Behind The Lobbying Effort That Helps Save Apple $2.4 Billion In Taxes A Year
The New York Times dropped another bomb on Apple’s “iEconomy” this weekend with an expose that shows how the world’s biggest corporation evades billions of dollars in taxes by creating subsidiaries in low-tax states and countries like Nevada, Ireland, the Netherlands, Luxembourg, and the British Virgin Islands. While some of Apple’s monumental success is due to the undeniable popularity of its products, the Times reports that Apple “has devised corporate strategies that take advantage of gaps in the tax code.” This has ultimately saved the company (and thus cost the public) as much as $2.4 billion a year, according to a recent study by a former Treasury Department economist.
Apple fights for favorable tax policies in the United States with a formidable army of lobbyists. According to the Center for Responsive Politics, Apple spent $2.3 million on lobbying last year and its lobbying expenditures have been steadily increasing over the past decade – in 2000, it only spent $360,000 on lobbying.
A big chunk of this is spent lobbying specifically on tax policy, especially repatriation legislation, which lets firms bring profits held overseas back to the United States at a cheaper tax rate. One bill in particular, the Freedom to Invest Act of 2011, would save companies like Apple, Google, and Cisco $78.7 billion, paid for by the American people.
This so-called tax holiday would let multinationals with more than $1 billion held abroad bring that cash back to the United States at a 5.25 percent tax rate, instead of the typical 35 percent top corporate rate. The idea is that those companies would pump that money into the American economy, especially through hiring workers.
Apple currently keeps about two-thirds of its $97.6 billion in profits abroad.
Bloomberg reported last fall that Apple and other companies have employed an army of over 160 lobbyists to persuade Congress to pass the Freedom to Invest Act of 2011. And these weren’t any old lobbyists. Sixty of them once worked for a sitting member of the House or Senate. And one in particular, Jeffrey Forbes, was once chief of staff to Sen. Max Baucus (D-Mont.). Baucus is the chairman of the Senate Finance Committee, which has direct jurisdiction over tax law.
This sort of chummy influence-peddling on behalf of the Freedom to Invest Act isn’t supporting good policy. How do we know that? Because Congress already passed legislation exactly like it, back in 2004. And as a recent Senate report found, it didn’t go so well:
A report from the Senate’s Governmental Affair’s Permanent Subcommittee on Investigations found that a 2004 tax break that was given to corporations repatriating profits made in foreign countries “did not produce any of the promised benefits of new jobs or increased research expenditures to spur economic growth.” In fact, the report found that the corporations receiving the break cut 20,000 net jobs and cost the U.S. Treasury $3.3 billion in lost revenue over 10 years.
While the Freedom to Invest Act of 2011 lingers in committee in the House, President Obama remains focused on bringing overseas jobs back to the United States. He even made it a centerpiece of his State of the Union address earlier this year:
We should start with our tax code. Right now, companies get tax breaks for moving jobs and profits overseas. Meanwhile, companies that choose to stay in America get hit with one of the highest tax rates in the world. It makes no sense, and everyone knows it. So let’s change it.
The way the system actually works right now means that such hopes have little chance of becoming law. Meanwhile, Apple continues to make more and more money — without providing many U.S. manufacturing jobs and without paying its fair share of taxes.