and you want me to do so in the long-term area.
So, I do. I'm taxed at a very low rate (about 15% or so federally and maybe 8% at the State level) and I keep my money invested in the market instead of socked away in a bunch of smaller accounts in various savings institutions. I take more risks but I have a greater earnings potential. Also, it's actually kind of easy to avoid a lot of taxes if you want to be a dick about it. It's entirely lawful, tax avoidance is legal while tax evasion is illegal.
"So long and thanks for all the fish."
Every humongous company does this. They pay internally (using pricing mechanisms which they can set arbitrarily internally as well) between branches all over the world, and handle 'profit' where it's least taxed. IKEA, for example, have this down to an art. I forget how it works exactly, but I believe it is a non-profit in the Netherlands, which gets charged by the other branches for the distribution of saleable goods leading to an exact zero profit. You try to sell your house to a child for an arbitrary price and you'll have the taxman pulling you inside out - big companies do the same trick on a routine basis. And get rewarded for it. Tim Cook is talking out of his ass.
Religion is what happens when nature strikes and groupthink goes wrong.
You have to be a slave to the government for half of your life because corporations are permitted to avoid taxation in this manner. If the corporations paid their tax burden and didn't manage to shift profits to other countries, then you wouldn't have to pay nearly so much to maintain the system that they're profiting from far more than you are, and then not paying to maintain.
Perhaps one of the most unsustainable concepts ever invented is corporate offshoring of profits to avoid taxation, while at the same time supply siders demanding pay levels so low as to require the average employee to require government assistance just to live.
Which always leads to the question of how much we can reduce the pay of the "Overpaid American Worker" until we get to the point that is considered proper? And will still allow the same person to buy the shit that is being produced. One of the most bitched up aspects regarding what people who call themselves Capitalists these days have is a complete lack of understanding that they make more money when they have more customers, who are more likely to buy the stuff they are selling if they have money to buy it.
It doesn't take a capitalist, socialist, libertarian, communist, Democrat or Republican, or any other ideology to figure this out. It only takes some really basic math, and not much more.
The shepherds did so well protecting the flock that the sheep no longer believed that wolves existed.
I agree that capital gains should be inflation adjusted. So if you buy $100,000 of stock and sell it for $300,000 and in inflation adjusted terms it's only worth $250,000 then you should only pay capital gains on $150,000. But you should pay the full income tax even if you held the stock for 3 years. And you should pay Social Security and Medicare. And I don't care about the whole notion of double taxation because there we have a 35% rate in name only - they only pay 12.6% of worldwide income and Amazon, Google and Apple get away with murder. For example:
An investigation by the U.S. Senate showed Apple had paid just 2 percent tax on income of $74 billion over 2010-2012, largely by exploiting an unusual loophole in Ireland's tax code. In 2011 Google paid a rate of 11.9 percent, while Yahoo paid 11.6 percent and Microsoft paid 18.9 percent. Xerox paid 7.3 percent of its income in taxes, while Amazon paid only 3.5 percent.
In 1952, corporate taxes accounted for 5.9 percent of GDP, a figure that has fallen to 1.6 percent today. We need to have them start paying 5.9 percent again because if they don't pay it, then we will and we certainly don't have the cash.
You don't actually understand why capital gains are taxed at the rate they're taxed, do you? The percentage can, arguably, be discussed but first you should understand the reason that the rates are as low as they are. The reason they're low is because you want me to keep my money invested and you want me to do so in the long-term area.
The real situation is the exact opposite of this.
Long term investment is thought to be encouraged by higher taxes on capital gains since there is a significant penalty to taking the money out of investment (this is called "lock-in", yes, it is a well defined, well accepted concept in economics). Defenders of the special low, low tax treatment often throw out this bizarre, factually wrong, and illogical argument. See for example an analysis of this question in The Capital Gains Tax and the "Lock-In" Effect, by Peter Eilbott and Larry Hersh, in Nebraska Journal of Economics and Business, Vol. 15, No. 1 (Winter, 1976), pp. 21-33. You can read it for free on JSTOR if you register (also free). The reverse "lock-in effect" posited by KGill, does not even get mention in the paper because it doesn't really exist in real economics.
More sophisticated defenders of low capital gains taxes, who care whether their arguments actually make some economic sense, argue the reverse. That low capital gains taxes encourage investment because they prevent lock-in, that is money can be pulled out with little penalty for reinvestment at any time, after that "magic" arbitrary one year holding period.
The problem with that argument though is that money pulled out of capital gains is not necessarily reinvested in anything. The money is completely fungible.
The real question is whether low capital gains taxes encourages more investment. And the evidence is that it does not. See for example this recent Congressional Budget Office Study. The key summary (pg. 12: "Capital gains tax rate reductions appear to decrease public saving and may have little or no effect on private saving. Consequently, capital gains tax reductions likely have a negative overall impact on national saving.".
The real principal effect of low capital gains taxes is simply to put more money in the pockets of big investors. It is a tax give-away to them.* As a result there is an enormous policy mill industry devoted to churning out denials of this fact.
*Even Ronald Reagan realized this, which is why he normalized capital gains rates as regular income. You will never see the right-wing of today mention this.
Second class citizen of the New Gilded Age
If you did what Apple does, you'd be paying a few hundred thousand dollars annually to manage the holding companies, trusts, and other legal entities involved, along with a team of accountants and lawyers to actually pay the taxes owed in the various locations in which you owe said taxes. Of course, it's only cost-effective if doing that kind of paperwork can save you more than a few hundred thousand dollars in taxes. That implies that you'd need to be paying the US about a million dollars in taxes already, implying an income of a few million dollars. I do know a few people who can afford to do such avoidance, but for the average middle-class American, there is not enough profit to justify such an effort.
That balance leads to some very interesting phenomena. For instance, by lowering the statutory corporate tax rate, we can lower the cost of bringing profits into the US, making it more likely that the US will receive taxes on that profit, rather than a foreign tax shelter. The exact numbers were never of interest to me, but there's a point where the US becomes a more attractive place to keep money than other countries, and that's when all of the corporate tax avoidance disappears.
There are longer-reaching effects to be considered as well. Currently, overseas profits can fund overseas expenses, never touching US financial entities and never paying US taxes. That becomes an incentive to keep expenses (such as manufacturing, labor, and assembly) overseas with the profit, contributing to the outsourcing of labor. Once an American company starts operating internationally, there's a financial benefit to moving further out of the country.
Big corporations aren't inherently evil. They just get to play by the whole world's rules, rather than just American.
You do not have a moral or legal right to do absolutely anything you want.