Kamis, 23 Mei 2013

Thoughts on Tim Cook's testimony

I can't help but note the media's bias which is exemplified by a Bloomberg article that implies that Apple has avoided taxes by "shifting income ...  to offshore tax havens."

Given that Apple has fully complied with all applicable laws, why should anyone presume that corporations have a duty or an obligation to maximize their tax liability? Corporations' duty is first and foremost to maximize shareholder profit. Without profit corporations cannot exist. If corporations fail to maximize their profit they are wasting scarce resources.

Are financial journalists ignorant of the fact that the incidence of corporate taxes falls almost entirely on consumers? The bulk of any tax on corporate profits must eventually be passed on to consumers in the form of higher prices, since corporations must earn a minimum return on equity in order to remain in business. Corporations benefit society most by adding value to scarce resources and satisfying consumer demands, not by paying taxes.

Are politicians and journalists arguing that we would all be better off if the government took a much larger share of Apple's profits? Show me one example in which the government utilizes scarce resources more efficiently than Apple and I might agree that Apple should pay higher taxes. But I am quite comfortable believing that Apple can more efficiently utilize scarce resources than the government, and that therefore Apple's tax burden should be as low as possible in order to advance the common good.

I'm with Rand Paul on this:

“I’m offended by a $4 trillion government bullying, berating and badgering one America’s greatest success stories,” the Kentucky Republican told the committee. “Tell me what Apple has done that is illegal?”
“If anyone should be on trial here, it should be Congress,” he insisted. “I frankly think the committee should apologize to Apple. I think that the Congress should be on trial here for creating a bizarre and Byzantine tax code that runs into the tens of thousands of pages, for creating a tax code that simple doesn’t compete with the rest of the world.”
Apple has amply demonstrated the absurdity of our tax code by borrowing $17 billion to avoid paying taxes twice on money it has earned overseas. Apple is essentially engaging in an arbitrage in which it will pay less than 2% a year in order to avoid paying 35% on any overseas profits it might otherwise repatriate. When such a huge arbitrage exists (otherwise known as a "wedge" to economists) it is a sign of markets and regulatory structures that are seriously dysfunctional and inefficient. This is a compelling argument for reforming our tax code and sharply reducing the corporate tax rate. At the very least, the U.S. corporate tax rate should be no higher than it is in majority of the countries in which our businesses compete, and we should never impose a tax on money that has already been taxed in another jurisdiction.

Corporations should be indifferent to repatriating money earned overseas; they should never be penalized for doing so.

In an ideal world, the corporate tax rate should be zero and there should be no deductions. If Tim Cook made any mistake in his testimony earlier this week, it was in being overly generous in suggesting a compromise in which the corporate tax rate would fall to 20%. If there must be a compromise, then tax reform should employ a static-revenue-approach in which a lowering of the corporate tax rate is offset by the elimination of deductions.

I'd like to think that Apple came out ahead in this congressional battle, if only because it has logic on its side. I'd also like to think that this has been very instructive for the electorate, and that it has therefore advanced the cause of tax reform.

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