Don’t tax Apple, tax its shareholders

“Apple Inc. Chief Executive Officer Tim Cook appeared before the Senate Permanent Subcommittee on Investigations this week to defend his company’s tax record,” Josh Barro reports for Bloomberg News. “The media has focused on how much of Apple’s income is earned by subsidiaries that do not claim tax residence anywhere and therefore do not pay tax. That’s a problem — but not the big problem.”

“The big problem is that the process of determining the taxable U.S. income of a multinational corporation is necessarily complicated and arbitrary,” Barro reports. “Companies, including Apple, will exploit that arbitrariness to reduce their tax bills, and while we can diminish their flexibility to do so at the margins, we’ll never fix the problem entirely.”

Barro reports, “Instead, we should sharply reduce the corporate tax and replace it with higher taxes that are more progressive and easier to collect: taxes on shareholders in corporations.”

Read more in the full article here.

33 Comments

    1. Here’s a better idea. Tax reporters or journalists who write about Apple; those reporters that get their story/facts wrong about Apple should be taxed at higher than ordinary rates.

    1. The idea is to tax the shareholders’ dividends, and not the corporations. In that way, shareholders will pay according to their individual income brackets.

      Another refinement is to tax the net profit retained in the business after dividends.

  1. Why is the solution to always tax the individual by which they mean the middle class? Isn’t the problem that we spend more than we make? How about we cut spending.

    Maybe someone can answer this for me… I thought Apple paid for income taxes on it’s revenue and the cash moved into Ireland was after tax profits. If that’s true, why do these articles keep talking about Apple having all this money that’s never been taxed?

    1. The long term solution is for governments, and any entity, to run on a budget, in other words, spend less or dont spend more than you bring in.

      The thing most do not see is the middle class always pays most of the taxes and always will. Maybe it depends how you slice the pie, but most of the money is with the middle class. Unfortunately, there are too many of us in the middle class to make any of us “rich”.

      The other thing that most do not see is that corporations are nothing more than tax collectors for the government. The bottom line is the money a corporation uses to pay taxes came from the buyer which is us. Voting for higher taxes on corporations is tax suicide for us, the individual.

      Guns dont kill people, people kill people. Same with taxes: Corporations dont pay taxes, people pay taxes. Corporations just collect the tax.

    2. Fedup, I’m not disagreeing with you. I just wanted to point out that for corporations there is no “income tax on revenue” or “after tax profit”. Unlike individuals, corporations are not taxed on income or revenue, they are taxed on profits. Corporations collect their revenue and pay all their expenses with pre tax money. They are then taxed on the net profit. If they invest money back into the company or pay their employees more there will be less profit to tax.

      Individuals are taxed on income. After the taxes are taken out of our paychecks, we then pay our expenses with post tax money. This is why a 35% individual tax is way higher than a 35% corporate tax.

      1. JoeKnows, I’m not disagreeing with you. I just wanted to point that the term “income” when speaking of corporate taxation is what is taxed. Your second paragraph is important, but I think a little misleading. The corporation gets to deduct the expenses involved in making its income. Individuals don’t get to do that because the expenses involved in making our income are either reimbursed by the employer or actually deductible in calculating adjusted gross income. The expenses we use our income on (post tax) are generally things difficult to be tied to making that income. We could all argue that in order to remain a healthy employee we should be able to deduct the cost of our athletic club membership, but the tax code really doesn’t favor our responsibility to remain a healthy employee over our responsibility to live a healthy life style 😉

        http://en.wikipedia.org/wiki/Corporate_tax_in_the_United_States

  2. I have never understood the concept of taxing a corporation. The taxation can only have a negative effect on the product produced buy the company because some decisions are being based on tax considerations. Also if we had no corporate taxes, global corporations would be shifting operations to the US and therefore creating more jobs and taxes.

    1. Plus stop viewing taxes as a way of government making money, instead of viewing it as an important piece of an economic system in which harmony among all economic factors and reasonable rates should be the focus and goal.

  3. “More progressive”?!?!! What a great idea. The top 10% of earner now only pay 70% of total taxes. The bottom 50% pay essentially no federal income taxes or get paid via the EITC. The system should be made a lot less progressive and everyone should pay some federal income tax, so they bear some share of the cost and don’t look at the Federal Government as a source of income. Oh yeah, and if you don’t pay taxes you should not have the right to vote- pure and simple. If you want to vote become a contributor not a taker.

    1. I think a short term in the crowbar hotel for anyone who doesn’t pay their taxes and/or doesn’t vote would be a great improvement.

      Add a long term in the crowbar hotel for lobbyists and affirmative action groups and we’ve got it fixed.

      1. I dont recommend any violence. Just this. Everyone pays a minimum of 10% in taxes. Top earners pay about 20%. If you pay no taxes you dont vote. For example, welfare and food stamp participants dont vote. They do get to vote once they get a job.

        The only violence would be against any IRS employee or higher government official who uses the power of the IRS to intimidate political opponents. Those nasty people would be dropped in a vat of hot tar.

        1. Actually, if you look at the percentage of total income earned by any group of US taxpayers (bottom quintile, middle quintile, top 1%) you will find that the current tax structure, convoluted and twisted though it may be, is remarkably flat. When the impact of all taxes is considered, the bottom 20% of taxpayers earn 3% of all income and pay 2.5% of all taxes while the top 1% earn 20% of all income and pay 21% of all taxes.

          The whole meme of a progressive tax structure in the US is mostly BS. The progressive elements of the federal tax code are the only thing saving the bottom half of the country’s taxpayers (poor, old and students) from the draconian regressiveness of state and local tax codes. The sales tax at the cash register doesn’t care if it takes 8% of your last dollar or 8% of the first dollar of your next million.

  4. I’m beginning to think Apple should retain P.E.D. to create charts for the media that show how much money was earned where and what taxes were paid on it, and then where the profits went and what was done with them, and much tax was paid on the interest earned on those profits.

  5. Just a thought experiment:

    Since corporations are taxed on profit, not revenue, what would happen if the corporate tax rate was 50% or 75%.

    This would incent corporations to:

    1. re-invest their profits in more R&D, expand their business, etc… Since these actions are expenses, they will not be taxed and will pay off for the corporation in the long term.

    2. Hire more employees or increase their pay. Since these actions are expenses, they will not be taxed. This may also pay off in the long term. In addition the government will collect more taxes in the form of payroll taxes from employees.

    3. Distribute more profits to shareholders. Again, this would be an expense and not incur taxes. At the same time shareholders will have to pay taxes on their distributions.

    Again this is just a thought experiment about using the tax code to incent certain behaviors. In these cases the “tax avoidance schemes” would actually be beneficial to the corporation, employees, and government.

    1. Thanks, Joe; whether I agree with you or not, it’s quite refreshing to see a post based on some thought rather than regurgitated, misinformed talking points. What Kent and friends like to ignore when declaring that “10% of earner[s] now only pay 70% of total [income] taxes” is that the top 10% now own over 2/3 of the entire wealth of the country. There’s a reason they pay most of the income tax — they have the lion’s share of the income. And then there’s the red-herring statement that the bottom “47%” don’t pay any income tax; they don’t make enough to be taxed. But they pay sales, excise, payroll, and numerous other taxes. I guess that doesn’t make as good a sound-bite.

      When Eisenhower was president tax rates were much higher, including corporate rates. Yet business thrived and the economy boomed. Today, with a nominal 35% corporate rate, that really translate to an effective rate in the upper 20’s (except for GE) and record profits, the median wage is stagnant while CEOs now earn 380 times the average worker. So your idea of incentivizing constructively is at least a decent start. The bad news is that the current House, gerrymandered into stasis, will kill any chance at meaningful reform.

    2. I think, like other posters in these parts, that whatever the corporate tax rate is just gets passed along to the consumer, so the effect of raising the corporate tax rate would be to incent buyers to buy goods from companies not being charged US corporate income tax. Read Samsung. It would also “shift” more profit-keeping to non-US entities.

  6. Liberals that site the Eisenhower era of high taxes should realize that we had no competition then because Europe was devastated. Hardly the same world today. States lose businesses due to high taxes and so does the Fed government. Governments mst be competitive or lose companies. They are owned by shareholders, not countries and should go for the best deal offered even if that means moving operations. It’s their job to do what’s best for the shareholders.

    1. Shareholders have citizenship somewhere. If a retirement trust fund is investing in a corporation that is hurting American workers by moving jobs away from America, that’s pretty dumb, long term. When they invest in Wal-Mart, that’s pretty dumb. When Sam Walton was alive, he insisted that Wal-Mart sell goods made by American workers. He got it, but he’s gone. The current crop of corporatists that head Wal-Mart only get their bonuses. But no retirement fund can justify supporting such an operation by owning their stock.

      1. The thing that is ‘pretty dumb’ is that you are completely discounting the lower cost that are at the Walmart stores and the millions of people in America that helps.
        American workers are pricing themselves out of a job. They just want the best for themselves, but are out of work because they don’t compete with their competition. So, jobs and product production go overseas. When a worker makes more than he is worth to the market, the market will go elsewhere.

        1. Your assumption is that the American worker must compete with the Pakistani worker in a crumbling building. I would say the American worker needs to be a lot smarter in their spending decisions. Have three well made shirts from an American factory instead of 10 from China. It has to stop somewhere. And Wal-Mart will adapt. Notice how they started offering the option of unadulterated meats when people started buying elsewhere once they understood that 20% of the cheap Wal-Mart meat was salted water (aka “flavor enhancers”).

          A national economy is a closed system. The guy that makes the shirts buys from the guys that make the cars and build the houses. It falls apart when extra-national elements are introduced and money is siphoned out of the system. Then the nation becomes unsustainable because it can’t afford to defend itself. Right now the US is on the back side of that curve, riding on our past strength. Unfortunately we are starting to impoverish ourselves with defense spending that is not supported by the rest of our economic activity.

          So where do we go from here? Do we become a weak bit player on the world stage, an integral player in the world structure that benefits the few at the expense of the many or do we regain the wisdom to stand on our own two feet as a nation and rebuilt ourselves from the bottom up?

          1. I would characterize your second paragraph not as being true because of a closed national system but rather as a level playing field for both producers and consumers who produce what the first producers consume. The distinction is important, I think, because even today we don’t really have that in the US revenue code. We might have it if we truly enacted a flat tax with no investment credits, subsidies, etc. We could have it internationally if everyone around the world could agree on what’s best for everyone. Not holding my breath on any of that though.

            The US, through it’s revenue code, seeks to coerce people and companies into doing things the current administration believes to be beneficial. Whether that be “first-time home buyer” mortgage rate reductions or tax credits for installing solar panels on a school roof, such measures distort the level playing field to the same effect as import duties on foreign goods on your “extra-national” field.

            ***

            I really didn’t follow your leap where you were discussing closed economic systems and jumped to defense spending and being a weak nation.

    2. What does that have to do with the individual tax rate which is the one most referenced from the Eisenhower era? And as far as the corporate rate we have one of the highest nominal rates but one of the lowest effective rates. For large cap corps anyway.

  7. taxes are already collected on capital gains and dividend income . these incomes have nothing to do with the company and production and profit of devices. to demonize shareholders as parasitic neredowells is as sinister and ludicrous as “Illegal aliens,entitlements death taxes,and private prisons,swiftboats “. as long as the politics of demonization and spin keep putting people in office we will suffer and have to defend ourselves against the inmates that have taken over the asylum. if corporations are people when it comes to campaign contributions then there people when it comes to jail time for tax evasion. we really need to elect people who know that laws and government are our only protection against the forces of unbridled mercantilism.
    please google trust busters and read some history .
    we can’t even walk erect and breathe air with out being forced into paying private companies for insurance that contributes nothing to health care and everything to lining pockets. we can no longer be victims of this type of thinking

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