This past Sunday, Apple CEO Tim Cook repeated his call for a simpler U.S. corporate taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. code on CBS’s 60 Minutes. In fact, to say that he appealed for a “simpler” code might be an understatement. Cook called for a tax code that would befit a modern day digital economy.
Tim Cook did not say anything in his Sunday night appearance on national television that he hadn’t said already when testifying on the topic of profit shiftingProfit shifting is when multinational companies reduce their tax burden by moving the location of their profits from high-tax countries to low-tax jurisdictions and tax havens. before the U.S. Senate in May 2013. Two and a half years later, the U.S. corporate tax code continues to be a cumbersome patchwork of rules and exceptions that attempt to make up for the highest corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. rate in the developed world, for taxing worldwide income, and for applying double taxationDouble taxation is when taxes are paid twice on the same dollar of income, regardless of whether that’s corporate or individual income. on corporate profits.
Tim Cook has said that Apple is proud to be an American company. He highlighted that nearly all of Apple’s R&D is conducted in Cupertino, California, whereas the share of sales in the U.S. amount to about a third of the company’s earnings. In his interview to Charlie Rose, Cook explained that Apple’s products are manufactured in China because of the kind of vocational skills that have been cultivated there which may have become a lost art, at least on a large scale, in the U.S. These explanations show that the company chooses to carry out its various functions in locations that are conducive to producing the best possible product.
In the May 2013 Senate hearing, former Senator Carl Levin (D-MI) reminded Tim Cook and Apple that, while it was the company itself that created its R&D, it had “some real benefits” in doing it: R&D tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. s, the protection of patents, and “all the benefits of living in this country.” Indeed, establishing and enforcing property rights is classically seen as a legitimate reason for taxation. However, even the most dedicated American companies, that do not entertain the thought of leaving the country, should not be held hostage and taxed at punitively high rates. The U.S. economy has more to gain from lower corporate income rates, increased repatriationTax repatriation is the process by which multinational companies bring overseas earnings back to the home country. Prior to the 2017 Tax Cuts and Jobs Act (TCJA), the U.S. tax code created major disincentives for U.S. companies to repatriate their earnings. Changes from the TCJA eliminate these disincentives. of foreign earnings, and new investments into high-paying jobs.
The solution to “profit shifting” is not a new patch to an already complicated tax code. The solution that the U.S. needs is a comprehensive tax reform that reduces both the corporate tax rate and the complexity of the entire tax code.Share