Tim Cook, CEO of Apple Inc., recently stated that a 35% U.S. corporate tax rate is too high. Well, it’s excessively high for those corporations that have the ability to domicile billions of dollars overseas, thereby avoiding the wrath of the tax man. But for American small businesses that have all their money right here in our country — apparently, and according to President Obama — the tax rate is just right.
As Apple stock has plummeted since last September, their corporate management brain trust — along with a little advice from Wall Street — decided to distribute $100 billion in cash and stock to shareholders through 2015. This, of course, was thought to be the elixir that would reverse the downward trajectory of the stock. Yet, there was only one problem; specifically that the distributable cash was all overseas. Nevertheless, given Ben Bernanke’s magnanimous zero interest-rate policy (ZIRP), the quandary was instantly solved by borrowing the billions of dollars at extremely low interest rates, thus avoiding the need for the repatriation of overseas dollars. And more importantly for Apple was the avoidance of a big tax hit. Cook will lay all this out next week when he testifies in front of the U.S. Senate Permanent Subcommittee on Investigations (PSI), a committee that I’m sure will show as much enthusiasm as those other committees currently investigating Benghazi, the IRS targeting scandal, and the AP phone hacking calamity.
This hearing, which is entitled “Offshore Profit Shifting and the U.S. Tax Code,” will examine the use of foreign financial maneuvers that are commonly utilized by multinational corporations in order to reduce their U.S. tax bills. Since President Obama’s passionate proclamation which was delivered at his most recent State of the Union Address in February, Cook will enter into this hearing carrying a mighty big stick. At that Address, with Tim Cook sitting front and center (well, actually he was sitting in the balcony), Obama announced Apple’s enthusiastic response for the clarion cry of “more jobs, more jobs” (U.S. that is). Evidently, according to the president, Apple will spend millions of dollars to build Mac computers in the U.S.
Given the PC is going the way of the dinosaur, I thought it would be very interesting to see how many jobs would be created for giving Apple a pass on an estimated $13.8 billion in taxes due. According to Bloomberg Businessweek, the answer is possibly 200 jobs. Thus, doing the simple math, we give up $6.9 million in taxes for each job that Apple creates in the United States.
Sounds like a heckuva deal to me and I’m sure the senators, with their infinite wisdom, will also mightily agree. So, go ahead Timmy, bring that money home. The door is now wide open.