Tuesday, May 21, 2013

"Unbelievable Chutzpah"

Every so often, we're reminded (again) of the incredible sweetheart deal Apple now enjoys here in Nevada. Even as Apple (mis)uses Nevada to avoid paying (California) state and federal taxes, the tech giant has scored an $89 million shroud of legitimacy here. Yet while Apple basks in the glory of its Nevada sweetheart deal, the company faces increasing scrutiny from Members of Congress.

Congressional investigators found that some of Apple’s subsidiaries had no employees and were largely run by top officials from the company’s headquarters in Cupertino, Calif. But by officially locating them in places like Ireland, Apple was able to, in effect, make them stateless — exempt from taxes, record-keeping laws and the need for the subsidiaries to even file tax returns anywhere in the world.

“Apple wasn’t satisfied with shifting its profits to a low-tax offshore tax haven,” said Senator Carl Levin, a Michigan Democrat who is chairman of the Senate Permanent Subcommittee on Investigations that is holding the public hearing Tuesday into Apple’s use of tax havens. “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.”

Thanks to what lawmakers called “gimmicks” and “schemes,” Apple was able to largely sidestep taxes on tens of billions of dollars it earned outside the United States in recent years. Last year, international operations accounted for 61 percent of Apple’s total revenue.

At that hearing earlier today, Congresscritters on both sides of the aisle were horrified... But one still wanted his daily Apple.

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"If anyone should be on trial here, it should be Congress," [Senator Rand] Paul [R-Kentucky] declared. "I frankly think the committee should apologize to Apple.... I would say what we really need to do is to apologize to Apple, compliment them for the job creation they are doing, and get about doing our job.

Nearly three years ago, after much of the country -- and much of Congress -- was condemning BP for the massive Deepwater Horizon oil spill, Rep. Joe Barton (R-Texas) apologized to the oil giant, saying it was wrong for Washington to try to hold the company responsible for its failures.

And now, it's Rand Paul wanting to apologize to Apple for questioning its tax-avoidance schemes. Amazing.

Now to be fair, Senator Paul has one valid point. Congress has allowed the corporate taxation regime to fall into a mound of Swiss Cheese as multinational corporations like Apple exploit countless loopholes to avoid paying taxes. But of course, from there Senator Paul's rant descended into pure nonsense. Yes, Apple's "legal" tax evasion truly is a problem.

Paul aside, the bipartisan tone was one of assailing Apple for using Ireland-based shell companies to avoid U.S. corporate income tax. Said Sen. Carl Levin (D-Mich.), chairman of the subcommittee: “The offshore tax-avoidance tactics spotlighted by the subcommittee do real harm. They disadvantage domestic U.S. companies that aren’t in a position to reduce their tax bills using offshore tax gimmicks. They offload Apple’s tax burden onto other taxpayers – in particular, onto working families and small businesses. The lost tax revenue feeds a budget deficit that has reached troubling proportions, and has helped lead to round after round of budget slashing and the ill-advised sequestration now threatening our economic recovery.”

And ranking member John McCain (R-Ariz.) added, “Apple’s corporate tax strategy reflects a flawed corporate tax system that allows large multinational corporations to shift profits offshore to low-tax jurisdictions. For years, Apple has opted to forgo fully contributing to the U.S. treasury and to American society by shifting profits and circumventing U.S. taxes. In the last four years alone, Apple has avoided paying taxes on $44 billion in income.”

And as we've discussed before, this is a serious problem. After all, taxes are the price we pay for civilization. So when corporations like Apple exploit numerous loopholes to stiff the feds (and the states), we can expect less civilization.

Stuffing revenue in some low-tax, high-privacy bank in the Caribbean? 'Bout as forward-thinking as a Blackberry. Apple, as the New York Times reported today, uses nothing less than the iPhone 5 of tax havens, exploiting the loopholes of the international tax system in such a way that billions of dollars in profits have not been listed in any tax filing anywhere.

At the center of the operation is an Ireland-based subsidiary called Apple Operations International, which collected $30 billion in income between 2009 and 2012. Over the last five years, Apple Operations International has not filed a tax return in any country.

As USC law professor Edward Kleinbard told the Times, "There is a technical term economists like to use for behavior like this: Unbelievable chutzpah."

The revelations about Apple's tax strategies emerged from a Congressional investigation into the company's finances. The examination found that Apple "shifted at least $74 billion from the reach of the Internal Revenue Service between 2009 and 2012," according to the Times. The most startling discovery, though, was in how Apple's tax plan was so effective. [...]

Every dollar Apple saves, of course, is a dollar that doesn't go into America's public bank account. Which means one less dollar to go into education or health care or some other government service; or one more dollar to be pulled from somebody's paycheck. While Apple's revenues make it among the country's largest tax-payers, the Congressional investigation reported that the Silicon Valley giant paid a tax rate of 20.1 percent, which is four to 12 percent lower than it lists in its disclosures.

Across the nation, school districts are being forced to shut down schools "thanks" to recent state and federal budget cuts. And here in Nevada, the state faces a possible law suit for chronic underfunding of public education. Even Nevada State Board of Education President Elaine Wynn recently admitted, "We are grossly underfunded." Schools continue to fall apart, classrooms continue to overflow, teachers continue to face constant threats from administration, and students continue to suffer.

And why? So that Apple and other multinational corporations can engage in "legal" tax evasion? So that their executives can bask in the glory of slightly bigger profit margins? How is this helping any one? Think about it.

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