“The United States has a top corporate income tax rate of 35%. Add in state and local income taxes, and it comes to roughly 39%. It is the highest nominal corporate tax rate among the developed economies,” Charley Blaine reports for 24/7 Wall St. “That doesn’t tell the entire picture, however. When you take out research-and-development tax credits, deductions for income taxes paid in other countries and a host of other deductions and credits, the effective rate comes out closer to 27.7%. The new figure is roughly in line with tax rates in other countries, according to the Organization for Economic Cooperation and Development (OECD).”
“The current statutory 35% top rate is bad and should be cut to, say, 25%, many economists say,” Blaine reports. “The current rate discourages foreign companies from making big investments in the United States unless they have to… At the same time, tax-cut proponents say that the high tax rate pushes U.S. companies to move more of their investment spending outside the United States. Cisco Systems Inc. routinely books billions of profits annually through subsidiaries in Switzerland, the Netherlands and Bermuda. CEO John Chambers has hinted at moving jobs out of the country unless the tax problem is fixed. Plus, and this is important, companies that earn big profits overseas do not like to bring the money home because it is subjected to U.S. corporate income taxes. This repatriation can end up being a double taxation.”
“As of December 31, Apple Inc. was sitting on a cash hoard of some $158.8 billion. Of that, according to Apple’s fiscal first-quarter report, $124.4 billion was parked outside the United States. It is not clear what Apple is doing with all that money. It estimates $11 billion in capital spending in fiscal 2014 and it can fund its dividend and interest payments on its debt from domestic profits,” Blaine reports. “That is all bad for the United States. You can cut the rate and cut taxes on repatriated profits, but some may argue that this would push the deficit higher. A better solution, economist Laura Tyson has argued, would be to offset a cut in the corporate tax rate with a boost in the tax rate on dividends and capital gains, now close to historic lows. Half of those dividends and capital gains go to pension funds, retirement plans and nonprofits and are not taxed anyway. Could such an idea happen? Most likely not this year. And Apple’s big cash hoard will keep on growing.”
Read more in the full article here.
MacDailyNews Take: The U.S. corporate tax rate is way too high. Obviously.
Under the current U.S. corporate tax system, it would be very expensive to repatriate that cash. Unfortunately, the tax code has not kept up with the digital age. The tax system handicaps American corporations in relation to our foreign competitors who don’t have such constraints on the free flow of capital… Apple has always believed in the simple, not the complex. You can see it in our products and the way we conduct ourselves. It is in this spirit that we recommend a dramatic simplification of the corporate tax code. This reform should be revenue neutral, eliminate all corporate tax expenditures, lower corporate income tax rates and implement a reasonable tax on foreign earnings that allows the free flow of capital back to the U.S. We make this recommendation with our eyes wide open, realizing this would likely increase Apple’s U.S. taxes. But we strongly believe such comprehensive reform would be fair to all taxpayers, would keep America globally competitive and would promote U.S. economic growth. – Apple CEO Tim Cook, May 21, 2013
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