Posted on 09/20/2016 11:40:32 AM PDT by Kaslin
Perhaps one of the most underreported stories of recent weeks was the European Union’s ruling on Apple’s tax arrangement with Ireland. After a three-year investigation, the EU levied what is believed to be the largest and most controversial tax penalty in its thirty year history. The implications of this are obviously of great importance to Apple and to the Irish government – but it could also have significant implications for the U.S. election cycle.
First of all, let’s make it clear. Apple got a sweetheart deal from Ireland in return for using the country as a tax haven. While the Irish government has been traditionally business friendly, the deal with Apple apparently allows it to pay essentially zero taxes, while employing approximately three thousand workers in the country. It is an even bigger sweetheart deal when one considers that similar low tax jurisdictions – Isle of Man, Bermuda, Panama, etc. – are not members of the E.U. or NATO, both of which provide both military and diplomatic protection, not to mention robust legal protections that smaller tax havens cannot provide.
An obvious question that needs to be asked is why does the U.S. tax the overseas profits of U.S. corporations in the first place? And the answer is quite obvious – the U.S. projects global power in a way that paves the way for corporations to do business abroad. That is to say, that the U.S. military, diplomatic and economic power protects U.S. corporations from expropriation, fraud, intellectual property theft, and contractual disputes involving foreign partners and governments. In fact, some of the conflicts the U.S. has engaged in the Middle East over the past decade have been characterized by some as ‘resource wars’ – protecting U.S. oil companies and defending the ‘pretro-dollar’ against incursion from China and Russia. This relationship between U.S. corporations and the U.S. government has been traditionally very successful, and the government expects corporations to pay their share of the burden for enforcing contracts and agreements abroad.
But the second question – one that is not so obvious, is whether these are really ‘overseas profits.’ It really begs the question, for example, whether Apple’s estimated $215 billion held in overseas accounts really resulted from profits earned outside the United States. After all, the U.S. is by far the largest single market for Apple’s products. Furthermore, Apple pioneered ingenious tax accounting schemes including the “Double Irish With a Dutch Sandwich,” which routes profits through various subsidiaries in Ireland and the Netherlands before ultimately parking them in Caribbean accounts. What seems to be going on is that Apple (and other multinationals) have been able to shift profits actually made in the U.S. to overseas subsidiaries, through the use of ‘licensing’ schemes.
In response to the EU’s move, the U.S. Treasury quickly came to Apple’s aid. In a white paper the U.S. Treasury released after the EU’s ruling, the Treasury department said, “This shift in approach appears to expand the role of the commission’s Directorate-General for Competition” that goes “beyond enforcement of competition and state aid law.” This is serious language. The U.S. government clearly believes the EU’s tax decision amounts to an illegal appropriation from a U.S. corporation. But the paper goes even further to argue that “There is the possibility that any repayments ordered by the Commission will be considered foreign income taxes that are creditable against U.S. taxes owed by the companies in the United States.”
What? The U.S. government actually believes it actually has a reasonable chance to collect on Apple’s overseas tax liabilities? That would be news. Why in the world would a company repatriate those profits at a tax penalty of up to 40%, when it could merely park the profits in Europe at the EU’s effective rate of less than 15%? The answer ultimately comes down to the value of the protection the U.S. government can provide to Apple and other multinationals. And in that respect, the U.S. has far more leverage globally than the EU. Apples being compared to Apples (no pun intended), the value of the U.S. government brand is higher.
What does this all mean for the U.S. taxpayer? In essence, until Apple and other global corporations actually do repatriate their profits, other taxpayers will be on the hook for the costs of defending Apple’s global market advantages. U.S. soldiers will pay the price in terms of fighting resource wars. Most critically though, U.S. workers pay the price in terms of jobs shipped overseas and lack of reinvestment in plants and equipment in America.
In essence, the EU’s move against Apple publicly forced the U.S. Government’s hand. By coming so quickly and forcefully to Apple’s aid, the U.S. Government raised the issue of why Apple has not paid its fair share. In response, Apple’s CEO, Tim Cook has apparently decided to repatriate some of the company’s profits over the next few years.
By exerting its comparable taxation authority as leverage, the EU did the American taxpayer a huge favor. Apple and other multinationals will ultimately have to be accountable to the American taxpayers. This turn of events marks a wonderful opportunity to bring the issue of corporate profits repatriation to the political forefront. The bottom line is that companies can no longer afford to do nothing. Now is a great time to start negotiating a better deal for Americans.
It can very cogently be argued that the corporate income tax is a tax on money which will be paid out to individual owners who pay income tax on dividend income - and that, therefore, the corporate tax rate should be zero. Which would obviously moot this argument.It is not necessary to lower the US corporate tax rate that much to ameliorate the problem of tax inversions. But it would not be morally wrong, IMHO.
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The investors risked their money, and if Apple had lost money they wouldn't get a cent from the government, but because APple made money the government has one hand out and the other on a gun pointed at the taxpayers' heads. Stand and deliver.
“There is the possibility that any repayments ordered by the Commission will be considered foreign income taxes that are creditable against U.S. taxes owed by the companies in the United States.”
You’re assuming that all corporations pay dividends?
Before this is paid, hell will freeze over and the Clintons will be truthful!! Strictly and exercise in mental masturbation.
Corporate taxes are a farce to begin with, but fixing that is another matter.
Apple is not an American friendly company and their political activism is not something I wish to subsidize.
Let me get this straight: you assume that people invest in corporations’ stock on the Ponzi principle that the price of the stock will go up because the price of the stock will go up?The principle of not paying dividends works only for a corporation which is growing rapidly. Tax considerations aside, it is the same as if you received dividends, and used them to buy more of the stock in the same corporation. Eventually the corporation will stop growing exponentially, and then the income of the company must go out in dividends - otherwise, why own a stagnant stock which pays no dividends???
the bottom line is that eliminating the corporate income tax would allow the fast-growing corporation to keep, and reinvest, all of its profits, and thereby to grow just that much more rapidly. Comes the time when the profit prospects become less self-evident, the no-longer-fast-growing corporation will pay dividends. After - if not before - a hostile takeover makes it do so.
The xGOPe (and Dems) have screwed Americans over by allowing megacorporations to hide USA-earned profits overseas. How it works is like this:
Suppose a company called BigCorp does 100B of revenue annually with 50B in the USA and 50B overseas. It costs them 40B in real expenses in the USA and 40B in real expenses overseas. But they pay a “licensing fee” from BigCorp-USA to BigCorp-International of 9.99B. This means their “USA” profits are 0.01B and their overseas profits are 19.99B. The IRS gets 0.0035B instead of 3.500B from them. If they didn’t do any business overseas then they’d have a harder time laundering their profits like this.
In the meantime this company gets cheap access to USA courts to protect their patents & whatever they want, we keep a strong military overseas to protect their overseas revenues & their control of their offshored profits, and the rest of us pay higher taxes to subsidize their lack-of-fair-share taxpaying here. This is one big reason why “free trade” is so important to them and why they are hell-bent on controlling the White House & Congress.
The 2016 Election’s presidential race was supposed to be a two-way race between two reliable “lets keep the game going” candidates Jeb Bush and Hillary Clinton. But Bush got Trumped so now they are running scared.
This makes me laugh. If Apple, or any other trans global manufacturer, has offshored production to the third world then what pray tell are they going to sprnd all of these stockpiled billions on? New carpeting for the corporate office spaces?
Marx was a free trade advocate.
With a national debt over 19T and planned federal outlays over 23T for the next 5 years the math just doesn’t work out if corporations don’t pay a fair share. Maybe that’s why they are offshoring their profits because they worry that the USA is now “New Venezuela”.
http://www.treasurydirect.gov/NP/debt/current
https://www.whitehouse.gov/sites/default/files/omb/budget/fy2017/assets/tables.pdf
So would you agree that capital gains and dividends should be taxed at the same rate then?
Capital gains are a special case, in the sense that in general the taxpayer decides to pay the capital gains tax. That is, if you own a stock which has gone up in value, the capital gains tax puts a thumb on the scale in your decision whether to sell that stock, saying - “Do you really have a different stock to buy that you are sure will appreciate faster in the future than the one you are thinking of selling?” Because you are taking a tax hit by realizing the capital gain on the stock you already own.Given that, you can see that the capital gains tax rate biases the stock owner’s sell-or-hold decision against realizing a capital gain. And the higher the rate, the stronger the bias. Understanding that, you can comprehend that, according to The Wall Street Journal, there has never been an increase in the capital gains tax rate which increased the revenue the tax yielded - nor a reduction in the capital gains tax rate which did not increase the revenue the tax yielded.
Another justification for a low capital gains tax rate is the fact that a stock price is just the estimated present value of all future dividends of the stock. In that context it is not a tax on income at all - it is a tax on future earnings which may or may not eventuate.
So, no - if we must have an income tax, fine, tax dividends as ordinary income - but taxing capital gains is a different category. Its rate should be low to nonexistent. I have my own pet proposal to embarrass the socialists into accepting a low capital gains tax rate. A law should be passed which establishes a cap/rebate system which limits the revenue of the capital gains tax to a fixed number. The excess over that number gets rebated pro rata to the payers of the tax. Nominally, that does nothing, or very little. But
The effect of the rebate scheme would be that the smart money would realize that if the capital gain realizations go up, the cap gain tax rate - net of rebate - would drop. Therefore the smart money would increase capital gains realizations - and the net tax rate on capital gains would go down. It is a mechanism whereby the risk is voluntarily assumed by people, with no risk to the government. “Liberals” would hate it - but would have no reason for their animosity with which they could make any political hay.
The case is very strong that the vast majority of all capital gain is composed purely of inflated value of the money in which the value is accounted. The best example of this is in real estate where the utility value of the real property does not ever change while the monetary value increases over time and the government assesses a capital gain on that increase in monetary value for no gain in real useful value. You cannot utilize the real value any more than you could when the real property was purchased for the much lower amount of money than when it was sold years later for the much higher money amount. . . Yet the government demands a percentage of that value as a capital gain tax on no increase in real utility value! The ability of that increased number of counters to buy goods and services has not increased an iota over what it could buy years before, yet the government imputes an increase in value that does truly exist. Ergo, the Capital Gain is a tax on inflation, pure and simple.
Inflation is a creation of the state's monetary policy, printing more money than the economy can increase the goods and services it produces to exchange for that fiat money. Inflation has only a negative economic value in the overall economy and the government is imposing the illusory capital gains tax on something that actually does not produce wealth, but is actually a drag on producing wealth.
Capital Gains taxation is adding injury to insult, stealing the wealth after devaluing the investment over time by taxing it away under the fiction it has been increased by some benefit provided by the government.
Uh, no, the USA is not the largest market for Apple. The world outside the USA is Apple's largest market. Apple only makes approximately 37% of its income from the US market sales. Check its 10-K and 10-Q financial statements for the last several years to find out instead of making assumptions that make you look stupid, Mr. Armstrong Williams.
And, no, Apple's billions are NOT parked in Caribbean accounts. They are in Ireland, nor did Apple "invent" the "Double Irish with a Dutch Sancwich" to which you are referring that results in those accounts in the Caribbean. That would be Facebook and Google. The money Apple made in the United States has stayed in the United States and was NOT transferred to Ireland, as Tim Cook testified under oath to the US Senate investigatory Committee in 2013, and showed Apple's 2012 and 2013 Corporate Tax Returns which showed that Apple, unlike the committee's staff report claiming Apple had paid no US Taxes, but that Apple had in fact had actually paid the most US businesses taxes in those years of ALL US Businesses, paying $1 of every $40 of business taxes collected! In fact in 2015, Apple's effective US Tax rate is 27.6%! Compare that to Google/Alphabet's 18.7%.
Fine post; ping to my complementary #15.
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