Apple Inc. (NASDAQ:AAPL) has been under fire all week for its international tax policies. Tim Cook appeared on front of the Senate this week to defend the company, but the media found little about the firm’s defense of its payments system attractive. Over at MarketWatch yesterday, Brett Arends defended the company’s record on tax.
A clumsy summary of Arends work is the following, the Corporate Income Tax should be abolished. Arends relies on three major arguments, the Corporate Income Tax is regressive, it encourages debt, and it hurts the economy. Arends’ opinion may sound extreme, but he makes a range of interesting and persuasive points.
Tax on Apple Inc. (AAPL) Shares?
On the regressive point, Arends argues that the corporation tax is the exact same for every single shareholder in Apple Inc. (NASDAQ:AAPL). That means that the per share tax is the same for an ordinary person who holds a small amount of Apple Inc. (NASDAQ:AAPL) shares as it is for David Einhorn.
There is a problem with this argument, however. Equities, including Apple, are disproportionately owned by the wealthy. A tax on shares is a tax on the rich in the same way that a tax on cigarettes and junk food are taxes on the poor. Corporation tax can be seen as progressive or regressive, depending on whose hoops you jump through.
Arends’ second point, that corporation tax encourages debt, is practically entirely correct, though it is also flawed. Corporations are allowed to deduct debt interest from their tax bill, something which allowed Apple Inc. (NASDAQ:AAPL) to save $9 billion by issuing its own debt earlier in May.
There are problems with this regime, and encouraging firms to take on debt is probably a bad thing in terms of tax policy, but there may be a better way to get rid of that problem before getting rid of corporation tax entirely. The solution would, however, probably complicate the corporate tax code further, something few are clamoring for, bar perhaps accountants.
The third point made in favor of abolishing corporation tax is about the huge amount of money that corporations hold offshore, and the stimulus that money might have on the economy. If the tax for repatriation wasn’t as high, more of that money would come back to the United States, and help people at home.
Apple Inc. (AAPL)’s Tax Policies:
Apple Inc. (NASDAQ:AAPL) has done nothing illegal, and it hasn’t done anything wrong. The company pays its 30% tax at home, what it does abroad is outside the purview of US regulators, no matter how much they wish it wasn’t so. There is some justification for the moral outrage from the media and the public about the company’s tax policies.
The Tax System:
Ordinary people can’t hire tax lawyers and accountants. The tax loopholes are there, but they are not accessible by most people. The lack of tax education among most people, and the complexity of the tax code, mean that they all disproportionately affect the poor, they’re all regressive. That doesn’t mean we should abolish the entire tax system, however.