Last week, the CEO of Apple was called in for an inquisition by a Senate Subcommittee over the company’s low net tax rate. As Tea Party Patriots wrote at the time:
So let’s get this straight:
- Congress has provided U.S. corporations the highest corporate tax in the industrialized world.
- In order to please various constituencies, Congress then enacted loophole after loophole to bring the net corporate tax rate down for favored companies.
- Apple took advantage of the loopholes Congress passed.
- Apple did not break any laws, yet Congress targeted them.
- Based on statements made by members of Congress, Apple was likely targeted because of their size and success.
The implications here are absolutely chilling. If you’re successful, you’ll get punished. If you successfully navigate the laws Congress put into place, you’ll get punished.
Now, a Congressman is joining the witch hunt. From The Corner:
Representative Keith Ellison (D., Minn.) just can’t wrap his head around why Apple wouldn’t “step up” to pay more in taxes.
“It seems to me they ought to want to help to pay the expenses of this country, so that everybody can have a fair shot,” Ellison said on MSNBC’s The Ed Show over the weekend.
Ellison found it “really disappointing” that Apple wasn’t willing to pay higher taxes, arguing that it “wouldn’t be a multi-billion-dollar corporation but for the fact that the United States of America made it possible for them to be that successful.”
“Taxes are not a punishment,” he explained, “taxes are the dues we pay to live in a civilized society.”
This whole idea of “stepping up” to pay more taxes has been knocked down many times, but it’s clear Rep. Ellison hasn’t wrapped his head around the concept yet. To paraphrase President Reagan, here we go again…
First, Apple is paying exactly as much as the law requires – 35% (the highest corporate tax rate in the industrialized world) minus loopholes (given out like candy by Congress to various special interests and constituencies). Rather than an argument against Apple, though, their 2% net tax rate is an argument for tax reform – reform that eliminates loopholes and drastically lowers the nominal rate.
Second, the whole “stepping up” and “fair share” arguments rely on a very misleading assumption: Companies don’t add value beyond their taxes. From Tea Party Patriots last week:
Regarding accusations that Apple isn’t paying enough in taxes, consider that the company claims to have directly or indirectly created over 500,000 jobs in the country, though one critic says the number is between 300,000 and 400,000. According to NPR, the company has 47,000 direct employees.
In other words, the company follows all relevant tax laws, and provides somewhere between tens of thousands and hundreds of thousands of jobs worth of economic activity. Sounds like its benefits are pretty good for America, and far outweigh those of Senator Levin and his subcommittee.
Third, why should Apple step up more than it has, voluntarily? Certainly, two of the leading proponents of higher taxes on the wealthy, President Obama and Vice President Biden, have not stepped up voluntarily to give more of their money to society. Consider that the President took advantage of major tax loopholes in 2012, and Vice President Biden donated a paltry percentage of his money to charity last year.
While corporate and individual income taxes are separate aspects of the tax code, the argument Rep. Ellison is making regarding Apple is similar to the one made against upper-income earners – even though it’s upper-income earners who are actually stepping up:
Finally, to quote a John Hawkins tweet,
The people who aren’t paying any income tax at all right now are using gov’t services. Is 0 in income tax their “fair share” of the taxes?
While almost all Americans do pay some sort of federal taxes – from taxes on cigarettes to payroll taxes – John’s point is an excellent one: the 50% or so of taxpayers who don’t pay non-payroll income taxes benefit from federally-funded roads, education services, immigration control, the military and other federal services. Who, then, pays for these services? According to the Tax Foundation in an October 2011 report, “The top 5 percent earned 31.7 percent of the nation’s adjusted gross income, but paid approximately 58.7 percent of federal individual income taxes.” In short, most taxes for non-retirement social spending – the same social spending liberals are so keen on expanding – are being paid by those people liberals also say don’t pay enough in taxes – the top five percent, whose income was a relatively modest $154,643,000 $154,643 in 2009, according to the Tax Foundation.
In short, Rep. Ellison is relying on demonization to manipulate the facts surrounding Apple’s tax code. If he really wanted a tax system that is fair and economically sound, as well as bring in more federal revenue, he would push for the elimination of loopholes and the lowering of rates. And while that might have some wealthier people and corporations paying more in taxes, it would be the result of a far more efficient tax code, not the one currently riddled with special interest loopholes across the board.