Congress shocked — shocked! — that Apple avoids taxes

May 21, 2013

To paraphrase one of Stan Zin’s favorites, Inspector Renault in Casablanca: Congress is shocked to find that the US corporate tax system is riddled with loopholes. We often hear business leaders complain that the US has one of the highest corporate income tax rates in the world — and it’s true.  But it’s also true that the system collects very little revenue.

What to do? Congress — the source of the loopholes — has decided to grill Apple CEO Tim Cook. The Times quotes Senator John McCain: “Apple claims to be the largest US corporate taxpayer, but … it is also among America’s largest tax avoiders.” And Senator Carl Levin: “Apple successfully sought the holy grail of tax avoidance. It has created offshore entities holding tens of billions of dollars while claiming to be tax resident nowhere.”

Once we get past the posturing, what are the issues? First, there’s overwhelming support among economists for a lower corporate tax rate with fewer exceptions. That’s been part of all tax reform proposals to date, including Simpson-Bowles. Lots of countries have done this, why not us? Second, there is no simple answer to the question of how countries tax multinational corporations. There are lots of ways to move profits around, and we can expect companies to use them. Perhaps we should be taxing something else. In the meantime, we’re shocked — shocked! — that Congress is picking on Tim Cook.

Update (May 25):  Wonderful chart of corporate profits and tax receipts from The Economist.

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