Apple has been in the limelight again, but this time Steve Jobs is not around to vindicate it from tax avoidance allegations: It is accused of not paying its fair share of corporate taxes. Uncle Sam wants sweeter Apple as he is hungry.
Common sense is uncommon in Washington. This Apple allegation proves that most politicians — both blue and red — think that Apple needs to pay more taxes for its growing cash hoard overseas.
Street smart approach is to circumspect this allegation with our own lenses of facts, and educate those who want to use common sense and not being influenced by the demagoguery in Washington.
Before we divulge into nuances of corporate taxes, let’s know a basic economic fact: Corporations don’t pay taxes, consumers do pay taxes.
Anyone who believes that a company must pay more taxes has not clearly understood the fact that companies do not pay taxes, so to join a chorus against evil corporations is fool’s act.
The notion that these cash rich corporations need to pay more taxes is pervert because our elected officials take every opportunity to minimize their tax bill as allowed by IRS, so these evil corporations have same right to do so for their share holders.
As a shareholder, I feel that Apple deserves right to minimize its tax bill lawfully like any other citizen of our country including our elected officials.
Corporations don’t pay corporate taxes
This may sound oxymoronic, but the facts don’t lie. Most corporations pass their tax liabilities to consumers. Corporations add taxes to their cost of goods, and thus build that into the retail price of the consumer goods.
While attacking success and successful businesses is in vogue in Washington, we the people ought to remember that we bore the burden to pay for every tax increase.
America has highest corporate tax rate in the world
At 35%, America has the highest corporate tax rates among all industrial nations. It’s true that Apple has billions in its overseas accounts, but Apple has also tried to influence Washington to lower the corporate taxes so that it can reinvest that capital in America. Think about it. How many jobs Apple can create if it brings this huge cash hoard back home, if our government encourages it do so rather than punishing for being one of the most successful companies in the world.
A case for Fair Tax
Our own former Fed chairman Alan Greenspan has predicted that if America lowers its corporate tax rates, more than $13 trillion dollars cash hoard sitting idle in the overseas accounts owned by various American corporations can come back to our mainland.
Our tax code allows corporations to defer paying taxes indefinitely on the profits made overseas in their subsidiaries. This is the culprit: it allows these corporations to grow their foreign subsidiaries faster by reinvesting profits back into growing their businesses overseas. The net effect is starkly opposite to what most Americans want: more jobs get created overseas by US corporations.
Imagine if we change tax code so that it is conducive to more capital investment and growth in America, our economy will skyrocket.
Imagine how major economic jolt our country can get if new factories will get built and, as a result, millions of new jobs kick-start our stagnant economy!
I also believe that more capital investment and job growth means more revenue for our government.
The latest IRS scandal and Apple’s allegation also shed light on a larger issue: Our tax code is beyond anyone’s ability to understand and comprehend as it is mammoth.
What we need is a new tax strategy such as fair tax or flat tax.
Our tax code is not only complicated but also a tool used by both parties to advance their political agenda. Apple is cash rich, but there is no one who can cast a stone at Apple as everyone tries to pay least possible to our beloved uncle. Do you agree?
photo by: MikeMac
Another great post and perspective!
One of the more interesting consequences of the tech revolution is that it has made capital more mobile and has loosened the control political states have over companies and individuals.
Money has always flowed where it is best treated. Now it is just much easier.
This is one of the reasons I tend not to worry much about our deficit from a personal, investor point of view. The multi-nationals held in a fund like VTSAX can and do “vote with their feet.” That is, like Apple, they can and do move operations away from poorly run, high tax states to those more friendly.
This helps insulate them and us as their shareholders from the whims of politicians and nations.
It behoves the USA, and every other country to strive to be competitive. The alternative is a death spiral.
The deficits deeply concern me regarding the future of our country and for those whose labor is tied to its future.
For me as an investor, not so much.
“One of the more interesting consequences of the tech revolution is that it has made capital more mobile and has loosened the control political states have over companies and individuals.” — this is why I adore you, my friend. I wish our politicians can borrow your brain even for a year. I am proud to have you as a wise friend.
Shilpan, you’re right on as usual. Government can’t tax a legal entity, only people. A good argument can be made in my opinion to eliminate the corporate income tax. Education is the key to one day making this politically possible.
Absolutely, Kurt! It’s ludicrous that these politicians spend hours in these worthless arguments just to make public believe that Apple indeed is doing something wrong. Most politicians take every opportunity to avoid paying taxes within legal realm. Until we keep watching Monday night football and worship celebrities, nothing will change. Incredible!
“I feel that Apple deserves the right to minimize its tax bill lawfully like any other citizen of our country” – I couldn’t agree more! What is the point of chastising a company for finding legal ways to lower their tax burden? If a company is breaking the law, you can bet the IRS will find out and will punish them. If they aren’t breaking the law, who in their right mind would expect them pay any more than they are obligated to?
That’s my point. It’s alright if Apple did anything wrong to avoid paying taxes, but attacking it just because it has billions in overseas account is fool’s act. Instead, these politicians ought to think why Apple is keeping its cash hoard overseas, and what can be done to bring it home for capital investment and job growth.
I have a problem with your title Shilpan! What is ‘fair share’? 🙂
Apple, like the rest of us, finds as many credits and deductions it can take before paying taxes. The problem lies with our tax laws, not our corporations.
Let’s give it to Apple, some of the new iMacs are even manufactured/assembled here in the US! (Maybe that’s to get more tax breaks, who knows!)
The title merely reflects what’s in hearts and minds of our politicians in Washington, MC 🙂 I can’t agree with you more, my friend.
[…] To read more from Shilpan head over to Street Smart Finance. To hear Shilpan tell his story, check out his interview with the Mad Fientist: The Real […]
[…] Street Smart Finance – Is Apple not Paying its Fair Share of Corporate Taxes? […]