$100 Billion in Tax Revenue Lost Every Year Due to Loopholes for Multinationals

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On 60 minutes, Apple CEO Tim Cook says accusations of tax avoidance schemes are ‘total political crap’, but economist James Henry says it’s unfair for corporations to simply wash their hands of having to share the costs of government

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Story Transcript

NADIA KANJI, TRNN: Welcome to the Real News Network. I’m Nadia Kanji in Baltimore.

On Sunday, Apple CEO Tim Cook appeared on CBS’s 60 Minutes and defended the world’s largest corporation’s record of sheltering profit overseas to avoid U.S. taxes. Interviewer Charlie Rose questioned Cook if Apple is engaged in, quote-unquote, a sophisticated scheme to pay little or no corporate taxes on $74 billion of revenue overseas. Here’s how Cook responded.

TIM COOK: That is total political crap. There’s no truth behind it. Apple pays every tax dollar we owe.

KANJI: The interview follows years of scrutiny towards Apple, especially from the U.S. Senate, for dodging taxes. Here to respond to the Apple CEO’s claim is James Henry. James is a leading economist, attorney, and investigative journalist who has written extensively about global issues. Thanks for joining us.

JAMES HENRY: You’re quite welcome.

KANJI: I’d like to start off by asking you about something that Tim Cook said. He said his company would have to pay 40 percent of his profits in taxes if he repatriated its overseas income. Wouldn’t this kind of huge loss undermine the ability of Apple to reinvest in things that help workers, like job creation and benefits?

HENRY: No, in fact, the issue is that Apple has been booking a lot of their revenue and income offshore in tax havens. They’re the world leader in terms of using tax havens to avoid tax. And he’s missing the point. It’s not a question of the legality of what he’s doing. But he spends about $4 million a year on lobbyists in Washington, together with all other multinationals, and they help to write these tax loopholes.

In 2013 there was a huge Senate investigation that uncovered the fact that Apple had parked, well, it’s now about $187 billion offshore in places like Bermuda, Ireland, Lichtenstein–or sorry, Luxembourg. And paying about 2.2 percent tax on that offshore wealth. And many other companies are doing exactly the same thing. It’s not a question of legality. This is a question of what is appropriate tax policy. And it’s basically unfair for the largest and most profitable companies in the United States, the most successful ones that have, may have taken advantage of all of the attributes of being in the United States, benefiting from our legal system and from the terrific economic base that we have, to simply wash their hands of having to share the costs of government. If Apple doesn’t contribute to it, it’s actually going to hurt the rest of the economy. Small business and other entrepreneurs who can’t take advantage of these tax loopholes.

KANJI: And it seems like we talk about how it would benefit workers. But it seems to just benefit shareholders. Like why–can you talk about why it’s important to mention that Apple spent the most of any corporation on stock buybacks in the third quarter of 2015, totaling $13.3 billion?

HENRY: Well, we saw the same thing with 60 Minutes and John Chambers, of Cisco, back in 2010. Same interview, almost identical pitch for lower tax rates for big companies. It seems, you know, if we look at what’s happened to Chambers and Cisco since then, they’ve peaked and gone downhill. I hope that’s not the case with Apple, but it seems like when you have a CEO that starts focusing on tax policy as a key factor for success, you know, you’re wondering about how competitive they’re going to be. In fact, Apple’s stock price has basically leveled off, for the last year we’ve seen no growth. There’s a lot of concern about whether it will be able to sustain the iPhone’s 61 percent of revenue going forward.

So you know, this shift to policy as opposed to innovation is something that should be concern to Apple shareholders. The shareholder buybacks, you know, this is exactly what happened in 2004. We had the Bush administration sharply reduce the tax on corporate offshore assets that were repatriated to the United States. And companies did not use them to invest in new technology. They used them for shareholder buybacks that were basically a benefit to those, to the top management at many of these companies and to their shareholders. But basically at the same time that they were laying off lots of workers.

So you know, if we, we should look at that history carefully and see what the issue is. Oddly enough, both major parties has really dropped the ball since 2013, when Senator Levin revealed this kind of misbehavior. And haven’t really fixed the loopholes in the tax laws that are costing us about $100 billion a year in lost tax revenue to these major multinationals.

KANJI: And Tim Cook says the American tax system is extremely outdated. Here’s what he said.

COOK: Because as I said before, two-thirds of our business is over there. And so obviously–.

CHARLIE ROSE: And so why don’t you bring that home, is the question?

COOK: I’d love to bring it home.

ROSE: Why don’t you?

COOK: Because it would cost me 40 percent to bring it home, and I don’t think that’s a reasonable thing to do. This is a, this is a tax code, Charlie, that was made for the industrial age, not the digital age. It’s backwards. It’s awful for America. It should have been fixed many years ago. It’s past time to get it done.

KANJI: Cook’s defenders also say since companies like Apple do much of their business overseas, why pay taxes here? Can you respond to that?

HENRY: Sure. Well I mean, the reason to pay taxes here is a lot of the, the original value is created here in the first place. But the United States has always had a worldwide income tax, and U.S. companies have done quite well on the basis of this worldwide income tax. A territorial tax, which is what Cook seems to be asking for, would really be disastrous, especially for a lot of small companies. And you know, we don’t have a real need here to reduce the multinational tax rate any further than it’s already been reduced. We’ve seen 30 years of corporate tax cuts. And they just haven’t paid off for the U.S. economy.

So I think, you know, he should beware of what he asks for. In fact, you know, Apple is not unable to access these offshore assets. It’s able to borrow against them, very low interest rates. Invest here. And deduct the interest. So maybe we need to sit down Tim Cook and explain to him how he can actually take advantage of these offshore assets that he claims not to be able to invest here.

But the real point is, if we’re going to be heading for an economy in which we get rid of a corporate income tax, I think, you know, we’re going to have to look at much more progressive rates on individuals. And that might be actually something for us to consider. Neither party is really looking at a wholesale tax reform right now. But if you abolish the corporate income tax, you’d have to have stiff rules to prevent people from just parking profits in companies to avoid tax, and you’d have to have a much more progressive tax rate for individual shareholders in order to avoid putting all the cost of government on the backs of the middle class and the poor. But that’s the contest we’re going to be facing and fighting over the next decade.

So you know, in a way, Cook’s comments, I think, are a good opener for a fundamental debate about the corporate income tax, and it’s long overdue.

KANJI: And we’re in the midst of a presidential election. Have any candidates put forth any plans to address this?

HENRY: No, they’ve been tinkering around the edges. Bernie Sanders has been talking about a financial transactions tax, which doesn’t have much to do with the corporate income tax. No one has really taken on this fundamental issue of U.S. corporate taxation and multinational tax competition, which is really driving this. We’ve had a kind of race to the bottom among all the OECD countries. And so, you know, the United States cuts its rate slightly, and then Canada has cut its rate to 23 percent. The UK just dropped theirs to 20 percent. So there’s been a trend since the 1980s to have a race to the bottom among corporate–with respect to corporate income taxes around the world.

And one thing I was expecting the Obama administration to do was to weigh in with our partners in Europe and with the Canadians to stop this kind of race to the bottom, so we have healthy tax collaboration, tax enforcement, as opposed to continuing kind of tax competition. But that just didn’t happen. I think the tax lobbyists in Washington, the 1,800 full-time lobbyists for the multinationals, are really spending most of their time preventing that from happening.

So it is time for corporate tax reform. But it’s not one that either major party has taken the lead in.

KANJI: Well, James Henry, thank you so much for your analysis.

HENRY: You’re quite welcome.

KANJI: And thank you for joining us on the Real News Network.

End

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