Worm in the Apple: Senate hearing shows why tax laws must change

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Discussion in congressional testimony Tuesday of the approach to U.S. and other taxes by Apple and many other multinational U.S. corporations was revealing.

Basically, working from the U.S. tax code and the tax laws of other countries, in this case particularly Ireland, Apple managed to avoid taxation of most of its towering profits without apparently breaking any laws or violating any regulations. Apple currently has some $102 billion of its profits lodged overseas.

The company attributed its profits to its subsidiaries in Ireland, where they were taxed at a laughable rate compared to American taxes. Ireland set up its tax laws that way to attract companies such as Apple to do just what Apple does, with the fallout prestige, employment and money that come to Ireland through the tactic. Many other ostensibly U.S.-based multinational companies do similar things.

How should Americans measure the impact of this practice? First of all, who wrote America's tax laws and who could change them? The answer is various editions of American administrations, Democratic and Republican, and various Congresses across the years. What was the genesis and purpose of creating such loopholes? If the idea was to provide U.S. companies incentives for creativity, the success of Apple is evidence of the success of the tax strategy.

If the answer is that administrations and Congresses created the loopholes because of companies' campaign contributions to them, it is clearly the American taxpayer who ends up holding the bag. As example, Apple's political contributions in recent years exceeded $2 billion.

That interpretation of the source of the loopholes is supported by the sight of senators fawning over Apple CEO Timothy D. Cook during Tuesday's hearing. The resulting nonpayment of taxes by companies like Apple is especially enraging and painful to taxpayers at a time when cuts resulting from sequestration, itself derived from budget deficits, are beginning to cut painfully into important services the government provides. Are whatever incentives to creativity that access to tax loopholes provides Apple and other such companies worth having to kick children out of Head Start and cut meals for needy seniors, for example?

We think not. The Apple case is one more piece of evidence that U.S. tax regulations need reform badly. America's current tax rate on corporate profits is too high. Countries like Ireland should not be in a position to offer companies obscene tax incentives -- based on the flaws in America's own code -- to make possible these "beggar thy neighbor" games that are so much to America's disadvantage.

This is an issue where there should not be a Republican or a Democratic position. It is clearly to America's advantage to clean up this mess on an urgent basis.



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