Apple tarred by GOP tax plan

For the New York Times’ apoplectic editorial board, Apple is Exhibit A.

From A Historic Tax Heist in Saturday’s Times:

Its modest tax cuts for the middle class disappear after eight years. And up to 13 million people stand to lose their health insurance because the bill makes a big change to the Affordable Care Act.

Yet Republicans somehow found a way to give a giant and permanent tax cut to corporations like Apple, General Electric and Goldman Sachs, saving those businesses tens of billions of dollars.

Tax reform is “sorely needed,” Tim Cook told NBC’s Lester Holt last month. Cue the video:

My take: If Apple’s CEO has any thoughts about the way tax reform turned out in the bill moving through Congress, now would be a good time to speak up.

18 Comments

  1. Robert Paul Leitao said:

    If I understand the arcane Senate rules relating to tax legislation correctly, the sunsetting of individual tax cuts after 8 years is designed to reduce the projected deficit bloat from the “tax reform” legislation. The thinking is after 8 years of tax changes, Congress will have no choice but to renew them. In the meantime it allows the Senate to pass the bill without more expansive debate and complicated procedures and bring the tax reform package immediately to the floor of the chamber.

    Tim Cook is correct. The US has just about the highest corporate tax rates in the industrialized world. The current US corporate tax structure, particularly as it relates to foreign-sourced earnings, is anti-competitive for US multinationals and essentially provides tax incentives to invest foreign-sourced earnings overseas rather than bring the income home for domestic investment. As it is, it’s estimate nearly $3 trillion dollars is held off-shore by US multinationals.

    Apple declares a US tax expense on all foreign-sourced earnings not permanently dedicated for use outside the US. As of the end of the last fiscal year, Apple had $31.5 billion in deferred tax liabilities. This substantially represents the declared but unpaid US tax expense on foreign-sourced earnings subject to US taxation. Although the tax has been declared and reported, the taxes are not due until repatriated to the US.

    Addressing only the reduction in US corporate tax rates and not any of the “pass through” provisions that will benefit other corporate structures (Apple is a C corp.), the legislation will definitely reduce Apple’s overall tax expense and allow for a one-time recapture of previously declared US tax expense on foreign-sourced earnings.

    Specific to Apple, the tax law changes will eliminate the incentive to keep hundreds of billions of dollars of foreign-sourced earnings outside the US. The changes will benefit Apple and its shareholders.

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    December 3, 2017
    • Richard Wanderman said:

      “The changes will benefit Apple and its shareholders.”

      Unless its shareholders are on social security and medicare/medicaid, have high medical expenses that they deduct, deduct college tuition, etc.. If that’s the case the benefit to APPL stock holdings might be offset by the changes in those social programs and deductions.

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      December 3, 2017
      • Robert Paul Leitao said:

        Richard:

        I am not necessarily a proponent of the changes to individual taxation under the current legislation. I am in favor of eliminating the incentives for multinationals to keep trillions of dollars off-shore and the anti-competitive corporate tax rates that foster inversions in which US multinationals acquire a foreign corporation and change their domiciliary to a location outside the US to reduce their US tax expense.

        As recently as 2015, Senators Boxer and Paul introduced bi-partisan legislation to provide a repatriation tax holiday on foreign-sourced earnings held overseas to fund badly needed transportation infrastructure investments in this country. Whether the use of the one-time tax receipts windfall is deployed for a particular purpose or not, it’s a benefit to the economy to bring the dollars back to the US.

        The debate on changes to the US individual tax code in my view is a separate matter. Tim Cook is a highly public and very vocal advocate for changes to the corporate tax structure in the US. I agree with his position on the matter.

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        December 3, 2017
        • Richard Wanderman said:

          I agree with you and Cook. But there are other ways of balancing the equation than the ones the Republicans are using.

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          December 3, 2017
    • Gregg Thurman said:

      “The current US corporate tax structure, particularly as it relates to foreign-sourced earnings, is anti-competitive for US multinationals and essentially provides tax incentives…”

      to move manufacturing off shore. The deal is that our trading partners operate in countries that split taxation between production (income) and consumption (sales tax).

      This structure makes export goods produced in their countries less expensive than if all taxation was based on production (income). Remember, taxes are a cost of doing business. In order to pay them corporations must account for the amount in the price they sell their product for. This means that US taxes will ultimately be paid by foreign consumers.

      Then on top of embedded taxes in the price of exported US goods, the destination country adds a consumption tax on top of the export price. This makes US produced goods highly uncompetitive in foreign product, and gives foreign produced goods a distinct advantage in the US.

      Elimination of all production taxes would make US produced goods less expensive across the board (US or foreign consumption). Instituting a consumption tax would bring the retail price of US goods back up to about where they were before elimination of US production taxes. However it increase the cost of imported goods, effectively eliminating the tax induced advantage that foreign producers enjoy in the US.

      Elimination of all US production taxes would lower the cost of US goods in foreign markets.

      To fully understand how important this imbalance is look at the trade imbalance of US/foreign goods. The US exports about $60 Billion less than it imports each quarter. That’s $60 Billion in economic activity that is consumed in the US, but not produced in the US (aka US jobs).

      1
      December 4, 2017
  2. Fred Stein said:

    Too many issues thrown in the mix master with a terrible result.

    It’s great to reward successful companies that improve our balance of trade by giving them incentives to return the overseas profits to our economy. Eviscerating medical care for people low on the economic ladder is cruel. The loop holes at the very top return us to feudalism.

    But there is much bigger issue. In the information age, top talent and the people who hire the top talent get disproportionate monetary benefits. It doesn’t matter if the top talent is football player, a lawyer, a deep learning AI expert., or a midas touch venture capitalist. This concentration of wealth crosses all boundaries. Our tax code cannot fix this, but the code could ameliorate it. Sadly the current plan makes it worse. Making Apple the bogeyman, is naive, at best. If Apple evaporated tomorrow, nothing would change the fact that digitization accelerates concentration of wealth.

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    December 3, 2017
    • Robert Paul Leitao said:

      Fred:

      Your points touch on matters far beyond the current individual and corporate tax codes. In my view, there are definite challenges in our nation’s competitiveness in the global digital economy of the 21st Century. I believe coding should be taught starting in the early grades of elementary school and students need to be prepared for relevant economic opportunities in the digital age.

      I agree the concentration of wealth occurring in the nation can’t really be effectively addressed through the tax code. It will take effort and a commitment to competitiveness beginning with the early years of formal education and continuing throughout a student’s educational career.

      The wealth divide has been widening for decades no matter the political party occupying the White House or leading Congress. The tax code is not the best way to address either the nation’s wealth divide or individual and collective American competitiveness in the digital age.

      2
      December 3, 2017
      • David Drinkwater said:

        The same logic that applies to coding could be applied to STEM, especially Math, given that Math is a foreign language (I mean this sincerely, not as a slight or a snark) that describes processes that we need to improve our understanding of in order to progress as a species/culture/folk. Teaching math in huge classrooms is a mistreatment of the subject matter that far predates the *possibility* of “coding”.

        I will admit that that is a personal soapbox, and apart from that, fundamentally, I agree that tax laws won’t solve the economic divide problem, but if the “state” brings in enough money to educate All The People, that will go a huge distance toward narrowing the gap. But it will take too much time for an election campaign to measure.

        1
        December 4, 2017
      • David Emery said:

        I do not understand the “everyone must code” movement. The last thing the world needs are lots more poorly trained programmers. Production software -should be- an engineering discipline, combining training, experience, team processes, reviews, etc. Not sure any of that comes from an hour, or even a week or month of ‘coding’.

        There is some advantage in using code to teach logical thinking. But the same can be achieved through other (mathematical) tools and techniques, without providing the illusion of a marketable skill.

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        December 4, 2017
  3. Turley Muller said:

    NYT has it all wrong. Corporate taxes constitute single digit percent of Treasury receipts. Couple – few hundred billion of TRILLIONS. If it’s less now, not the end of the world. I think it’s probably more revenue neutral cause there will some pick up from this too. And I view this from an accountant’s standpoint. Not some political hack – no matter how independent that claim to be

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    December 3, 2017
  4. William Kortum said:

    As a long time Apple shareholder from a high tax blue state, it is not clear whether or not I will benefit from this legislation. But – as a citizen – I see three dangerous sites of cancer in the government that need to be excised immediately: 1. Trump: Mr Mueller is dealing with that. 2. McConnell: What happened to Obama’s nomination of Garland to the Supreme Court? Why was no fillibuster allowed on the tax legislation? Why no public discussion? McConnell needs to be excised. 3. The electoral college needs to be junked if the NRA’s hold on politics is to be relieved. (And I say this as a person who has belonged to the NRA since I was 13 and became a lifetime member before the current NRA leadership took hold). The electoral college was initially designed to allow competent party leadership to edit illogical popular choices. Obviously – with Trump’s nomination – it no longer serves that purpose. The electoral college only allows low population areas more control. That is undemocratic. It needs to be fixed. So does Citizen’s United. I expect Tim Cook would agree with me. I don’t think Tim is part of this problem. He’s just running a business as well as he knows how. We need to fix our undemocratic government. Tim Cook has nothing to do with that problem. It’s a problem us citizens need to address. Hopefully right now. Calling your senators and representatives is considered to be more effective than E-Mailing or writing them.

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    December 3, 2017
  5. David Emery said:

    I think there’s a little bit of tax simplification on the corporate side, but actually more complexity on the individual side (with caps on mortgage and real estate tax deductions.) On top of all the other objections, that’s what bothers me the most.

    When we lived in Canada, our tax forms were pretty simple. There were basically no deductions (we did get to write off some rental expenses). The Provincial tax was a percentage of the National tax, so there was no state complexity, and both were filed on the same form.

    Now our total marginal rate was 54% if I remember right (mid ’90s), and that kicked in at about $50k. And the B.C. GST rate was 14% (7% for the Feds and 7% for the province.) THAT was a shock coming from NH (which has no sales tax at all.)

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    December 4, 2017

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