What Tim Cook Should Say: Tax Me More, Apple Not At All

According to US Senate investigators, Apple paid no corporate income tax to any national government on $74 billion in overseas income from foreign units over the past four years. Two key points: First, investigators found no evidence Apple did anything illegal. Second, Apple concedes the entities didn’t pay corporate taxes but denies they were designed as part of a tax avoidance scheme.

Does all this argue for tax reform? Yes, both Democrats and Republicans say — not that this acknowledgement really moves the ball. To those on the left, in particular, Apple’s tax situation argues for closing loopholes so Apple and other multinationals pay more taxes to the US Treasury. At a hearing today, Senator Carl Levin, the Michigan Democrat who chairs the Permanent Subcommittee on Investigations, more or less portrayed Apple’s tax avoidance as contributing to crushing austerity here at home.

Beyond a defense of Apple, CEO Tim Cook offers his ideas for tax reform:

Apple has always believed in the simple, not the complex. This is evident in the Company’s products and the way it conducts itself. In this spirit, Apple has recommended to the Obama Administration and several members of Congress – and suggests to the Subcommittee today – to pass legislation that dramatically simplifies the US corporate tax system. This comprehensive reform should:

• Be revenue neutral;

• Eliminate all corporate tax expenditures;

• Lower corporate income tax rates; and

• Implement a reasonable tax on foreign earnings that allows free movement of capital back to the US.

All pretty run-of-the-mill suggestions. Maybe Cook should take this opportunity — borrowing the old Apple slogan — to “think different.” Instead of corporate tax reform, Cook should argue for corporate tax elimination. Just get rid of the sucker.

1. An OECD study concluded: “Corporate taxes are found to be most harmful for growth, followed by personal income taxes, and then consumption taxes.”

2. AEI economists Kevin Hassett and Aparna Mathur have found that “corporate tax rates affect wage levels across countries. Higher corporate taxes lead to lower wages. A 1 percent increase in corporate tax rates is associated with nearly a 1 percent drop in wage rates.”

3. While estimates certainly vary — with one study finding workers bear 60% of the burden, another finding capital bears 80% — certainly corporate taxes do fall on workers, at least to some significant extent.

4. We should want companies to deploy capital and make business decisions based on potential return on investment, not because of potential tax liabilities.

5. Imagine the decline in lobbying.

6. One less thing for the IRS to worry about.

How to make up for the lost tax revenue? Eliminating corporate income taxes would likely not lose as much money as a static analysis would suggest. To fill whatever shortfall there might be, we could scale back or eliminate the special tax treatment for dividends and capital gains for wealthy taxpayers like Cook. There are other great ideas for tax reform, of course. But if Apple wants one that is simple and elegant, this would be it.

  1. Indaba

    Apple…come to Canada where our conservative government has our corporate taxes down to the lowest level in the G8 and maybe the G20. They changed the tax code to make it easier for American investors. Silicon Valley gets told to do their companies in Canada where there is a tech hub. Just don’t do our other taxes…

  2. BrentB67

    Sure, that is exactly what he should say, go and ask Congress for a personal tax increase and make the tax code more progressive. Great thinking.

    No doubt we should eliminate corporate taxes or reduce them to almost inconsequential, but that doesn’t mean we should roll over and make our lives harder individually.

    The federal government confiscates ~$2Trillion per annum. What is in the Constitution that doesn’t get paid for with that outrageous sum of money?

  3. Eric Hines

    You’re arguing from two false premises, Mr Pethokoukis, themselves grounded on a false premise.

    How to make up for the lost tax revenue?

    Why do we need to?

    What Tim Cook Should Say: Tax Me More, Apple Not At All

    Again, why?

    The overarching false premise?  That the Federal government needs the money.

    Defend that, first and foremost.  Arguing for higher taxes or for revenue neutrality in any change or reform without demonstrating a need for the money is just a naive or cynical red herring.

    Eric Hines

  4. quodlibet

    Large corporate tax reduction, or even elimination, would help our country in so many ways, as Mr. Pethokoukis describes.  It should be the very definition of the phrase “no-brainer”.  There are only two arguments against it, that I can think of.  First, congressmen would lose leverage with corporations (i.e. large campaign contributers).  Second, the public won’t understand it, and the media and Democrats will make sure they never do. 

  5. Larry3435

    Dividends and capital gains are totally different, for tax purposes.  The reason to have lower tax rates on dividends is to prevent double taxation, and eliminating corporate taxes would change that.  The reason to have lower tax rates on capital gains is that high rates on capital gains incentivize people to hold on to their capital investments rather than sell them, which causes economic inefficiency.  Corporate tax rates don’t affect that rationale.

  6. Larry3435
    Indaba: Apple…come to Canada where our conservative government has our corporate taxes down to the lowest level in the G8 and maybe the G20. They changed the tax code to make it easier for American investors. Silicon Valley gets told to do their companies in Canada where there is a tech hub. Just don’t do our other taxes… · 7 hours ago

    So your big problem is that low corporate tax rates in Canada are causing U.S. corporations to move there?  Awww, boo hoo for Canada.

    Or maybe you’re being sarcastic.  When reading lefty-speak, it is so hard to tell what is serious (I use the word loosely) and what is sarcasm.

  7. Eric Hines
    Larry3435: Dividends and capital gains are totally different, for tax purposes.  The reason to have lower tax rates on dividends is to prevent double taxation, and eliminating corporate taxes would change that.  The reason to have lower tax rates on capital gains is that high rates on capital gains incentivize people to hold on to their capital investments rather than sell them, which causes economic inefficiency.  Corporate tax rates don’t affect that rationale. · 1 hour ago

    Dividends remain double taxed: as part of income to the business and as income to the recipient.

    Taxing capital gains might encourage holding onto them, but more, it discourages the investment in the first place in favor of other places to put the money for better returns.

    Low tax rates with no loopholes or special treatments eliminate the need for…special treatments in taxes.

    Eric Hines

  8. Michael Hornback

    I agree that tax reform is something that needs to be done. Indeed, anyway we can remove reasons for lobbyists to add to the corruption of DC, I’m all for. However, government still needs money to operate. And the point made about a 1% tax on corporations equals 1% reduction in wages leads me to say, no duh! And if government wasn’t getting it from the corporation, then they’d have to either get it through personal income tax or consumption, no? So it’s just a matter of which hand it’s getting the money out of. The effect will be felt the same, no? That said, taking the money at the corporate level does seem a bit more fair as the effect would be felt by the whole population. If it is done at the personal income level, then just those who pay taxes will feel it while those that don’t won’t, no?Lots of things to consider in the area of fairness and transparency as well as what’s best for the economy. No wonder nothing gets done about it!

  9. quodlibet
    Michael Hornback:  taking the money at the corporate level does seem a bit more fair as the effect would be felt by the whole population. If it is done at the personal income level, then just those who pay taxes will feel it while those that don’t won’t, no?

    I think that is exactly backwards.  As the third point on the list in the article above illustrates, we don’t know who we are taxing through corporate taxes.  If the taxes were shifted to being collected directly from individuals, we could tax as progressively or regressively as we consciously chose.  It would be fairer and more transparent (which is really why nothing gets done about it.)

  10. Bryan Van Blaricom

    The best way to make up for “lost tax revenue” of course, would be to shut down at least 3/4 of the current federal government: any part of it not engaged in activities supported by the constitution.

  11. Steve MacDonald

    Why not eliminate the entire tax code, along with all income tax. Replace it with a 19.5% VAT that is at the upper end of tax revenues to GDP history. You miss no revenue, create a tremendous productivity gain and sets an easy to understand limit on Govt. spending all at once. It also saves you having to fight 1,000,000,000 battles with special interests over whose ox gets gored.

    Of course it would also diminish politician’s power, so it will never happen.

  12. quodlibet
    Steve MacDonald: Why not eliminate the entire tax code, along with all income tax. Replace it with a 19.5% VAT that is at the upper end of tax revenues to GDP history. You miss no revenue, create a tremendous productivity gain and sets an easy to understand limit on Govt. spending all at once. It also saves you having to fight 1,000,000,000 battles with special interests over whose ox gets gored.

    Of course it would also diminish politician’s power, so it will never happen. · 17 hours ago

    It’s also not progressive enough for many folks, so there is reason #2 it will never happen.

  13. quodlibet

    I’m a little disappointed this thread did not get more comments.  Despite my pessimism in a previous post, I think we need more people out there banging the “eliminate corporate taxes” drum.  It would solve so many problems, and the only losers are politicians.

  14. Freesmith

    James P. has a point, but he doesn’t make it.

    Tim Cook should be taxed more. It will teach him and his wildly enthusiastic Democrat employees a lesson they have been able to avoid learning under the current tax rates and code.

    According to Nate Silver Google employees gave 97% of their political donations to Obama, with similar percentages from Apple and Ebay. The hierarchs of Silicon Valley’s social and economic libertarianism consistently vote for big government – by huge numbers. As Steve Johnson wrote, “The most dynamic sector of the global capitalist economy is now decisively in the camp of the Democrats.”

    Could this have something to do with how the tax code treats stock options and capital gains? Why else would multi-millionaires vote for the party of increased regulation and higher taxes unless they were not being affected?

    Reality is supposed to make people conservative, but if people are shielded from reality, the dreams of liberalism persist. Tax the dreamers.

    Democrats have been using the tax code for years. It is, admittedly, a gun; but do you want to go to the gunfight with nothing but knives?  

  15. Freesmith

    Reflect on that statistic I quoted from Nate Silver, Quodlibet.

    Think about it the next time you see Tim Cook, Mark Zuckerberg, Larry Ellison or any of the thousands of Silicon Valley heroes talk about social and fiscal policy.

    Politically there is no difference between them and the liberal arts and social science faculty of Harvard University.

    And don’t you wish you could tax those jokers at 95% of their gross income? – for the children of America, of course.