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.