Yesterday’s Times article When iPhones Rings, the Economy Listens discusses Apple’s continued success following the release of the
iPhone 6. It explains that Apple makes about a 50% profit on the sell of each
iPhone. This high rate of profitability has lead Apple to be “the core of the
stock market” according to Sommer.
Apple is
the biggest company, by market capitalization, in the world. Apple accounts for
about 3.5 percent of the weighting of the Standard & Poor’s 500-stock
index. And, through Thursday, because its stock has performed magnificently
while the overall market has not, Apple accounted for 18 percent of the entire
rise of the S.&P. 500 index this year, according to calculations by Paul
Hickey, co-founder of the Bespoke Investment Group. And the engine driving
Apple shares is the iPhone.
Since Apple is such a large company, making its success clearly
linked to the success of our economy, the way that it is taxed has spurred a
lot of debate the past few years. An article from last year about a Senate
hearing on taxation reveals two drastically different perspectives on how we
view and implement corporate taxation.
On the one hand you have some Republicans and Democrats alike who
feel Apple does not pay enough US taxes:
Democratic
Senator Carl Levin, chairman of the Senate's Permanent Subcommittee on
Investigations, and John McCain, the panel's top Republican, both started the
hearing with withering criticism of Apple's practice of shifting income to
Ireland to avoid paying U.S. taxes.
Levin
called the practice a "sham," while McCain said that Apple's claim
that its use of the Irish subsidiary did not reduce its U.S. taxes is
"demonstrably false."
"U.S.
corporations cannot continue to avoid paying their appropriate share in
taxes," said McCain. "Our military can't afford it. Our economy
cannot endure it. And the American people will not tolerate it."
"Tell
me one of the politicians up here who doesn't minimize their taxes. Tell me a
chief financial officer you would hire if he didn't try to minimize taxes
legally. Tell me what Apple has done that is illegal," said Paul. He said
that Congress should apologize to Apple for calling it before the committee,
and for a tax system that is "bizarre and Byzantine."
"Money
goes where it's welcomed," Paul said. "Currently our tax code makes
money not welcomed in this country."
So should tax policy stay as it is, so that Apple can continue to be successful, thus strengthening our economy? Or since they have such a high profit margin would the benefits of heavily taxing them outweigh the potential costs to their productivity and job creation? Is Apple wrong to use the loopholes that are available to them? Or is the problem bad corporate tax policy? Should Apple even have to pay any taxes since they are so important to our economy?
I don't care for his rhetoric, but Senator Paul is right that the only way this trend will change is by changing the tax code, whatever the stated goals of Permanent Subcommittees on Investigations. If we want to change our tax code though, it's important that we do it not for the benefit of one or even a few companies. A company that seems to be driving growth today could miss the next innovation and be completely out of date tomorrow (IBM, GE, 19th century railroad companies, ect). If we make a tax code that favors today's winners, we risk entrenching them at the expense of future growth.
ReplyDeleteI completely agree with Philip on the fact that innovation isn't guaranteed and that today's front runners may not always be in the front. Ultimately, I don't think Apple is wrong to use the loopholes that are available to them. If anything, this is a problem of a bad corporate tax policy. Nevertheless, I do believe Apple should have to pay taxes, because taxes are the best way to raise money to then circulate throughout the economy.
ReplyDeleteAnother issue with tax inversion practices, especially with regard to Apple, is that it requires companies to keep their earnings outside of the United States. Apple for example, has over $100 billion stashed outside the U.S., money which could have been used for investment. I agree, however, that the root of this problem is the corporate tax system, rather than the corporations maneuvering around the system, because it's extremely outdated and clearly not doing the job it's supposed to do (i.e., raise money).
ReplyDeleteI agree with Querubin that Apple should have paid their taxes, instead of trying to lower their tax bill. There should be a corporate tax reform to fix the root of the problem.
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