If you missed Tim Cook’s interview on 60 Minutes on Sunday, watch how fired up the normally serene CEO gets when Charlie Rose asks him about the billions Apple is keeping overseas (email subscribers can find the video here):
I don’t blame Cook for being angry. I’ve been saying similar things for awhile now. Our corporate tax system is “awful for America.” It would be bad enough if we were growing at a decent, or even somewhat decent rate economically. But in this ‘new normal’ era of slow to no growth, it’s inexcusable.
Most nations have a territorial tax code that allows businesses to pay taxes only where money is earned. Not the US. When one of our companies brings home offshore profits, the IRS collects taxes on the difference between the 35 percent US corporate tax rate and the lower rate charged abroad. This is why Apple and other companies leave those funds offshore, stranding an estimated $2.6 trillion overseas. It’s also why so many companies have decided to invert their worldwide headquarters outside the US, the Pfizer-Allergan merger being the most recent example.
Politicians and pundits can harp all they want about greed and tax avoidance. It’s not going to fix the problem. The fact of the matter is that almost half the profits earned by S&P 500 companies now come overseas. In Apple’s case, that percentage is even larger. As Cook says, a full two-thirds of its business takes place outside the US. Left, right or center, our elected officials should be doing everything they can to encourage Apple and other multinationals to bring those revenues back home. But it’s never going to happen until we bring our hopelessly outmoded international tax policy into the 21st Century.
As Carl Icahn wrote in a New York Times editorial last week, Congress has finally begun to address this problem. Democratic New York Senator Chuck Schumer and Republican Ohio Senator Rob Portman created a framework that would allow companies to repatriate stranded cash at a reduced 8-10 percent rate. This could yield up to $200 billion for the US Treasury. More importantly, it would let American businesses invest money they earn overseas here in America.
Why it’s taken this long for Congress or President Obama (or even President Bush) to even start the process of reform is dumbfounding. Slow economic growth, not terrorism or global warming, is the greatest threat to America’s security and our citizens’ well being. And yet, almost eight years into a pitifully slow economic recovery, we continue to under-invest in infrastructure and education while over-investing in seniors, defense, and bloated government agencies. To borrow a phrase from Tim Cook, that is the real “political crap.”