“That Steve Wozniak is a truly gifted engineer is one of those things which I think he has proven over the years, something we can take from granted now,” Tim Worstall writes for Forbes. “That he’s fully au fait with the economics of taxation seems to be less certain.”
“For he’s just told BBC radio in the UK that he thinks that Apple should be paying a 50% tax rate, just as he does. Without, apparently, realising that the economic entity Apple does indeed pay a roughly 50% tax rate right now,” Worstall writes. “The confusion coming from the fact that the economic entity, Apple, and the limited liability corporation, Apple Inc, are not the same thing, not the same thing at all. The economic entity is Apple plus the people who own it, the stockholders and that’s what we need to consider as the taxable unit when we think about comparing the tax rate to that which Wozniak himself, as an individual pays, that 50% that he claims.”
“For it’s the combination of the corporate income tax rate and the dividend tax rate which needs to be considered,” Worstall writes. “Those two are, together, the taxes being applied to this economic activity and the taxes, added together, that most closely resemble the personal income tax rate which Wozniak is stating as his own tax rate… We’ve got to decide what we should do about all of this. And my solution is a long standing one. Just abolish the corporate income tax altogether and tax dividends and capital gains (perhaps with an inflation adjustment) at those normal income tax rates.”
Read more in the full article here.
MacDailyNews Take: Obviously, U.S. corporate taxes are too high.
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
I love Woz – Jobs bless his silly hippy wonderful self! The only way to have a “fair” tax code is SIMPLIFICATION. Remove all the deductions and financial “engineering”. You (a person) make this much income – you pay this indexed percentage (companies would of course have to pay off of profits). No home deduction, no charity deduction, no medical deduction. EVERY adult pays “something” no handouts disguised as “refunds”. ONLY way to be “fair”.
You can’t remove the cost of doing business from business taxes.
By the way, did you see that Bernie Sanders took $60,208 in deductions?
http://www.nationalreview.com/article/434194/bernie-sanders-tax-returns-reveal-hypocrisy
After reading the article and the breakdown of what those deductions were, it really isn’t shocking at all.. “$22,946 on home-mortgage interest; $14,843 on real-estate taxes; $9,666 on state and local income taxes; $8,000 in gifts to charity; $350 in gifts to charity other than by cash or check; $4,473 in unreimbursed job expenses, which according to tax law can include fees such as union dues and travel”.. At his 28% tax bracket that would amount to less than $15k in refund.
Whoops.. not ‘refund’, ‘reduction of tax obligation for the year’. Depending on how much was deducted/paid per month over the year he may still owe taxes.
TominTulsa almost has it fair.
And the author doesn’t understand percentages. Taxes as a percentage (ie 10%) is automatically adjusted for inflation as are tips given for services. A concept most people don’t understand.
Taxing profits on a corporation is the same as double taxation which is NOT “fair” even though Tom thinks it is. Profits eventually are distributed to shareholders or are eventually spent, both being eventually taxed.
Government loves to tax a tax a tax a tax, etc.. until original amounts are next to nothing compared to original net profits. Unfair to put the final tax burden on investors cashing in on dividends, etc. while corporations would get off scot-free.
Tom also knows that MOST companies are NOT public they are private. Companies do NOT have to disburse profits as dividends but can keep them via retained earnings (see Berkshire Hathaway). This is why Tom Separated People and Companies. If we forced all companies to pay at least 75% (or something over 50%) of their profits as Dividends as a REIT does then I can agree with you no need to tax their profits as they will have to pay them out anyway. But some companies amass huge cash hordes and don’t pay dividends or taxes again see Berkshire Hathaway and Apple to a lesser extent and a slew of others.
I’ve reread the original article and many of these posts especially “First 2014, then 2016” and learning has occurred. Reminds me that we really need better tax education in this country. Every time I think I have it figured out – turns out I’m wrong! Thanks guys!
If you are referring to the fact that companies never have paid taxes, you are right. A better educated population is what democracy and freedom require.
It is easy to be a lemming and whine about the 1% like the Bernies et al. The fact is, hordes of cash does no one any good until it is spent or distributed. Let’s hope someone encourages companies like Apple to spend their cash.
I respect his history, but in current times, sometimes you just want Woz to go ride his Segway.
Ultimately his brain is now just riding that Segway in contemplative Homer Simpson style.
I think the main problem with the assertion, is that “Apple the economic entity” isn’t a thing, it’s a cool idea that helps to drive a narrative. There’s really no confusion, one of those things IS a thing, the other isn’t.
The system should be simplified, no question, I just don’t think the argument above is the right way to start the simplification. He’s essentially saying “don’t tax corporations.”
Of course, Worstall is saying “don’t tax corporations.” Because he’s smart. Corporations shouldn’t be taxed because corporations do not pay taxes.
Firstly, companies do not pay tax. No, not ever
A tax requires that the wallet of some human being gets lighter; the study of exactly whose purse it will be is the study of tax incidence. Yes, corporations are legal people, this is true, but this is so that they can be sued and we like being able to sue companies.
With respect to the incidence of corporation tax, we have known since 1899 (when Seligman first pointed it out) that the company itself does not ultimately carry that burden. In theory it’s some mixture of the customers (who end up with higher prices), the workers (who get lower wages) or the shareholders (who trouser lower returns). As it happens we now know that it’s the workers and the shareholders who, in the end, take the hit.
This is not because the company or the shareholders are simply evil capitalists (although they may be of course).
It’s actually due to something called the natural rate of return to capital, an idea that dates as far back as the age of Adam Smith in the 1700s. These days we would call it the average risk-adjusted rate.
All we mean is that, averaged over the economy, people who put in £100 of capital get, say, £10 a year return. So, when we introduce a tax on profits we cut that return. Say, a 50 per cent tax means that now you’re only getting £5 a year on your £100. If everything just happened in one country then it would be the shareholders carrying that burden.
But with an international economy, with people able to move their money across tax boundaries, we’ve got to consider the international average return. People can take their capital out of the UK and get £10 elsewhere; people who can get £10 elsewhere won’t invest in the UK to get £5.
Thus taxing the returns to capital leads, where capital is mobile, to less capital being employed. We also know what determines average wages in a country: average productivity of labour. And, to a large extent, the average productivity of labour is determined by how much capital (ie, how many machines multiply their effort) is added to that labour.
So, less capital, lower productivity, lower wages. Which is how the workers come to bear some portion of the burden of corporation tax: it’s nowt to do with it being “passed on”, just the natural fleeing from the tax jurisdiction of the returns being taxed*. Empirical research seems to show that in the UK about 50 per cent, maybe a bit more, of the burden falls on wages.
So, companies don’t pay taxes at all. Whining that they ought to pay more is a nonsense in itself. — Tim Worstall
Google, Apple, eBay shouldn’t pay taxes – people should pay taxes- And we’ll all be richer as a result
Bottom line is that the consumer pays for everything. Higher costs (taxes in this case) on those who produce goods and services are passed down to the ultimate consumer
Worstall needs to go back to elementary research class. His reference, Seligman, states clearly that “It is the producer who bears the tax, both immediately and ultimately.” (pg. 291).
Your quote from Worstall contains a lot of logic. But that logic has to carry across the full economic system for things to work. If corporations are relieved from the burden of paying taxes, then individuals must shoulder the entire burden. That means that workers wages must increase to compensate for this burden. That means that dividends should be taxed as regular income and not protected as special income. And the total tax revenue must eventually be balanced with spending unless we want to fall over the debt cliff and endure a catastrophic rebirth in order to start over.
I am open to the idea of changing the U.S. taxation approach. In fact, I have long advocated doing so. But the change cannot be driven by the powerful and wealthy to protect their own interests. Striving to capture and concentrate a larger and larger share of wealth will ultimately result in the devaluation of that wealth as the system collapses and anarchy reigns. Greed is a strong motivator, but it is also a source of corruption that destroys what it covets.
So, corporations already don’t pay taxes. What’s the problem with the current system since they don’t pay taxes? We need to reduce the taxes that they don’t pay? ‘Cause that’s mathematically difficult. Maybe we need to allocate money to the companies (or at least directly to the shareholders and workers?) because that’s the ONLY way you’re going to equate to less than the zero taxes they’re already paying. 🙂
There’s a few points that are off in his assumptions. Like that, given lower taxes, workers will make more. There are cases that show that it doesn’t necessarily work that way. That and other points make it read more like the “missing dollar” riddle.
Sickening. So Apple should just be slaves for half the year? Woz should just give all HIS money away and stay out of other people’s business. As an entity Apple has already paid an immoral amount of tax to the various vultures ripping at their profits. In addition they’ve spent billions developing products that people want, and selling those products and being paid back for them, but there’s always some moron that feels this is not enough. APPLE NEEDS TO PAY MORE! That’s the people’s money they’ve stolen! At least regular thieves don’t pretend they are anything else.
The prolitarianization of the world continues…
Corporations always whine about paying taxes; Even if corporate tax rate were 1%, they would play the patriotic card by demanding a 0% tax rate on the basis that they are job creators, but we all know they fire or lay off people as soon as economically profitable yet their PR Dept. never advertises that job destruction skill.
Woz is like the crazy old grandpa you keep in the attic. Everyone loves him but when he comes down for dinner with the family you just know he is going to say something asinine.
For entertainment value yeah.
There are a few problems with Mr Worstall’s analysis, as usual.
First of all, there is no particular reason to regard the “Apple economic entity” as including shareholders. That appears to be a distinction made solely for the purpose of this singular argument.
Second, his math is wrong. I suppose it is true that a 28% dividend tax plus a 35% statutory corporate tax is over 50%, but that is not reality. But Apple dividends are 2% of revenues, and profits are about 23% of revenues. So, about 10% of profits are hit with a dividend tax.
Furthermore, few companies pay the statutory rate of 35%. This fact is well known enough so that you have to be dishonest to do your calculations based on that number. The actual percentage for any company is difficult to worry out, but computer manufacturers are estimated to only pay about a tax rate of about 9%.
There is also the California statutory tax rate of 9%, although I can’t find an estimate of the actual rate. That tax is only applied to the business actually done in California.
Assuming that 10% of their business is done in California, and ignoring any international shell game they do to avoid taxes, then only about 20% of their profit is paid in taxes.
Woz, however, pays 50% of revenues in taxes, so it is not really equivalent.
Your comments about the math are correct. But it’s only the tip of the iceberg. That’s because the whole tax system is a mess. It’s damn near impossible to figure out what the real tax burden is because taxes are extracted at different points along the consumption chain with different tax rates at different points along that chain. We end up with a regressive tax system that favors the wealthy and puts a large burden on the working poor. Whether it’s the American multi-teared system of taxation or European style VAT, the working poor are hit the worst.
If we could clear out the chafe to see what the true burden is on individuals we could then craft a progress tax rate on individuals that would truly favor the less well off.
The company knows what it actually pays in taxes, so they know what their tax burden is. The fact that they don’t report it indicates that it is not very much.
The corporate tax is indisputably one that mostly falls on the wealthy,
Part of what makes it so difficult to determine a ‘real’ tax burden is that tax is paid when money moves/changes hands. Thus any product that has multiple middle-men will always have a higher tax burden than one sold directly to the customer by the producer/manufacturer.
If corporate taxes in the US are so high, higher than anywhere else (well, maybe not Russia or Cuba) then why aren’t American corporations failing from this tax policy? In fact, ALL corporations pay taxes WHERE THEY DO BUSINESS and if you don’t want to pay the US corporate tax rate, you don’t have to to do business in the US. The US government provides global security, global opportunity and plenty of tax breaks for US corporations to become huge. Apple became the most valuable company in the world under the current US corporate tax rates. I personally am sick of hearing US companies whine about how high the taxes are in the US. Move to the UK if you want. Move to France. Corporate taxes are low in those two countries. Apple Europe is headquartered in Luxembourg although that will soon stop.
Taxes are NOT the problem. A far more serious problem is the exchange rate. When the US/Euro exchange rate is $1.22/1€, the world economy is really good. Right now, the dollar is too high and that is bad for Apple.
But the tax rate is a red herring. Apple can borrow all the money it wants from its foreign entities for nearly nothing and pay no taxes on it anywhere!
I wish there were some way to tax only evil corporations at 50%
The economic engine that Apple has provided in the form of jobs and economic stimulus over the last 10 years is impossible to measure. So why should we penalize a company so much? That’s just unproductive thinking.