A bipartisan Congressional panel yesterday released its findings regarding Apple's international tax regime and, specifically, how it was able to pay a relatively low tax rate when the U.S. corporate statutory tax rate is 35% (the highest in the developed world). The investigation turned up no wrongdoing, and that Apple follows the letter of the law and pays every dime of its legally-required taxes.
Nonetheless, Congress summoned Apple CEO Tim Cook in front of the Senate Permanent Subcommittee on Investigations to testify on Apple's tax compliance. The Congressional report found that, had Apple not shifted its profits to other subsidiaries around the word,
Over all, Apple’s tax avoidance efforts shifted at least $74 billion from the reach of the Internal Revenue Service between 2009 and 2012, the investigators said. That cash remains offshore, but Apple, which paid more than $6 billion in taxes in the United States last year on its American operations, could still have to pay federal taxes on it if the company were to return the money to its coffers in the United States.
Sen. Rand Paul, who is not the chair or ranking member of this morning's committee, offered an unconventional opening statement for the record. "Frankly, I'm offended by the tone and tenor of this hearing," Sen. Paul Said. "Tell me a politician up here that doesn't try to minimize their taxes... Instead of Apple executives, we should have brought in here a giant mirror."
"I frankly think that the committee should apologize to Apple," Paul said.
Sen. Paul said that he was also "offended by the spectacle of dragging in executives that aren't doing anything illegal," a framing that subcommittee chairman Carl Levin (D-Mich.) took issue with.
"We did not drag them in front of this subcommitee," Levin said. "This subcommittee is not going to apologize to Apple."
Sen. Paul also took to Twitter to express his outrage.
Instead of examining our broken tax system, the US Senate is about to harass Apple-one of the greatest business success stories in history.— Senator Rand Paul (@SenRandPaul) May 21, 2013
I am offended by a $4 trillion government bullying, berating and badgering one of America's greatest success stories.— Senator Rand Paul (@SenRandPaul) May 21, 2013
I am offended by the spectacle of dragging in here executives from Apple using the brute force of government to bully a great success story.— Senator Rand Paul (@SenRandPaul) May 21, 2013
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.— Senator Rand Paul (@SenRandPaul) May 21, 2013
Today we could vote to lower the corporate income tax but we won't. Today we could vote to let profits come home at 5% but we won't.— Senator Rand Paul (@SenRandPaul) May 21, 2013
Instead of doing the right thing we drag businessmen and women in here to berate them for trying to maximize their profits for shareholders.— Senator Rand Paul (@SenRandPaul) May 21, 2013
Money goes where it is welcome. If you want more money to be earned in the United States, make profit welcome here.— Senator Rand Paul (@SenRandPaul) May 21, 2013
Apple has done more to enrich people's lives than politicians will ever do.— Senator Rand Paul (@SenRandPaul) May 21, 2013
To the Apple executives here, I apologize for this theater of the absurd.— Senator Rand Paul (@SenRandPaul) May 21, 2013
I will do everything in my power to make our tax code simpler. I will not be a party to witch hunts that mistake cause for effect.— Senator Rand Paul (@SenRandPaul) May 21, 2013
If there is anyone to blame here it is not Apple, it is Congress and the tax code it created.— Senator Rand Paul (@SenRandPaul) May 21, 2013
As Katie wrote earlier, the President Obama's Department of Justice secretly monitored the e-mails, phone calls and even physical movements of Fox News reporter James Rosen, even going so far as to suggest that Rosen broke the law.
Ryan Lizza at the New Yorker posted the full 44-page search warrant that details the allegations against both James Rosen former State Department employee Stephne Jin-Woo Kim. It's chilling - perhaps none more so than page 26, which details the innocuous relationship between Rosen and Kim:
Particularly part (b) here, where the Justice Department somehow sees malice in a reporter "employing flattery and playing to Mr. Kim's vanity and ego." In other words, any investigative reporter who plays nice with a potential source might be subject to getting their records searched by the Department of Justice.
Over at Hot Air, Allahpundit wrote of top Democrats getting fed up with Eric Holder's scandal-plagued Department of Justice:
[S]capegoating Holder for Obama’s anti-leak practices might help liberal O-bots resolve the cognitive dissonance between their idealized view of the Unicorn Prince as a champion of good government and the unpleasant daily reality. Blame Holder, boot him out, and then they can gaze once again at O as the fantasy president they wished he was.
Press Secretary Jay Carney had nothing to say in today's White House press briefing, refusing to answer any question that he deemed even tangentially related to these new allegations of the Department of Justice that were brought to light. It's been his standard practice when dealing with scandal, but today's was a stunning display of obfuscation. The daily press briefings are becoming must-watch affairs, with even the mainstream media increasingly fed up with the Obama Administration.
The Associated Press' summary led with "Obama budget cuts deficits by $1.1 trillion" but, as Nick Gillespie points out, delving down into the actual numbers yields some worrying results. The short-term deficit is larger than the CBO's baseline, and the long-term budget only cuts the deficit relative to the baseline by - you guessed it - massive tax hikes.
Chiefly because of spending increases his budget proposes, Obama's fiscal plan would make next year's deficit $115 billion higher than the $560 billion shortfall that the budget office estimates for 2014 without the president's policies. Republicans criticized that and contrasted the $542 billion deficit Obama's budget would leave in 2023 with the spending plan approved by the GOP-run House, which relies on deep spending cuts to achieve balance by that year.
The congressional report said to achieve his $1.1 trillion in savings over the next decade, Obama relies on $974 billion in higher revenue and $172 billion in spending cuts. That is nearly a 6-1 ratio.
Obama's major revenue-raising proposals include limiting some deductions and exclusions for some higher-earning taxpayers, raising $493 billion over the decade; boosting tobacco taxes by $83 billion; and raising estate and gift taxes by $77 billion, the budget office said.
Moreover, the largest spending cut in President Obama's budget comes from winding down overseas contingency operations in Iraq and Afghanistan. A quirk of the federal budget causes the CBO to assume that OCOs would never cease. So President Obama uses the over $600 billion in budget "savings" from winding down overseas wars and puts it towards more spending programs. In total, as the AP reported, there's $172 billion in spending cuts - which means that most of that war draw-down "savings" are put towards more spending.
President Obama's budget is pretty typical for what we know about his economic philosophy. He's a Keynesian, which means the short-term deficit reduction makes sense. He also doesn't think that America's long-term entitlement problems are actually problems that need addressing - so his failure to address them, and then allow budget deficits and debt to rise in the medium- and long-term, also makes sense. While you may have read that President Obama's budget gets the deficit under control, it's mostly a one-time occasion that is predicated by an economic recovery and President Obama's tax hikes.
In President Obama's first speech to a joint session of Congress in 2009 outlined his administration's ambitious higher education agenda, saying that "by 2020, America will once again have the highest proportion of college graduates in the world." As Peter Wood wrote at the Chronicle of Higher Education, "that would mean more than doubling the number of domestic students attending the nation's colleges and universities."
Pushing American students toward college is a goal that was called into question by a report from the Brookings Institution this week. In "Should Everyone Go To College?", authors Stephanie Owen and Isabel Sawhill find that college is a good investment - but only for certain kinds of students. Certain degrees will provide a very high return on investment - engineering degrees from public universities, for example - but others don't give college graduates very much of an advantage over high school graduates, and leave the college grads deep in debt. Additionally, they find that choice of school matters: going into debt to get a STEM degree from a top school can be worth it, but anything other than the very best schools - and the most lucrative degrees - can leave graduates unprepared and debt-ridden for the rest of their lives.
NPR reported on President Obama's higher education priorities and found some depressing info:
"A huge percentage of our nation's human capital is created in on-the-job training, not through formal schooling," Vedder says.
Vedder has spent the past 44 years teaching economics and writing about the connection between higher education and the labor force. He says he has been wary of Obama's higher education agenda ever since the president told a joint session of Congress that every American should pursue some form of education beyond high school.
"When I heard that, I was somewhat shocked because I think it's an impossible dream," he says.
The Brookings authors find two conclusions: "it is a mistake to unilaterally tell young Americans that going to college - any college - is the best decision they can make... a bachelor's degree is not a smart investment for every student in every circumstance."
Indeed, Pascal-Emmanuel Gobry took a look at the Bureau of Labor Statistics report on fast-growing jobs and found that jobs of the future will not necessarily be "high skill" jobs, or ones that require a college degree:
The jobs of the future are only “low skilled” if you define “low skilled” as not requiring college. Being a good carpenter (56% growth, Jesus is still with us) or, for that matter, a good medical secretary (41% growth), takes smarts (actual smarts, not just book smarts), hard work, and dedication.
Gobry's analysis echoes Vedder's, who says found that "only five of the 25 fastest-growing occupations over the next decade require any kind of college degree."
Coming at a time when student loan debt has exploded and new college graduates are struggling to find work, this is disheartening. Embracing the rhetoric of invaluable college for everyone does not have to be the policy of the future, though. There are alternatives.
Owen and Sawhill lay out a variety of alternatives to the push for four-year degrees. Colleges could make financial information to prospective students more readily available, letting enrollees know the cost of their degrees, their expected earning potential, and the amount of debt they'll be saddled with. Colleges could work harder at graduation rate, particularly for low-income students. The financial aid system could be reformed and improved. And policymakers could push for more alternatives to traditional four-year colleges for borderline students - like associates' programs and apprenticeships.
On the point of transparency, the American Enterprise Institute's Andrew Kelly wrote last week to warn new high school grads to be wary of their choice of college and degree:
Reforms could help prospective students become better informed about their options. Though we’ve always told students that a bachelor’s degree is worth an additional $1 million, the truth is that not all college degrees are created equal. For one thing, studies have shown that similarly qualified students stand a much better chance of graduating if they attend a more selective college than a less selective one. And research on the economic returns of college reveal that wages can vary significantly across disciplines, colleges and credentials. Graduates from science, technology and math majors tend to out-earn others. It’s even true that some occupational certificate programs boast a higher return on investment, at least in the near term, than some bachelor’s degrees.
Sens. Marco Rubio and Ron Wyden have cosponsored the Student Right To Know Before You Go Act, which could provide prospective college students with some of the information they need, and would give students the opportunity to "know how long it will take them to complete their education, what their likelihood of completion is, how far that education will take them after graduation, and at what cost." And to be charitable to President Obama, he's recently endorsed increased college transparency in his "College Scorecard" initiative.
Should everyone go to college? No. The continued push to send as many young Americans to college has given some underprivileged students better opportunities, but it's also pushed unqualified prospects into a life of low earnings, limited opportunity and massive debt. Policymakers should pull back their prioritization of four-year college and re-think how we envision both our K-12 and higher education systems should look like before throwing billions more dollars at subsidizing borderline students to go to borderline universities.
Indeed, it's not the spending side of the ledger that has shrank the budget deficit, but the tax side. Projected outlays for the first half of the 2013 fiscal year are $11 billion smaller than in 2012, while the federal government collected $220 billion more in tax revenue.
As the CBO detailed:
Taxes withheld from workers’ paychecks rose by $99 billion (or 9 percent), mainly because of higher wages and salaries, the expiration of the payroll tax cut in January 2013, and increases (beginning in January) in tax rates on income above certain thresholds.
And about the small dip in government spending:
Some of the decline in spending from 2012 to 2013 stems from changes to the estimated cost of past transactions of several credit programs (notably for TARP, the Troubled Asset Relief Program). With those changes excluded and with adjustments for the timing shifts, the difference would have been smaller — about 0.5 percent.
One of the largest dips in spending is due to military cuts - the federal government spend $16 billion less over the first seven months of 2013 than it did for that time period in 2012.
Much of this is to be expected - as the economy recovers, there will naturally be an increase in tax revenue and a drop in social safety net spending. At least part of this, however, is due to President Obama's ideal version of a "grand bargain" on tax hikes and spending cuts - mostly tax hikes on upper income-earners and spending cuts that fall heavily on the military. It also is not a sign that President Obama is some kind of deficit hawk. He's just a textbook Keynesian.
The intra-conservative war over the working immigration reform legislation was ramped up today when the Heritage Foundation's economic analysis gave the opposition a major piece of ammunition in the form of a study showing that the reform legislation could cost $6.3 trillion.
Conservatives who have been proponents of immigration reform legislation jumped to discredit the Heritage study as it made the rounds this morning. Rep. Paul Ryan questioned its methodology, saying "the Congressional Budget Office has found that fixing our broken immigration could help our economy grow. A proper accounting of immigration reform should take into account these dynamic effects.”
The principal criticism of the Heritage study is precisely that it does not take into account the effects of immigration on economic growth. Conservatives in the past have criticized economic modeling for leaving out projections of economic growth - on tax cuts, for example - but some are defending the Heritage Foundation's methodology.
Sen. Jeff Sessions trumpeted the results of the study. "The study puts to rest the contention that the bill will benefit American taxpayers, reduce our deficits, or strengthen our already endangered Social Security and Medicare programs," Sessions said in a statement. Sen. Sessions has been one of the leading skeptics of the comprehensive immigration reform legislation on Capitol Hill.
Other conservative coalition groups like Americans for Tax Reform and the American Action Forum jumped on the dynamic scoring issue today, noting the inconsistency apparent in the Heritage Foundation's approach. ATR's Josh Culling said on a media call this afternoon that "though Heritage is a treasured ally... this report looks only at the cost side of the economic equation and completely ignores any economic benefit."
The Heritage Foundation report acknowledges a certain amount of growth that would take place but cautions growth-enthusiasts that the prosperity might not be widely-shared:
While it is true that unlawful immigrants enlarge GDP by roughly 2 percent, the problem with this argument is that the immigrants themselves capture most of the gain from expanded production in their own wages. Metaphorically, while unlawful immigrants make the american economic pie larger, they themselves consume most of the slice that their labor adds.
Former CBO director and President of the American Action Forum Douglas Holtz-Eakin challenged that line of thinking in an AAF policy brief last month:
There would be effects above and beyond that of greater population as well. Labor force participation rates are higher among the foreign born, especially among males and later in work careers. Similarly, the rates of entrepreneurship among immigrants are higher than among the native born population, raising the possibility of greater innovation and productivity growth in the aftermath of immigration reform. Finally, the combined effect of these impacts on economic growth would allow greater productivity growth through the embodiment effect on quality of capital goods.
While the Heritage Foundation has stood by their study's methodology as sound with regard to National Academy of Sciences standards, Holtz-Eakin questioned their defense today. "Their methodology is absolutely not the same as the National Academy of Sciences... the NAS tries to estimate the impact of immigration on the size of the economy, which Heritage does not do."
The debate over the comprehensive immigration reform legislation has been crackling ever since Marco Rubio emerged as the conservative face of the Gang of Eight, and among Capitol Hill staffers it threatens to explode to a full blaze. The Heritage Foundation's report today adds fuel to the fire. As Mediaite's AJ Delgado tweeted,
It's clear that the Gang of Eight will need more conservatives beyond its four Republican members in order to pass through the Senate - to say nothing of how a comprehensive immigration reform legislation would pass through the House of Representatives. Today's Heritage Foundation study could prove the dividing line between grassroots conservatives who see the legislation as a sellout and Republicans who see it as full of the compromises necessary to get something passed.
The so-called "Marketplace Fairness Act" passed the Senate today on a 69-27 vote, meaning that businesses with more than $1 million in sales will be subjected to tax collection laws no matter where they're located in the United States. The bill would give state governments the blessing to collect tax on retailers across state lines.
Andrew Moylan of the R Street Institute ran down some of the major problems with the bill and detailed some of the straw men arguments used by the tax legislation's proponents:
MFA would close a tax “loophole” - Supporters often say that the MFA exists to close a 20-year old “Internet loophole,” to stop government from “picking winners and losers” among different types of retail businesses. But there is no loophole and government isn’t attempting to advantage one type of business over another. The 1992 Supreme Court decision Quill v. North Dakota is what established current law, which says that a state can only force a business to collect its sales tax if it is physically present within its borders. That’s the law for online and traditional retailers alike.Some, like Walmart, chose a business model that included a physical retail storefront in every state and they’ve benefited handsomely from their ubiquity and uniform shopping experience. Some, like Overstock.com, have chosen a business model that (generally) included a web interface instead of a physical store, with a handful of warehouses across the country to facilitate shipping to consumers. It should be incumbent upon legislators to treat them consistently under existing rules, NOT to equalize their tax burdens at the end of the day.
MFA’s $1 million small seller exception means only big businesses will have to comply – Another whopper MFA supporters tell is that only really big businesses will have to comply with its mandates since they included a $1 million small seller exception. But if you do some back-of-the-envelope math, the claim falls apart rather quickly. Industry data says that the specialty retail sector (which includes businesses like Bed, Bath, and Beyond and Amazon) enjoys an average net profit margin of just 2.1%, while catalog and mail order retailers (which include eBay and Overstock) average 1.7%. For those of you not quick with a calculator, that means that the average such entity would have only $21,000 and $17,000 left over, respectively, after accounting for all the costs of doing business on $1 million worth of sales. Does a business with $17,000 in profit at the end of the year sound big enough to easily comply with 9,600 taxing jurisdictions across the country?
The internet sales tax bill split some online retailers down the middle, with Amazon supporting the bill and eBay lobbying against it. Amazon is the country's largest online retailer - and since their infrastructure exists in almost every state already, they're already subject to a lot of same-state sales taxes.
The legislation will now go to the House of Representatives, where anti-tax proponents are more hopeful that the more conservative majority will be able to either delay and fix the bill or kill it altogether.
While Congress investigates the Obama Administration's actions during the Benghazi terrorist attack this week, President Obama will be leaving town to promote his "jobs" agenda in what the Associated Press dubs "a series of day trips."
The White House says President Barack Obama's trip to Austin, Texas, on Thursday will kick off a series of day trips aimed at highlighting his proposals on jobs and the economy.
While in Texas, Obama will visit a technical high school and meet with entrepreneurs. He'll also drop in on a tech company and talk with blue-collar workers.
The trip shows Obama wants to keep Americans focused on his economic proposals even while Congress is busy with an immigration overhaul and confirmation for Obama's second-term Cabinet nominees.
Despite the fact that the Obama White House continues to condemn the spending cuts of sequestration as economically devastating, President Obama will reportedly "travel every few weeks" in order to promote his economic agenda.
Austin seems an unlikely place to make a jobs pitch - their economy is doing well, as The Hill reported that unemployment dropped by 9% in Obama's first term, spurred by businesses like Apple and General Motors moving jobs there. Nonetheless, Obama will urge the residents in Austin that tens of billions of dollars need to be spent by the federal government to boost the economy - and he will continue his pitch to hike the minimum wage.
On ABC's This Week, Heritage Foundation President and former South Carolina Senator Jim DemMint previewed a Heritage study of the Gang of Eight's "comprehensive immigration reform" bill, saying that the bill might cost "trillions."
“The study you’ll see from Heritage this week presents a staggering cost of another amnesty in our country,” DeMint said this morning on “This Week,” based on the “detrimental effects long-term” of government benefits that would eventually go to the millions offered a path to citizenship under the reform legislation currently being considered. “There’s no reason we can’t begin to fix our immigration system so that we won’t make this problem worse. But the bill that’s being presented is unfair to those who came here legally. It will cost Americans trillions of dollars. It’ll make our unlawful immigration system worse.”
But, as ABC News notes, the Heritage economic modeling approach to immigration reform is not without its critics:
The 2007 [Heritage] study is not without its critics, such as Alex Nowrasteh of the Cato Institute, who wrote in April that the study’s “flawed methodology produced a grossly exaggerated cost to federal taxpayers of legalizing unauthorized immigrants while undercounting or discounting their positive tax and economic contributions.”
The immigration reform bill will continue to go through other iterations as it gets analyzed, criticized and amended. Sen. Marco Rubio, the most prominent Republican member of the Gang of Eight, said recently that the legislation has "shortcomings" and that he welcomed the amendment process.
"Public scrutiny has helped identify shortcomings and unintended consequences that need to be addressed," he wrote.
He mentioned a strengthening of border security issues and the cost of immigration to American taxpayers, saying a review of the bill offers the opportunity to make appropriate changes.
Conservatives will need to keep a close eye on the amendment process. The Gang of Eight legislation is already causing sharp divisions among conservatives on Capitol Hill and the devil will be in the details when it comes to conservative support for the final bill.
This Wednesday, three State Department officials will testify before the House Oversight Committee on the subject of the attacks in Benghazi last year. They've been previously referred to as "whistleblowers" and have been intimidated by the Obama Administration. Now, as Fox News reports, their identities have been revealed for the first time.
Appearing before the House Oversight and Government Reform Committee will be three career State Department officials: Gregory N. Hicks, the deputy chief of mission at the U.S. Embassy in Libya at the time of the Benghazi terrorist attacks; Mark I. Thompson, a former Marine and now the deputy coordinator for Operations in the agency’s Counterterrorism Bureau; and Eric Nordstrom, a diplomatic security officer who was the regional security officer in Libya, the top security officer in the country in the months leading up to the attacks.
Nordstrom previously testified before the oversight committee, which is chaired by Rep. Darrell Issa, R-Calif., in October 2012. Of the three witnesses, he is the only one who does not consider himself a whistleblower. At last fall's hearing, however, Nordstrom made headlines by detailing for lawmakers the series of requests that he, Ambassador Stevens, and others had made for enhanced security at the U.S. consulate in Benghazi in the period preceding the attacks, requests mostly rejected by State Department superiors.
"For me the Taliban is on the inside of the [State Department] building," Nordstrom testified, angry over inadequate staffing at a time when the threat environment in Benghazi was deteriorating.
All eyes will be on the Benghazi hearing on Wednesday, where the Benghazi whistleblowers will detail exactly what happened and how the Obama Administration has bungled both the lead-in to the attack in Libya and the post-attack spin.