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.

Reader Feedback

This site uses Akismet to reduce spam. Learn how your comment data is processed.