Rand Paul created quite a stir in Congress when he Tweeted 'The Senate should apologize to Apple'.
- @SenRandPaul:
Instead of examining our broken tax system, the US Senate is about to
harass Apple-one of the greatest business success stories in history.
- @SenRandPaul: I am offended by a $4 trillion government bullying, berating and badgering one of America's greatest success stories.
- @SenRandPaul:
To US Senate: I say, instead of Apple executives, you should have
brought in a giant mirror if you want to see who is responsible.
- @SenRandPaul: Instead of doing the right thing we drag businessmen and women in here to
berate them for trying to maximize their profits for shareholders.
- @SenRandPaul: Apple has done more to enrich people's lives than politicians will ever do.
- @SenRandPaul: To the Apple executives here, I apologize for this theater of the absurd.
- @SenRandPaul: If you want to chase companies like Apple away, continue to vilify them. Congress should be giving Apple an award today.
- @SenRandPaul: It's absurd for Congress to vilify businesses like Apple for wanting to
minimize their tax code just like every other American rightly does.
- @SenRandPaul: The Senate hauled before a committee one of America's greatest success stories—and wanted what? Applause?
Why did Paul Tweet Those Things?
Because the Senator Carl Levin (D-Mich.) ripped
Apple's 'Holy Grail' Of Tax Avoidance ahead of congressional testimony.
It's absurd that Apple CEO Tim Cook Should be in Congress in the first place.
Did Apple break any laws? Of course not. Is Apple responsible to absurd tax code or is Congress? The answer of course is Congress. So yes, Rand Paul is correct for forcing Cook to testify.
What About GE?
Tax law is so absurd that
GE paid no corporate income tax in 2010. GE also paid no corporate income taxes in 2009.
For doing precisely the same thing, Cook had to appear before a senate subcommittee.
GE's response "
GE pays what it owes under the law and is scrupulous about its compliance with tax obligations in all jurisdictions."
Mish says please note that the CEO of GE, Jeffrey Immelt, advises president Obama on business.
Holy Grail of Tax Avoidance
The Wall Street Journal reports
Apple CEO Tim Cook, Lawmakers Square Off Over Taxes.
Apple Inc.'s tax strategies came under harsh scrutiny Tuesday in the Senate, where lawmakers are finding it far easier to call for a simpler tax code than to produce one. Still, nothing in the deluge of bad publicity about the tax code in recent weeks touches on the most durable obstacle to congressional action on a broad tax overhaul. The two parties remain far apart on whether such a rewrite should also raise revenues to reduce the deficit. Democrats insist it should, while Republicans insist it shouldn't.
Sen. Carl Levin (D., Mich.), chairman of the investigations panel, on Tuesday accused Apple of employing "alchemy" and "ghost companies" to escape tax collectors in the U.S. and Ireland, the base of the firm's international operations outside the Americas.
"Apple has sought the Holy Grail of tax avoidance," said Mr. Levin. "Apple is exploiting an absurdity, one that we have not seen other companies use."
Who is responsible to tax code, Levin or Apple?
The "Golden Goose"
Barron's reports
‘You Shifted Your Golden Goose, It’s Not Right,’ Says Levin
Apple (AAPL) CEO Tim Cook‘s offered his testimony on Capitol Hill, before the U.S. Senate Permanent Subcommittee on Investigations, regarding tax policy and overseas earnings, followed by questions from the Senators.
Senator Carl Levin comes back and presses Apple’s tax administration head, Phillip Bullock, as to whether the company effectively “shifted economic rights” to intellectual property, the “crown jewels of Apple Inc,” as Levin puts it, to Apple’s Irish subsidiaries.
Levin persists: “You shifted something, the most valuable thing you have, the economic rights to the most valuable thing you own, intellectual property, the thing that produces the profits, to those three Irish corporations that you own. 70% of the profits worldwide now end up with those Irish corporations. Of course you can bring those profits home. The only reason you’re not is because they’re transferred to those three Irish companies.”
Hypocrite McCain
Fortune magazine says
Senators Carl Levin and John McCain were careful to balance praise for Apple's (AAPL) achievements with outrage over its "convoluted and pernicious" (McCain's words) tax avoidance strategies. Sen. Rand Paul showed no such balance. He lit into his own committee's leadership for "dragging" one of America's great success stories into what he called a "show trial."
Mish says McCain is one of the biggest hypocrites you can find when it comes to tax avoidance.
There are two reasons companies keep profits overseas.
- Tax law (for which McCain has voted for)
- Tax repatriation holidays for which McCain has personally sponsored
McCain Sponsors Repatriation Tax Holiday
Accounting Today reported on October 6, 2011
McCain and Hagan Introduce Repatriation Tax Holiday Bill.
Senators John McCain, R-Ariz., and Kay Hagan, D-N.C., introduced legislation Thursday allowing multinational corporations to repatriate their foreign earnings at a reduced tax rate. The bipartisan bill, known as the Foreign Earnings Reinvestment Act, aims to trigger the flow of $1 trillion from the foreign subsidiaries of U.S.-based multinationals at a reduced tax rate of 8.75 percent, as opposed to the statutory corporate income tax rate of up to 35 percent. It would accomplish this through a temporary dividends received reduction of 75 percent.
As an incentive to create jobs, the bill would allow companies to further lower the tax rate they pay to 5.25 percent if they grow their domestic payroll during 2012.
McCain Should Apologize to Paul
It seems to me that hypocrite Senator John McCain should apologize to Senator Rand Paul as well as to Apple.
Instead
The Hill reports
Sen. John McCain (R-Ariz.), also defended the Senate inquiry, calling it “offensive” for anyone to accuse Levin of bullying.
Final Thoughts
It is absolutely absurd for taxes to be lower overseas than in the US.
Current policy encourages movement of jobs and capital to foreign countries. If anything, taxes ought to be higher on foreign profits than lower. That would encourage investment in the US.
I have been writing about this for years. Levin acts as if this is something new. Perhaps he is dumb enough that he just figured this out. Regardless, he still is not bright enough to realize where to point the finger.
Finally, and as I also pointed out, tax repatriation policies do not help at all. And on that score Senator McCain is personally responsible. He does not know where to point the finger either.
I will be glad when McCain retires. Rand Paul is the future of the party, McCain is the past.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
