May 24, 2013

By Bobby Casey, Managing Director

Lambasting Apple for legally protecting its wealth offshore is misguided.  We should be condemning the tax code that chased that wealth (and all the potential jobs) away!

Let’s be clear: keeping and protecting your own wealth is not theft, no matter how you slice it.  The IRS wants to take wealth that isn’t theirs… now, that is theft.

Many of you have read the headlines this week about Apple’s CEO, Tim Cook.  He is being criticized for utilizing offshore structures to minimize his company’s tax burden.

The headlines are mostly attacking Mr. Cook, and calling him everything from a traitor to a corporate villain to a thief to just completely immoral.

One of the recent articles I read blasted Apple for taking advantage of legal tax breaks, available to any company in Amerika, while telling the readers: they are the ones who will be left holding the bag and bailing out the government from its huge debt burden.

Ironically, Apple is the single largest taxpayer in Amerika accounting for $1 of every $40 collected.  Apple paid just over $14B in taxes last year alone (FY2012). 

The other amusing thing for me is that Apple employs over 72,000 people.  Their net profit after tax last year was almost $42B.  So in addition to paying the largest share in federal income tax revenues, it also offers a considerable amount of jobs.  He employs the population of Yakima, Washington!

The claim is that Apple shifted $74B in profits offshore over the past 3 years.  With their effective tax rate at 25%, that means Apple robbed the Amerikan slavemasters to the tune of $18.5B over this 3 year period. 

To me, this means the draconian tax policies of  Amerika robbed its people of approximately 10,000 new jobs, in its attempt to rob Apple of their profits.

If you take the net (after tax) profit of $42B and divide that by the number of employees, you get approximately $580,000 in profit per employee. 

Since Apple was legally incentivized to move just over $6B in annual profit offshore ($18.5B/3), using the $580,000 profit/employee figure, that equates to over 10,000 potential employees Apple could have hired in the US had it not been forced to shift the profits offshore.

You may argue they were not “forced” to move profits offshore, but considering Amerika has the highest corporate tax rate in the world, I would argue they were forced to move profits offshore in order to remain competitive in the global marketplace. 

You may also argue that Apple has a moral obligation as an Amerikan company to pay taxes on 100% of its profits to its Amerikan slavemasters. 

Again, you are either intellectually challenged or just plain immoral, attempting to sell that load of garbage.  Nearly two-thirds of Apple’s revenue comes from outside of Amerika.  Explain to me why Apple should pay tax in a country when source income is elsewhere.

On the morality front, we can argue about taxation until our faces turn blue.  But the reality is there is not one single rational argument for the morality of income taxation.

Income taxation is immoral.  Plain and simple. 

I just had this argument last week with a friend of mine, and regrettably an Obamessiah supporter.  He immediately fired back with, “I have lots of rational arguments for the morality of income taxation.”

So I challenged him with my standard questions:

“If you earn $100,000 per year, and the tax rate is an arbitrary 25% but 100% voluntary, would you write a check for $25,000 in January to the IRS?”

Of course his answer was a resounding, “No”, just like any other human, rational or otherwise.

So I asked him, “Then why do you pay your taxes?”

His response (paraphrased and shortened), “Because if I don’t pay my taxes I risk huge fines and possibly jail.”

So I said, “So basically you pay taxes because you fear the potential negative consequence.  In reality you fear the threat of violence.  So if I show up at your door with a gun in January and demand you give me 25% of your income from the previous year, how is that any different?”

Crickets…

The conversation went on something like this, “But I have a moral obligation to take care of the poor, the needy, blah blah blah…”

To which I completely agree.  However, I don’t agree that I should be robbed at gunpoint for the common good, only to fund the 90% of public spending I don’t agree with.  As of right now, none of our tax dollars goes toward “taking care of the poor”.  100% of our tax dollars currently go toward servicing the debt!

A much better allocation of capital would be for me to invest in productive assets and give to private charities that mean something to me. 

Raise your hand if you think the government is an excellent allocator of capital….Anyone?  Anyone?

Which brings me back to the point with Apple.  Imagine a world where there is no income taxation.  Apple would have no reason to shift profits offshore. 

It would have had nearly $20B in extra profits to allocate as it wished.  Apple does an excellent job of providing value and creating products people want.  What could it do with an extra $20B per year?

In your business, what could you do if you cut your tax burden by 10%?  20%?  50%?  100%? 

I am not advocating illegal tax evasion.  Even though I do find income taxation completely immoral, I personally place a very high value on freedom and honestly, I look terrible in orange. 

I would not encourage you to illegally evade taxes either, but would certainly recommend taking every advantage and minimizing your tax burden as much as possible.