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The Senate vs Apple

There are times that truth to me is stranger than fiction. Earlier today, I saw Tim Cook questioned by multiple senators regarding the US taxes Apple pays. A brief disclaimer, I happen to be an Apple fan, but I’d feel no different if the CEO of any other large company were called to testify.  And I don’t have too much respect for our politicians, a few minutes at a time is all I can listen to them. Fortunately, there’s TiVo and it pause button.

It seems that it just occurred to our esteemed Senators that companies like Apple don’t pay US tax on earnings that were not not realized in the US. In the complex structure  of the world economy, any company with major sales and manufacturing overseas will structure itself in a way that maximizes its returns to shareholders. That would stand to reason. It would also make sense that when there’s manufacturing in China and sales in Asia, that Apple is already paying the taxes due in that region of the world.


From the brief bits that CNBC aired, I caught one Senator asking Tim Cook who his biggest competitor was. Samsung. He was then asked if Samsung was a US company. At that point I was trying to figure out if these questions were meant to be rhetorical or if these guys actually didn’t know that Samsung is a Korean based company. They went on to discuss how Apple’s overall tax burden, worldwide, was a similar percent to what Samsung would pay. (It is.) The real issue comes down to repatriating dollars into the US that were earned and taxed overseas. It’s actually cheaper for Apple to borrow money in the US by floating bonds with interest they can deduct as an expense instead of bringing those overseas dollars here.

Sen Rand Paul spoke up and articulated just what I was thinking –

I am offended by the tone and tenor of this hearing. I am offended by a $4 trillion government bullying, berating and badgering one of America’s greatest success stories.
Tell me one of these politicians up here that doesn’t minimize their taxes. Tell me a chief financial officer that you would hire if he didn’t try to minimize your taxes legally. Tell me what Apple has done that is illegal. I am offended by a government that uses the IRS to bully groups such as the Tea Party but I am also offended by a government that convenes a hearing to bully one of American’s success stories.
I am offended by the spectacle of dragging in here executives from an American company that is not doing anything illegal. If anyone should be on trial here, it should be Congress.
I frankly think the Committee should apologize to Apple. I frankly think Congress should be on trial here for creating a bizarre and byzantine tax code that runs into the tens of thousands of pages, for creating a tax code that simply doesn’t compete with the rest of the world.

Yes, it’s Congress that writes the tax code, the IRS just enforces it. It’s Congress that needs to work to change the laws to encourage growth, not encourage loopholes that avoid tax but aren’t helping to create jobs. I’d propose that Congress pull their collective heads out of the….. sand, and make a few simple changes that would get things started. Dividends are taxed. Apple drops $100M in dividend payments to US shareholders and much of it will taxed, to the extent it’s not held in tax deferred accounts. A simple new law that permits repatriation of funds to pay dividends would be a great start. Next, how about allowing that money to used for any job creating expansion? Instead of berating an American success story, why not ask Mr. Cook what exactly would induce him to build new manufacturing facilities in the US, and listen closely to his answer?

Stranger than fiction is when a presidential candidate refuses to explain the origins of the $100M in his IRA, the Senate is complacent. But when they realize that a $100B company exercises the same care with its finances to minimize its taxes, there’s a hearing. Shame on all of you. Well, except Rand Paul, of course. I plan to watch the entire hearing archived on CSPAN, and will write more on this topic if I uncover anything interesting.

  • Rob May 22, 2013, 11:36 am

    An even simpler fix is to lower the corporate tax rate from 35% to around 15%. In other words, closer to everyone else in the free world. There is no need to ‘close loopholes’ to do that. The math is simple: 15% of anything is more than 35% of nothing. Cook said he has no intention of bringing that money back to the US until it is cost-effective.

    At a rate of 15% or so it would be more cost effective for Apple to bring the money back to the US and pay taxes, than to keep paying an army of lawyers and accountants to avoid the taxes. They said Apple’s tax return now is literally a stack of paper 2 feet high.

    Result: IRS brings in more corporate taxes, Apple saves money on compliance, shareholders hold a better investment, shareholders get better dividends, IRS collects more money from tax on the dividends, Apple invests money in the US as either jobs or capital.

    What is the downside?

    Instead the politicians are going to ‘close loopholes’ i.e. actually make the tax code more complicated, and more expensive for Apple to comply. So Apple’s money will remain overseas, enriching other countries and their banks.

  • Joe May 22, 2013, 12:35 pm

    A beautiful plan, Rob. Too level headed for the circus I saw on CSPAN yesterday, but a plan I hope to see implemented one day. Thanks for visiting and writing today.

  • Honolulu Aunty May 23, 2013, 9:26 pm

    Hey Joe,

    Great article – great chiding from Rand Paul! Glad he has his dad’s “da kines”!

    It seems obvious that many elected officials do not understand business, but think they know all the workings of business. Many of them were/are attorneys, and almost all of them are out of touch with their constituents. Add to that mix the stupid 2 party system that is as childish as sororities and fraternities, and we have lawmakers without hindsight, foresight, or “da kines.”

    I, too, am an Apple fan, not just because the products are the best (imo), but because the support is the best (fact). For far less money, they could outsource tech support to India, but instead, they have real people answering questions and fixing problems in person at the Genius Bar or – and surprise! – get paid American income on which taxes are withheld.

    Please do keep us informed as the hearings continue. This is getting as interesting as Jon Stewart’s zen moments!

    With aloha,


  • Shafi May 24, 2013, 1:00 pm

    I consider it a show off by the Congress of the United States. Ain’t it the Congress that creates loopholes in our tax system for the rich and famous to take advantage of?

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