Apple 'tax gimmicks': rotten to the core or sensible business? (+video)
Two senators on Tuesday plan to grill Apple CEO Tim Cook about the company's tax practices, which they say cheat the US out of billions of dollars. Apple says it's playing within the rules.
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In the long run, the issue of how the nation should structure corporate taxation is a key piece of America’s global competitiveness, an issue often raised by tax reformers like Sen. Max Baucus (D) of Montana and Rep. Dave Camp (R) of Michigan, the chairs of the tax-writing committees in the Senate and House. They want to close tax deductions and lower tax rates for both individuals and corporations – and shift most corporate profits earned abroad into a lower tax threshold than the 35 percent rate that hits many private sector bottom lines today.Skip to next paragraph
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But Senators Levin and McCain are wary of focusing either on the comprehensive fix sought by Chairmen Baucus and Camp or the “grand bargain” pursued by President Obama and congressional leaders in years past, which they see as an excuse for delay.
“Every lobbyist in this town comes to my office and tells me, ‘We’re all for closing these loopholes, we know they are outrageous, but we must wait until we have a grand bargain ... because revenues have to be balanced by entitlement reform.’ It’s a cop out. It’s an absolute cop out,” McCain told reporters Monday.
“Why should we continue to allow an egregious practice like this to continue on and wait until we have a grand bargain which may never happen,” he continued. “When you see egregious activity like this, why wait?”
In its prepared testimony, Apple disputes that anything egregious is going on at all.
The company reminds that it pays a notch over 30 percent in taxes on its US profits, putting it at the upper range of US corporate ratepayers, and that because of its massive size and profitability, its $6 billion in US income taxes made up 2.5 percent of all corporate Treasury receipts last year.
The company argues that it has substantial cash overseas because almost two-thirds of its sales happen outside the US. What the senators see as dodging tax laws, Apple points out, are IRS-sanctioned activities which the company has been engaged in since 1980.
Apple also takes a swing at the US corporate tax system, pointing out that it can issue debt (as it recently did) at extremely low interest rates and use the resulting cash to repurchase stock or pay a dividend to its investors instead of repatriating cash held overseas and paying the 35 percent federal tax it would incur.
Instead of that 35 percent rate (which is higher than all America’s competitors in the developed world, although a bevy of deductions allow many companies to be a much lower rate), Apple suggests a “dramatic simplification” of the nation’s corporate tax scheme that doesn’t raise the revenue paid by all corporations but wipes out deductions and lowers tax rates proportionately.
“Apple supports this plan,” the company’s testimony says, “even though it would likely result in Apple paying more US corporate tax.”
But while that’s just the sort of comprehensive change that Levin and McCain support in theory, the two senators made it clear that they believe that holding out for a dramatic rewrite of all the nation’s tax laws is a dodge. It allows too much bad policy to survive in the interim.
Whether Levin and McCain move a stand-alone bill focusing on tax loopholes or not is “going to be governed by all kinds of forces that are swirling around here,” Levin said, adding that the two senators were in numerous discussions about how best to proceed.
“But a lot is going on and this is a big part of what is going on,” Levin concluded. “We are determined to close these tax loopholes, one way or another.”