Apple Taxes and the SV Biz Journal poll

James MacGregor can't resist most Fridays, posing some provocative comment from the week's news

Today, he asked, what about Apple Taxes, in the following way, with the current results shown:

Business Pulse - Polls and Surveys

Is Apple in the right about overseas taxes?

Is Apple in the right about overseas taxes?

Yes, it's legal and Apple needs to keep its taxes low64%

No. It needs to pay taxes on the money stashed overseas36%

Votes Cast: 120

So, this begs some assessment.  

First of all, there hasn't been TOO MUCH commentary about whether the way Apple did things is legal.   At first blush, what Apple, and for that matter, the entire Fortune 100 have been doing with these stashes is not only legal, it is encouraged by the arcane US tax code.  

And every company "needs to keep its taxes low" as does every household.  So, how can you vote anything but YES?  

And for a Business Journal, of all places, to record 36% NO votes on a question that begs a YES answer by its very wording, there clearly is something else going on here.

What?

Well, for one thing, essentially most large American corporations, especially high-tech ones with global sales (HP and IBM for example sell 70% of their products abroad; Apple is today about 61%), do some variant of what Apple does.  Google had a mere $30B of revenue 'evade taxation' last year, since their 'search' is centered in, guess where, IRELAND.  And Ireland was INSISTENT, for example, that Apple had to pay taxses on their fair share of their "Irish" earnings.  They charged them a full 2% tax on the $30B that Apple attributed to Ireland 'earnings' versus the 35% that would be due in the USA.  2% of $30B is $600M, not a bad haul for Irish tax coffers, probably bigger than Guinness even, or the defunct Waterford Crystal works.  But the US government, and hence you and I, got 'cheated' out of $10B on this one transaction, which is pretty good-sized compared to the $6B that Tim Cook proudly pointed to that Apple did pay the US government on their sizable earnings ($41B).

Other countries are having some difficulty with this as well.  Labour Leader Ed Miliband in the UK read out the 2004 IPO founding passage, in which Page and Brin wrote: "Don't be evil. We believe strongly that in the long term, we will be better served – as shareholders and in all other ways – by a company that does good things for the world even if we forgo some short-term gains. This is an important aspect of our culture and is broadly shared within the company."

Referring to that, the Labour leader said: "I can't be the only person in this room who feels deeply disappointed that a great company like Google, with great founding principles, should be reduced to arguing that even though it employs thousands of people here in Britain, makes billions of pounds in revenue here in Britain, that it's fair that it should pay just a fraction of 1% of that in tax."

Miliband referred to comments by Google chairman Eric Schmidt, who has previously said that Google's tax arrangements – by which "sales" are begun in the UK but "completed" in Ireland, where it pays a small corporation tax rate – are "just capitalism".

Miliband retorted: "I'm sorry that Eric Schmidt isn't here this morning to hear me say this directly. When Google does great things I will praise you. But when Eric Schmidt says that its current approach to tax is just capitalism, I disagree. And when when Google goes to extraordinary lengths to avoid paying its taxes, I say it's wrong. And it's not just me that says it, it's Google's founding principles, and it's crystal clear from them."

The silliest argument is the one that has been put forth by business leaders, ala the gift they got in 2004 from President George W, and Congress, when they allowed repatriating $312 Billion (yup, that is a big number) at 5% taxation rate rather than 35%, when the leaders claimed it would go for new US jobs primarily (this was at the height, we thought, of the outsourcing and offshoring craze).  Five firms (IBM and HP, plus Merck, Pfizer, and J&J) brought back 28% of the money, and while they were at it, laid off another 21,000 workers in the US.  Ten more firms handled another 25% of the repatriated funds, while 827 other firms shared in the final 47% of 'savings.  What happened, acc. to watchdog groups, was that 92% of the repatriated money went to shareholders and executive bonuses; no net jobs in the US resulted.

Since then, the numbers have BALLOONED.  Some $1.9 Trillion (6x the last truancy) is now stashed, THAT WE KNOW ABOUT, and in Apple's case the DoJ and IRS are claiming there was at least 1/3rd more than that.  This starts to be serious money, even alongside America's deficit spending loops.

I don't have a solution here -- the whole thing about international competitiveness and taxation in various venues has plenty of argumentation space, and plenty of money involved to get major governments excited -- recall why so many corporations are incorporated in Delaware for example, and recall the 8,700 Americans who willingly accepted Citibank's help to use these tax havens.  Then ponder the magnitude: The anonymity of the offshore world makes it difficult to track the flow of money. A study by James S. Henry, former chief economist at McKinsey & Company, estimates that wealthy individuals have $21 trillion to $32 trillion in private financial wealth tucked away in offshore havens — roughly equivalent to the size of the U.S. and Japanese economies combined.  

Well, not exactly a rant, but suggestive of why 36% of a business audience would maybe say, "Hey, wait a minute.  Can't the world's largest and most profitable hight-tech firm pay some semblence of what all the rest of us have to pay?  Aren't they taking advantage of the American Way, with its military strength, great universities, low terrorism and high first-responder quality, plus good roads (well ...) and clean water and so on.    

So, the "right answer" is NO to MacGregor's question.  But, it is irrelevant basically.  Is there hope for a redress in the tax code?  NO.  If Congress cannot figure out a gun law situation that defies rationality, how could it possibly deal with something that touches every major donor to the next election?