Why is Apple issuing debt when they have enough cash to buy every office building and retail space in New York City?

“With a $145 billion cash hoard, Apple could acquire Facebook, Hewlett-Packard and Yahoo. Put another way, it could buy every office building and retail space in New York, according to city estimates,” Peter Lattman and Peter Eavis report for The New York Times. “But despite its extraordinarily flush balance sheet, the technology behemoth borrowed money on Tuesday for the first time in nearly two decades. In a record-size bond deal, the company raised $17 billion, paying interest rates that hovered near the low-cost debt of the United States Treasury.”

“Taking on debt can actually magnify the returns for shareholders and improve stock performance, financial specialists say. It can reduce the overall cost of the capital that a company invests in its business. In addition, after a stock buyback, there are fewer shares, which can increase their value,” Lattman and Eavis report. “By raising cheap debt for the shareholder payout, Apple also avoids a potentially big tax hit. About two-thirds of Apple’s cash — about $102 billion — sits overseas in lower-tax jurisdictions. If it returned some of that cash to the United States to reward its investors, it could have significant tax consequences for the company. In some ways, the bond issue is a response to that tax situation.”

Read more in the full article here.

[Thanks to MacDailyNews Reader “Whit D.” for the heads up.]

44 Comments

  1. It’s a symptom of a broken and excessively compleciated tax structure in the US.

    Other countries have far lower corporate taxes than the US putting our businesses at a real disadvantage when trying to compete.

      1. Gouging! What do you mean! You need to make sure that the government has enough money to give to people like the Tsarnaevs! In fact, they only received a measly $100,000 from the taxpayers.

    1. The problem isn’t the tax rate, but the double taxation. Most countries don’t tax foreign earnings if you’ve already paid foreign income taxes. That makes US companies less competitive with their foreign counterparts.

      1. I’m not against taxes, not really even corporate taxes per se, but they are never really paid by corporations but rather their customers, employees, and stakeholders. What I’m against is taxes on US corporations that makes us less competitive and gives foreign rivals a distinct advantage.

        1. When everyone talks about US Corporate tax rates making the US less competitive, you should think of our tax philosophy.

          The US taxes PRODUCTION (income taxes, taxes on labor). These taxes increase the cost of the item being produced, WHICH MAKES US PRODUCED GOODS MORE EXPENSIVE ON FOREIGN MARKETS.

          In contrast our trading “partners” tax consumption (sales taxes). Elimination of production taxes makes their products less expensive in the US, BECAUSE THEY AREN’T TAXED AT ALL. Only the profit (made by US companies) is taxed. Consumption taxes also increase the cost (in foreign markets) of US produced goods, because they are added on top of the cost, which is already non-competitive,

          Replacing our archaic and non-competitive production tax system with a consumption tax system you keep everything you earn, you don’t pay taxes on savings interest or investment profits, US produced goods are less expensive in foreign markets AND FOREIGN PRODUCED GOODS COST MORE IN THE US. The latter stops the flow of US jobs offshore and increases US jobs due to increased exports.

          Only one thing stops the transition: Democrats, because they campaign on reducing taxes for the working person and making the “rich” pay more. They don’t care that the current system has been increasing the number of working poor and sending US jobs overseas. They get elected, which is their ultimate goal.

          1. greggthurman says “The US taxes PRODUCTION (income taxes, taxes on labor).”

            This is not entirely true.
            The US taxes citizens on revenue/income.
            The US taxes corporations on earnings/profit.

            With low corporate tax rates, corporations would rather pay the low tax (15% or less) and keep the profits. This leads to bigger bonuses & compensation for executives.

            If corporate tax rates were higher, corporations would be hesitant to pay the taxes and instead invest the money in more R&D, more factories, more employees. This would be an expense and not taxed. It would reduce the reported earnings and thus taxes paid, but these investments would pay off over time.

            1. BTW, I am not necessarily advocating for higher taxes. My point is that a balance should be found where the tax code creates the right incentives for corporations to invest in the long term vs. taking short term profits.

    2. There it is. When legislatures plan to steal by decree, er, confiscate wealth and freedom, er, tax to benefit their, co-conspirators, er, cronies, er, constituents, er, voters in their states and districts the first that must be done is to hide their misdeeds within a morass of laws and regulations.

      1. And no company pays the high rates that some people scream about. The nominal rate is about 35% but the actual rate across all companies is around 12%.

        “U.S. corporate taxes that were actually paid (the effective rate) fell to a 40 year low of 12.1 percent in fiscal year 2011, despite corporate profits rebounding to their pre-Great Recession heights. The U.S. both taxes its corporations less and raises less in revenue from corporate taxes than its foreign competitors:”

        http://thinkprogress.org/economy/2012/03/30/456005/reminder-corporate-taxes-very-low/?mobile=nc

    3. There is a huge gulf between listed tax rates and effective tax rates. When calculated as effective rates the US has one of the lowest corporate tax rates among OECD nations, as listed rates one of the higher ones.

      The truth is that much of the corruption on our political system comes from high base tax rates that are exempted by favors from elected officials. We do need an overhaul of of our tax system, but not a wholesale cutting for idealogical reasons.

  2. Apple is very clever . Paying Internet to bond is less than paying dividend ( now is 3% ) to those buy back share and no need to pay dividend to those shares from now on . Doing so Apple will indirectly trsnsfer the money from overseas back to USA almost without costs .

  3. Because the clown in the White House, the so-called Black Jesus of Chicago, brought his Chicago Mafia to run the economy to the ground and consequently has had to impose excessive taxes to fund the millions of welfare queens who voted for him in exchange for an Obamaphone that is made in Korea.

    100% taxes are coming. The morons voted him in and the morons are going to have to live with it.

    1. A supurb comment. However, the welfare queens and morons that you speak of will have no problems at all because approximately 30% of us (about $200,000 per year in the case of myself and my wife on a joint return) will be paying for them. No problems! Life is good!

    2. so-called Black Jesus of Chicago

      Never heard of that offensive term before.

      brought his Chicago Mafia to run the economy to the ground

      No, the Neo-Con-Job run White House of the PREVIOUS presidential clown gets ALL of that credit, as well as the obstructive Congress who prolonged the problem, again thanks to the Neo-Con-Jobs. And no, I’m not saying the clueless Democrats would have been much help in any case. But get your facts straight and take your lithium BLN. You’re in terrible form today.

      Oh and if you take a look at the welfare bucks paid out these days, you’ll find that it’s impossible to live as a ‘welfare queen’. However, there remains an incentive for irresponsible women to pump out more babies in order to get more money, a seriously sick state of affairs. I pity the innocent children of such people, typically doomed to be messed up in the head and a detriment to their future culture. Really bad stuff.

    3. No they aren’t. WE ARE GOING TO HAVE TO LIVE WITH IT.

      Obama got elected because he promised milk and honey to the electorate (with the “rich” paying for it). The truth is that since Lyndon Johnson’s War on Poverty our government has been BORROWING the money to pay for it, and borrows more each year as more and more government programs are added to Johnson’s War on Poverty.

      The US is approaching the point of no return, that’s when tax revenues are less than the interest paid on the national debt. When that happens we join Portugal, Ireland, Italy, Greece and Spain (PIIGS) in bankruptcy, AND THERE IS NO ONE LARGE ENOUGH TO BAIL US OUT.

      We have to make meaningful cuts to unfunded “entitlements”, the single largest expenditure of the US government, and reverse the trend of spend, spend, spend.

    4. How many assholes ranting about “welfare queens” are the same but jobs that oppose easily available birth control?

      10 will get you 20 that that Venn diagram is a perfect circle.

  4. Out Tax system is really broken and needs some major repair; however, actually having both parties to be able to agree on the real world resolutions is a Moon Shot.

  5. To maintain autonomy and indpendence.

    Apple is always a target becuase it thinks different and always creates innovative users freindly products, as oppsed to the rest pf the parasitic, so called competitors, that recycle old technology to death, and follow copy and always get caught asleep at the wheel.

    Because Apple has always been a parasite buster and disruptor and therefore a target squeeze, it needs to be able to fund itself as it sees fot and independently, otherwose ot will not be able to spend freely as it needs to on R&D, procurement and production deals that give it the leverage it needs to be a leader.

  6. “Taking on debt can actually magnify the returns for shareholders and improve stock performance, financial specialists say. It can reduce the overall cost of the capital that a company invests in its business.
    ———
    That’s all Wall Street’s gibberish talk. It lends an air of shallow authority but tends to implode terribly after too many players begin to chase after their own tail. Never believe Wall Street to the end because after drawing many into the trap, Wall Street will bail out and leave the suckers holding the baby.

  7. I have difficulty with people gaming the system at both ends. The US has spent three trillion dollars on wars in the last decade (and that cost is growing). In 2010 the US spent 200 billion on welfare to the poor. War is more expensive than feeding people.

    1. I like the way you screwed with the cost of feeding people.

      $3 Trillion in a decade on war, $200 Billion in one year or $2 Trillion in a decade to feed people if you are honest.

      That means in the last 2 decades it cost more to feed people than to wage war.

      Anyone can screw around with statistics.

      1. Indeed, I know that in the last decade war has cost a third more than feeding people. The military was still a larger expense than welfare before the wars so the additional decade does not negate the cost of feeding people. We can also agree that feeding people is a generalization. We might also look at where money goes when US citizens on assistance buy food as opposed to what the military industrial complex (as President Eisenhower called it) does with it’s profits.
        I apologize as these are again, all oversimplified generalizations.

        I simply am often struck by how little attention is paid to the incredible costs we carry both financially and physically to our young people, that these wars are costing us.

  8. Question shows lack of understanding. Apple is trying to encourage people and institutions to buy bonds rather than stock. They are beginning the process of going private, which may take years.

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