Imagine the scene in a boardroom if the CEO walks in and said that he was going to incur a huge unnecessary expense for the corporation. The guy who came in as CEO would walk out with a termination check.
But some congresscritters believe that’s exactly what CEOs of multinational corporations are supposed to do, based on their behavior yesterday in a hearing called to beat up Apple for not wasting corporate resources paying more taxes than it legally should. From the Wall Street Journal:
Sen. Carl Levin (D., Mich.), chairman of the investigations panel, on Tuesday accused Apple of employing “alchemy” and “ghost companies” to escape tax collectors in the U.S. and Ireland, the base of the firm’s international operations outside the Americas.
“Apple has sought the Holy Grail of tax avoidance,” said Mr. Levin. “Apple is exploiting an absurdity, one that we have not seen other companies use.”
Mr. Cook countered: “There’s no shifting going on…We pay all the taxes we owe, every single dollar.”
It’s rich for a congresscritter to beat on a taxpayer for “exploiting an absurdity,” when every year Congress writes new absurdities into the law. A few that leap to mind:
The Section 199 deduction, to artificially divide a modern economy into favored classes, like manufacturers, farmers and architects.
The First-time homebuyer credit, A fraud-ridden boondoggle that cost billions while failing to affect home prices.
Cash for clunkers, helping the economy by destroying perfectly good used cars.
Tax credits for wind, ethanol and biodiesel, to help struggling entrepreneurs like Warren Buffett prove that old and inefficient technologies can make money with enough government subsidies.
Congress writes the tax laws, making them a horrendously-complicated mess. It’s rich for Congress to complain that other people understand it better than they do.
Megan McArdle, Congress to Grill Apple CEO About Taxes
Going Concern, Tim Cook Is Sorry He’s Not Sorry
Ed Krayewski, Tim Cook Tells Senate Apple Pays All The Taxes It Owes
Matthew Feeney, Rand Paul Slams Colleagues for Criticizing Apple’s Tax Strategy:
“I’m offended by the spectacle of dragging in executives from an American company that is not doing anything illegal,” he added. “If anyone should be on trial, it should be Congress.”
What’s the problem with all this? There is the revenue loss to the U.S., of course. But perhaps worse is the incredible inefficiency driven by the tax code. The price of high corporate rates is the raft of deductions and credits that encourage corporations to lower their taxes rather than produce great new products. Just imagine if Apple could replace all those tax lawyers with creative new software geeks or industrial designers. It might win back some of the market share it has been losing to Android in recent years.