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Scapegoating Apple

Last week I wrote about The Senate vs Apple, my take on the what can best be described as a circus event in which Tim Cook, Apple’s CEO was questioned by the senate for a nearly three hours regarding Apple’s tax bill. I promised to dig a bit deeper and come back with more. Sometimes the exact word is lacking, but here, I think I got it right. Scapegoating: the practice of singling out any party for unmerited negative treatment. You see, what Apple did, wasn’t just legal, it’s common (and good) business practice. Here are a number of others:

cashabroad

(sorry if it renders a bit small, you can right-click to open it to full size)

What we have here are the top companies holding cash abroad. Indeed, Apple is the largest, but it’s also the largest company in market capitalization. You can see that Microsoft’s cash held overseas is a higher ratio of both total cash they have as well as when compared to the total market cap.

I’m not a believer that “companies are people, too,” but I do believe that taxing a company more is the same as taxing people. These companies are held by all of us, if not as individual shares, then in our retirement accounts. A 35% corporate tax is enough reason for any of these companies to leave dollars earned overseas out of the US. The senate shouldn’t be grilling Apple’s CEO, but rather, Congress, who wrote the tax code. We can do away with much of the craziness with a number of changes to the code;

  • Bring the rate down for repatriated money. This money was earned overseas, taxed overseas, and can just as easily stay there. A 10% re-entry tax should be low enough to bring it back.
  • (If the above fails) – Offer incentives that any job creating expansion of local manufacturing plants will offset the tax on repatriated money, dollar for dollar. In other words, you build a $500M factory, you get to bring back $500M in cash held overseas.
  • The Fed has been printing dollars for years now, trying to turn easy money into an economic expansion. Why not offer a tax free repatriation of funds that will be used to pay dividends? How crazy is a tax code that encourages a company like Apple to issue bonds to raise cash to pay dividends while sitting on $74B tied up overseas? Cash paid out to US shareholders will help to boost the economy.

I have to add, I was disappointed to see very little coverage of this in the weekend news shows. Only CNN’s Your Money did a decent job asking “who is really at fault. Is it Apple for allegedly sketchy tax maneuvers or Congress for creating such a pliable tax code?” What do you think? Is Apple and these other companies going too far to cut their tax bill, or are they doing the right thing for their share holders? Will a low tax rate bring manufacturing jobs back?

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