Apple CEO Tim Cook Proposes Major Reductions in Corporate Tax Rates
Earlier this week, Apple CEO Tim Cook made a speech to Congress on what he called a "dramatic simplification" of corporate tax laws.
The main point of this proposal is that taxes on profits for businesses are too high, forcing many companies to shift their earnings overseas, where, through tax loopholes, they can avoid paying taxes on them. In fact, a report by J.P. Morgan estimates that $1.7 trillion in foreign earnings is being held overseas by over 1,000 American companies -- none of which has been taxed by the U.S. government.
Cook's proposal aims to partially alleviate these taxes so that more companies can keep their earnings here in America where they can be fairly taxed. This would apply especially to Apple, which, as of late, has formed something of a reputation for keeping exorbitant amounts of profits overseas. In fact, of the $145 billion in cash that Apple has, only $45 billion exists within the United States.
In order to keep these funds safely overseas, Apple uses five companies in Ireland which share members of their boards of directors. Of these five companies, three do not have tax residency in Ireland, meaning they are not required to pay taxes. Since, under U.S. law, a company is only a tax resident of the country in which it was established, Apple companies are not tax residents of Ireland.
Because of this, Apple paid only $10 million in taxes on $22 billion in income, a practice that has garnered some negative attention.
At the meeting on Tuesday, Cook suggested alternatives to current tax practices that would allow Apple and other companies to bring their funds back into the U.S. To do this, Cook said he wanted a corporate tax rate in the mid-20s (down from the current rate of 35 percent), with a repatriation rate in the single digits.
Cook also added that he currently has no plans to move Apple's over $100 billion kept overseas to the U.S. until there is a fairer tax rate.
Despite Apple's somewhat dubious tax practices, Cook insists the company is nonetheless helping the American economy.
"We are proud to be an American company and equally proud of our contributions to the American economy," Cook told Congress. "In total, Apple is responsible for creating or supporting 600,000 new jobs."
Sen. John McCain said in a statement that he does not agree with this philosophy and believes Apple needs to answer for dodging taxes, even though Apple has not technically committed any crimes in doing so.
“Apple claims to be the largest U.S. corporate taxpayer, but by sheer size and scale, it is also among America's largest tax avoiders,” said Sen. McCain. “A company that found remarkable success by harnessing American ingenuity and the opportunities afforded by the U.S. economy should not be shifting its profits overseas to avoid the payment of U.S. tax."
Apple is also attempting to rectify things on its end. Cook said that Apple is trying to create more jobs in the United States. For example, later this year, when a $100 million project for a line of new Mac computers begins, all components will be manufactured in Arizona and final assembly will take place in Texas.