Yesterday it was revealed that Apple has shifted roughly $74 billion in profits out of the reach of the IRS in the last three years, mostly by holding this cash offshore. Amazingly, Tim Cook’s response to the congressional investigation that documented this is to call for corporate tax “reform” that will provide further benefits to both his firm and corporations in general. In his testimony (pdf) in front of the Senate Permanent Subcommittee on Investigations today, Cook bulleted his preferred corporate tax reform:
“….comprehensive [corporate tax] reform should:
- Be revenue neutral;
- Eliminate all corporate tax expenditures;
- Lower corporate income tax rates; and
- Implement a reasonable tax on foreign earnings that allows free movement of capital back to the US.”
So, the first and third prongs of this reform agenda are to raise no additional revenue and to lower corporate tax rates. The second prong (eliminate corporate tax expenditures) has some merit, for sure.
The fourth one might sound oblique, but it’s clear what Cook is arguing for here: a repatriation “holiday” for earnings currently held abroad to defer U.S. tax payments. The U.S. provided such a holiday in 2004, allowing corporations to return offshore profits with a deep tax discount. Remember the economic boom of 2004 and 2005? Neither do I, and we should expect similarly bad results should Congress decided to grant another tax holiday to corporations that have sought to defer paying taxes on overseas earnings.
Calling for this repatriation holiday is a hobby-horse for Apple. But hopefully yesterday’s news will remind policymakers that U.S. corporations don’t really need new tools to avoid paying their fair share of taxes—they’re doing just fine with the tools they have. Real corporate tax reform would end the ability of corporations to defer taxation on earnings held abroad, and wouldn’t give them a “holiday” when they eventually bring the earnings back to the U.S. After all, if there’s any group in the U.S. that can afford to cough up a bit more revenue, it’s corporate share-holders.