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How much would Apple's overseas cash help the U.S. economy?

Apple CEO Timothy Cook delivers pauses while giving opening remarks while testifying before the Senate Homeland Security and Governmental Affairs Committee's Investigations Subcommittee about the company's offshore profit shifting and tax avoidance in the Dirksen Senate Office Building on Capitol Hill May 21, 2013 in Washington, D.C.

Apple CEO Tim Cook says the company pays all the taxes it legally owes. Tuesday, he was on Capitol Hill to face questions on some $100 billion that Apple holds overseas, safe from American tax collectors.

Apple, of course, is hardly the only American firm that moves money around the globe to lower its tax bills. And there are surely Washington bureaucrats who would love to get their hands on a potential new source of revenue. But getting that money into America and onto the tax rolls would solve some problems and create new ones. The issue of corporate taxation underscores just how difficult it is to change the tax system.

It helps to first get a sense of just how much U.S. corporate money is overseas.

“The scale is gigantic,” says Ed Kleinbard, former chief of staff of Congress’s Joint Committee on Taxation and now a USC law professor. “That number is about $2 trillion right now.”

Tax that at the top corporate rate and suddenly America has an extra $700 billion. That's as much as the financial crisis bailout in 2008. In reality, hardly any companies actually pay the full 35 percent tax rate. Our hefty tax code is filled with loopholes that companies fight hard to keep. But the tax revenues on this foreign money could still be hundreds of billions of dollars, which would be some shopping spree.

“It would have a tremendous impact on improving the federal budget, reducing the deficit and of course it’s money we could be investing in our future,” says David Cay Johnston, a Syracuse University law professor and columnist for Tax Analysts.

America’s armchair budgeters could take their pick and spend the haul on education, health, or the military. Or new corporate tax revenue could be used to cut taxes for actual humans.

Whether by funding programs or cutting their taxes, most Americans would probably choose to help people over companies. But it’s not quite that simple, because people’s income and savings are connected with companies, whether they know it or not.

In today’s hearing, Republican Senator Rand Paul said companies like Apple are being wrongly vilified for following the law. Then he started talking about the man in the mirror.

“Is there a Mr. Apple out there? No, it’s us,” Senator Paul said. “If you have a mutual fund, you probably own some Apple shares. If you’re a teacher with a pension fund, you own Apple shares. If you’re a fireman with a pension fund, you probably own Apple.”

Boost a company’s tax bill and the hit to the stock price can hurt ordinary people’s retirement savings. Or it might jeopardize the jobs of people who work for and with the company. Changing any tax law squeezes somebody. That’s why simplifying taxation is so hard, and why Apple and other companies have such big lobbying bills.

Kai Ryssdal: Mr. Cook went to Washington today. Apple CEO Tim Cook spent some time in the company of the Senate Permanent Subcommittee on Investigations talking taxes. Specifically, how much Apple is paying on the $100 billion or so in cash that's held by its overseas subsidiaries.

Cook was the unlucky CEO taking a turn in the barrel, but the topic du jour was really all American companies that keep profits abroad to lower their tax bills. We asked Marketplace's Mark Garrison what difference that money makes anyway.


Mark Garrison: First, let’s get a sense of how much corporate money’s overseas. Ed Kleinbard is the former chief of staff of Congress’s Joint Committee on Taxation and now a USC law professor.

Ed Kleinbard: The scale is gigantic. That number is about $2 trillion right now.

Tax that at the top corporate rate and America has an extra $700 billion. That’s as big as the 2008 financial crisis bailout. In reality, hardly any companies actually pay the full 35 percent. You know, loopholes. But the tax revenues could still be hundreds of billions, which would be some shopping spree.

David Cay Johnston: It’s a lot of money.

David Cay Johnston is a Syracuse law professor and columnist for Tax Analysts, who’s made a career of investigating gaming the tax system.

Johnston: It would have a tremendous impact on improving the federal budget, reducing the deficit and of course it’s money we could be investing in our future.

Take your pick: spend it on education, health, military. Or use corporate tax revenue to cut taxes for actual humans. Most Americans would choose to help people over companies. But it’s a little more complicated. Cook testified Apple pays everything it legally owes. In today’s hearing, Republican Senator Rand Paul said companies are being wrongly vilified. Then he started talking about the man in the mirror.

Sen. Rand Paul: Is there a Mr. Apple out there? No, it’s us. You know, if you have a mutual fund, you probably own some Apple shares. If you’re a teacher with a pension fund, you own Apple shares. If you’re a fireman with a pension fund, you probably own Apple.

Boost a company’s tax bill and the hit to the stock price can hurt your retirement savings. Changing any tax law squeezes somebody. That’s why Apple and other companies have such big lobbying bills. In New York, I'm Mark Garrison, for Marketplace.

About the author

Mark Garrison is a reporter for Marketplace and substitute host for the Marketplace Morning Report, based in New York.
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Your ending sentence was unfortunate and somewhat uninformed. Apple has historically not engaged in lobbying at all until recent years. And even in recent years, Apple's "lobbying bills" have been much lower than other large U.S. corporations. Apple's lobbying activity has been much smaller-scale than Google's or Microsoft's; and Exxon-Mobil's lobbying activities would make Apple's seem negligible. Keep in mind that Apple and Exxon are roughly comparable in gross financial terms.

Conventional wisdom, more often than not, is simply wrong.

Corporations are already paying near zero tax (on average). Any extreme measure of imposing draconian taxes on them will lead to a string of unintended consequences: a collapse in earnings, massive layoffs, a crash in the already weak US economy.

Think differently. Get rid of all these tax loopholes using the Gordian knot strategy: cut the corporate tax-rate to zero.

No more incentives to incorporate in Ireland. No more incentives to pay the tax attorneys who, sorry to say, produce nothing of value. No more incentives to keep the $2T of cash in offshore havens.

Cut the corporate tax rate to zero and expatriated money will flow back home. Foreign corporations will have incentives to invest here in the US. Employment will rise, and the tax-base will broaden. Tax receipts will grow by much more than the current average effective tax rate of corporations - about ~2% of overall tax receipts.

Corporations are not people. They are legal entities designed to benefit people, through the products and services they create and through employing people. Taxing corporations has always been a bad idea.

How come so many are getting this so wrong?

Just tax companies according to whichever formula gives the U.S. gov't. the most tax revenue during any particular calendar year. Then it doesn't matter if the company is domiciled in the U.S. (current policy), controlled in the U.S. (Irish policy), adds the most value in the U.S. (also current policy), or has the most revenue in the U.S. (don't know if this is anybody's policy).

It's long overdue for multinationals to support societies in which they operate in an amount commensurate with their obscene wealth.

Hey you guys at MP can do the math, piece of cake!Let us know who wins America or Apple?

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