Apologies and Apple

By Phil Mattera, Dirt Diggers Digest

In 2010 Texas Rep. Joe Barton took the bizarre step of apologizing to BP for the Obama Administration's effort to get the oil giant to compensate those affected by its massive spill in the Gulf of Mexico. Barton faced a firestorm of criticism and had to retract his statement.

It will be interesting to see if Sen. Rand Paul has to do the same with his outrageous statement the other day arguing that the Senate should apologize to Apple for the report of its investigations subcommittee documenting brazen tax dodging by the company. "I would say what we really need to do is to apologize to Apple, compliment them for the job creation they are doing, and get about doing our job," Paul declared at a hearing to discuss the report.

I don't know how Apple CEO Tim Cook restrained himself from jumping up and giving Paul a big wet kiss on the lips. Cook instead offered testimony that was part P.R. spiel about the wonderfulness of Apple and part outright dishonesty about its tax practices. Among his claims: "Apple does not use tax gimmicks."

The problem is that the investigations subcommittee's 40-page report described an array of loopholes and tricks by which Apple has shielded tens of billions of dollars from federal taxation. At the center of the scheme is the artificial designation of vast amounts of cash as being held offshore to keep it outside the reach of the IRS. That hoard, which now totals more than $100 billion, is actually, the New York Times reports, held in bank accounts in New York in the name of Apple subsidiaries based in Ireland.

For tax purposes, Apple claims that its key Irish entity has no legal residency (nor a physical presence or employees), meaning that it is not effectively taxed anywhere. A recent analysis by Citizens for Tax Justice concluded that Apple has paid "almost no income taxes to any country" on its offshore stash. This undermines the arguments made by Apple and other corporations for a new repatriation tax holiday or a shift to a territorial tax system.

"Apple has a very strong moral compass, and we believe in really good corporate citizenship," Cook recently told the Washington Post. That claim was already preposterous, given past revelations about abysmal working conditions at the company's supplier plants in China.

Tax dodging, unfortunately, is not widely regarded as being on a par with sweatshops as an indicator of corporate social irresponsibility. Apple, for instance, feels compelled to publish material asserting that it and its suppliers support labor and human rights and that they operate in an environmentally sound manner. There is no such statement on its website about compliance with tax laws.

Apple, like just about every other large corporation, not only manipulates the federal tax code but does the same at the state and local level, both through accounting schemes and by negotiating economic development subsidy deals, which frequently include corporate income tax credits, business property tax abatements and the like.

Last year, for example, Apple took an $89 million subsidy package to build a data center in Reno, Nevada that was expected to create only 35 permanent Apple employees. Three years earlier, Apple got a state subsidy package in North Carolina worth over $46 million (plus more at the local level) for a similar facility that was projected to produce only 50 permanent jobs.

Apple and other companies justify the taking of subsidies because it is legal and because it is usually linked to job creation, though in the case of Apple the number of jobs, at the data centers at least, is minute compared to the lost tax revenue.

What demands by rich companies for subsidies they don't need really shows is that tax minimization is not, as corporate apologists would have us believe, just a response to the complexity of the federal tax code. It is a compulsion to increase net income, regardless of the consequences for the public. That is part of the definition of corporate irresponsibility.

Companies like Apple will continue to get away with fiscal murder until tax dodging and excessive subsidy taking are as stigmatized as the use of sweatshop labor and toxic dumping. At that point, even politicians of Rand Paul's ilk might have to think twice about challenging the right of Congress to investigate unscrupulous tax accounting practices.