How ’bout Apple paying zero corporate income tax?

Posted on May 22, 2013 by

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There is a lot of discussion today and yesterday about Apple’s avoidance of the corporate income tax.  As the WSJ reports on Senate Democrats investigation of Apple,

Mr. Levin unveiled the results of his months-long investigation into Apple’s corporate taxes and accused the American business success of employing “alchemy” and “gimmickry” to lower its tax bill. What Mr. Levin did not do was present any evidence of anything illegal or even inappropriate. He did prove that Apple has smart accountants and tax lawyers.

Even more apropos in the journal editorial was this snippet:

It’s also amazing to behold Democrats who routinely claim that high tax rates don’t matter to business behavior denouncing a business for engaging in behavior to avoid paying higher tax rates.

The U.S. has the highest corporate tax rate in the industrialized world and we get precious little tax revenue to show for it.  When will the politicians get the 2nd Law of Economics, incentives matter?  Are politicians really surprised that both individuals and corporations try to minimize their tax bill through every legal mechanism?  If so, that would explain their belief in static scoring of tax proposals, which does not allow for changing behavior based on the tax.

Here’s the dirty little not-so-secret.  Congress wants loopholes in the tax code that allow tax minimization.  The potentiality of loopholes creates demand for politicians to provide them and once given, the possible suspension of those loopholes creates continual demand for politicians to maintain them.  This provides a steady source of campaign contributions for members of Congress.  There is a reason why the Senate Finance Committee and the House Ways and Means Committee members routinely get significantly larger campaign contributions than members on other committees.  Can you guess why?  Hint:  who writes the tax laws?

Corporate tax should be abolished for a number of reasons.  Most important to me is the diversion of funds into political rent-seeking.  We all hear the concerns over “powerful special interests” getting tax breaks the rest of us don’t.  The answer to that on corporate tax is simply to eliminate it.  Does that mean we give rich corporations a break?  May it never be!  Rich corporations are owned by real people and they pay taxes.  All distributed profits can be taxed at whatever rate we think sufficient to generate the revenue needed for government.  And if the business retains the profits, they are investing in new production which will expand the economy and create jobs.  Perhaps then we can also shut down some of the voluminous corporate welfare  (such as the import/export bank) that is intended to expand the economy and create jobs!

Milton Friedman, as usual, has enduring wisdom in this regard.  See his video on youtube.

HT for the video to Don Boudreaux on Cafe Hayek

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Posted in: Taxes