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Apple's cash hoard swells to $246B (cnbc.com)
293 points by jgrahamc on Apr 15, 2017 | hide | past | web | favorite | 535 comments

What possible reason could Apple have to repatriate their cash hoard (even with a tax holiday?)

They don't manufacture anything in the us -- do they need those kinds of billions to hire more software developers in Cupertino -- that seems pretty unlikely to me. Do they need it to build more US apple stores (nope they've got that covered).

They are already paying a dividend with free cash flow from their US business ...

I can't imagine why they would ever want to "increase investment" in the us vs the many far more productive things they could conceivably do by spending that money outside the us ...

> "vs the many far more productive things they could conceivably do by spending that money outside the us ..."

If there was something productive they could do with that money, they would have done it already. The money is currently just sitting in a "bank" somewhere, collecting extremely low interest rates. The money would be far more productive if Apple simply returned it back to its shareholders, who can then invest it in other ventures of their choosing [1].

The only rational reason for Apple to hoard the cash, is in anticipation of a tax holiday. And given the nature of the Trump administration, I wouldn't be surprised at all if Apple manages to buy one.

[1]: http://time.com/money/3484599/icahn-letter-apple-cash/

They are returning it to stock holders - however, it is not tax efficient to do this by simply paying dividends with profits. By offshoring the money they can minimize taxes, and still pay stock holders by taking massive loans with the cash hoard as security, effectively repatriating the money without paying taxes.

As an aside, they are not mainly paying dividends to get this money to stock holders. Pushed heavily by large Apple owners like Icahn, apple is buying back it's own stock - effectively paying dividends by raising the stock price. I don't recall the exact details why, but somehow that ends up also being more tax efficient. Eg: https://www.google.com/amp/s/www.forbes.com/sites/antoinegar...

Source: https://www.amazon.com/dp/B014BR46P2/ref=dp-kindle-redirect?...

Buy-backs are more tax efficient because they increase stock price. Stock price increases are not taxed until they are realized, so it is beneficial to long-term stockholders who may not sell for many years, possibly not for decades.

Dividends are taxed in the year of payment, so investors lose some of that gain within a year.

On the flip side, buy-backs can be a poor way to spend cash, as companies might buy back at high stock prices. So the third way to reward the stockholder is to just keep that cash stashed in a bank account -- you get neither taxed (dividends) nor do you buy back potentially inflated shares. However, you have the cash stashed away to do either if you ever need to, or find a good opportunity to (e.g., stock price slump.)

Personally I don't understand why a buy-back should increase stock price.

Sure, there are fewer shares - but the value of the company has gone down (it has less free cash, i.e. fewer assets) and the two effects should exactly offset each other.

One reason is embedded in the valuation, every stock is worth it's future cash flows, discounted for time. Since we can't know the future it's actually forecast future cash flows, and you discount that stomata for risk. A cash dividend eliminates the risk associated with that part of the value, increasing it.

An example would be a stock you value at $10 per share. It has $5 per share of excess cash, but you attribute $3 of value to the cash. This is because you discount 20% for dividend taxes were it to be paid out, and a further 20% for risk it may never be dividended or that it might be invested poorly.

So if the company pays out the actual $5, netting you $4, the remaining shares should still be worth $7 in your valuation estimate, meaning $1 in value is created.

This is of course pedantic, because it can be argued that there should be no risk discount for cash, and if there is certainly not 20%. My argument would be I'd value $1 of cash in Buffett's hands as worth more than $1, and in the hands of many public CEOs hands at less than $1. There is too much self-dealing by public management, and they usually possess little investment expertise outside their own business.

Does Apple have any car development expertise or unique IP? I'd say the risk of them blowing $40B in that market is significant.

So I'd argue that a small risk discount exists in most cases and is recaptured upon dividend.

The value of the shares goes up because, even if the business and profitability stays exactly the same, with fewer out standing shares, the earnings per share goes up.

Yeah but if you transfer an asset (cash) out of the company, all other things being equal, the value of the shares must go down.

This McKinsey article is old but explores the topic in some detail.



"Sending signals

The market responds to announcements of buybacks because they offer new information, often called a signal, about a company’s future and hence its share price.

One well-known positive signal in a buyback is that management seems to believe that the stock is undervalued. Executives can enhance this effect by personally purchasing significant numbers of shares, since market participants see them as de facto insiders with privileged information about future earnings and growth prospects. A second positive signal is management’s confidence that the company doesn’t need the cash to cover future commitments such as interest payments and capital expenditures.

But there is a third, negative, signal with a buyback: that the management team sees few investment opportunities ahead, suggesting to investors that they could do better by putting their money elsewhere. Some managers are reluctant to launch buyback programs for this reason, but the capital market’s mostly positive reaction to such announcements indicates that this signal isn’t an issue in most cases. In fact, the strength of the market’s reaction implies that shareholders often realize that a company has more cash than it can invest long before its management does.

Therefore, the overall positive response to a buyback may well result from investors being relieved that managers aren’t going to spend a company’s cash on inadvisable mergers and acquisitions or on projects with a negative net present value. In many cases, a company seems to be undervalued just before it announces a buyback, reflecting an uncertainty among investors about what management will do with excess funds.

Such shareholder skepticism would be well founded. In many industries, management teams have historically allocated cash reserves poorly. The oil industry since 1964 is one example (Exhibit 4): a huge price umbrella for much of this period, courtesy of the Organization of Petroleum Exporting Countries (OPEC), provided oil companies with relatively high margins. Nevertheless, for almost three decades the spread between ROIC and cost of capital for the industry as a whole was negative. Convinced that on a sustained basis the petroleum industry could not deliver a balanced source of income, many companies committed their excess cash to what turned out to be value-destroying acquisitions or other diversification strategies. For example, in the 1970s, Mobil bought retailer Montgomery Ward; Atlantic Richfield purchased Anaconda, a metal and mining company; and Exxon bought a majority stake in Vydec, a company specializing in office automation. All of these cash (or mostly cash) acquisitions resulted in significant losses."

If demand for shares is constant during the buyback, then reducing the number of shares via a buyback should send the price up. Which raises the question: Why would marginal demand for shares be independent from cash holdings? Probably because the investors have other reasons for wanting the stock, chief among them being future growth potential.

Regardless, the person who sold shares to the company gets taxed at long-term capital gains rates instead of dividend rates. Much better.

If Icahn started selling shares to someone else, the price would fall. If he sells to Apple itself, much less likely that the price would fall.

That is the strangest down-vote I've ever received on a textbook answer straight from Finance 101.

I think it's much more subtle point than buy-backs increase share price, otherwise it opens up some basic arbitrages. The point is, the share price already incorporates the value of the assets used for the buy-back, so buying back shares increases earnings per share but reduces asset values (and future earnings from leveraging those assets) and the two effects offset.

Simple example:

company A has 100 shares outstanding and only 1 asset: $100

The value of each share is $1.

It then decides a share buy-back is a good strategy, and buys back 50 shares for $50.

It now has 50 shares outstanding and $50 of assets.

The value of each share is still $1.

The buy-back has no effect on share price.

The question was about why buybacks are more tax efficient -- the answer is open-and-shut -- because benefit realization with buybacks is pushed to time of sale (in many cases far in the future), which is more advantageous than dividends which get taxed in the same tax year.

In any case -- to answer your question -- in your example, it would not have any effect on share price as it seems the company is just a holding company for $100. However, in the case of Apple they have other assets besides the cash (brand, intellectual property) and those assets produce more cash -- so all the cash the other assets generate in the future gets distributed to a smaller number of shareholders.

If the company has a market cap of $100 and $50 in cash (and $50 in discounted future earnings), and it uses all $50 to buy half its stock then the company now has $0 in cash and $50 in discounted future earnings, divided by 50 remaining shares is $1 per share, the same as the starting point.

On the point about taxation, if you have a choice between dividends or share appreciation, I agree with you that share value appreciation gives more flexibility to better manage tax liabilities.

But you answered as a fact that a share buyback increases share price, and sorry but I don't agree with that point - as demonstrated, for an asset holding company it is not the case.

And for a company with cash generation capabilities there is still a subtle point about whether the company can create more value with the cash than the shareholders; if the company can create more value than shareholders, then removing cash from the company via a share buyback should reduce share price. If it cannot, then removing cash from the company should increase the share price.

>> if the company can create more value than shareholders, then removing cash from the company via a share buyback should reduce share price.

Since Apple is simply hoarding the cash, we've already ruled this out -- Apple themselves admits they do not have any way to deploy the cash that would produce more returns than just stashing it in a 0.07% interest bearing account. The question then just comes down to how they disburse the cash (keep vs buyback vs dividends)

OK so in specific case of apple story is complicated by the onshore/offshore tax situation, but it could well be that they have more cash than they know what to do with - in which case returning it to shareholders makes sense instead of using it badly. But it is really not an obvious statement that buying back shares actually returns any value to shareholders.

In my view you really should qualify your earlier statement that "Buy-backs are more tax efficient because they increase stock price" as it is really not a generally true statement. If it was, I would be in the business of buying companies, then making them use any free cash to buy back some shares from me (my remaining shares then somehow go up in value), then selling the remainder back to the market. Free money, it would be great!

How about: Buy-backs are more tax efficient because they result in a higher stock price than an equivalently sized dividend.

Only if you assume that the share price always reflects company value.

The 80s were well known for corporate mavens buying undervalued companies, splitting them up, and selling the assets individually. The practice resulted in a net profit.

Sure - if a stock is undervalued, then anyone buying it should get a good deal.

But that's bit different from saying that a stock buyback will always increase share price.

> "however, it is not tax efficient to do this by simply paying dividends with profits. By offshoring the money they can minimize taxes, and still pay stock holders by taking massive loans with the cash hoard as security, effectively repatriating the money without paying taxes."

Assuming that there's no tax holiday, the above is a losing strategy over the long term. The ROI that Apple is getting on its cash hoard, which is mostly getting invested in treasuries and other ultra-safe investments, is lower than the interest rate that Apple is paying on its debt. Which means that by borrowing money at 3.5% interest and investing it at a lower ROI, Apple is bleeding money every single year.

Yes, they avoid having to pay taxes for now, but they are just pushing this off to a later date. If they adopt a strategy of keeping the money offshore forever, their interest debt will keep ballooning, and the amount of money they lose on interest debt over the long-term will overshadow any one-time tax payments.

Apple's strategy only makes sense if they are anticipating a tax holiday in the short/medium term, at which point they can repatriate all their money at a lower tax rate. I hope to hell they don't get it, because if they do, every single company is going to start doing the exact same thing. It will become yet another gigantic tax loophole, and a drag on the economy to boot.

Every company is doing it already, because it can be tax efficient even if no tax holiday ever occurs. let me show how.

Let's assume Apple earns 2.5% on its Ireland cash, but is paying 4% to borrow against it. On US profits it has to pay almost 41% in taxes, on its Irish interest income it's laying almost zero. It's debt interest is tax deductible and hence costs less than 2.4%, making this example profitable. And nothing stops Apple from buying short term investments that yield close to its boeriwng costs.

But even if it's close to break even it's a no brainer. Once you repatriate profits you can never undo the tax consequences for those profits. And events other than tax holidays can happen that may cause you to regret not waiting.

For example, if Apple decides to do a large international acquisition/investment (Porsche?), and pay $50B in cash as part of it. They would have had to repatriate over $80B to have $50B after tax. Or they could do the acquisition from Ireland for only $50B.

Surely Apple's semi-recent mega-success (iPhone onwards) puts them in a fairly uncommon position among companies? For this strategy to work, don't they need a huge surplus of (foreign) cash AND a reasonable expectation of a Tax Holiday in the near/medium future? Given those, it would seem most companies would be wrong to do the exact same thing (even if in this case Apple "gets away with it").

From an economic point of view it is kind of sitting their doing nothing. It would be better used if it was spent on something so it could creating jobs or something more than just sitting there. I think the government needs to make some incentive for them to give it to share holders or in someway use it.

> The money is currently just sitting in a "bank" somewhere, collecting extremely low interest rates.

That's not true. It's not all cash and most likely is mostly not cash. They report it as being cash and cash equivalents.


When companies say "cash", it is not physical cash, but cash in the bank. It may not even be in a bank, but may be in money-market funds. It is usually stashed away in highly-liquid money market funds which return slightly more interest than the bank would.

Zero Hedge is the Breitbart of economic news. I'm not saying you're wrong, but using them as your source does not win you any points.

I agree with you, but they had the most informative article on this topic.

I don't know much about finance. Why would Apple return money back to its shareholders? Doesn't it already do that by paying a dividend?

To expand on some other people's comments:

Dividends are post-tax and have to be brought back to the US before they are paid out. Apple has a whole bunch of money sitting overseas that it has not paid taxes on. So, if Apple brings it back to pay to shareholders as a dividend, 40% goes to the US government and 60% to shareholders.

Let's say Trump tells Apple (and other companies) they can bring the money back with a 10% tax. Now, the shareholders get 90% of the money as a dividend, which is 1.5X the 60%.

In order to pay dividends and not pay taxes, Apple has actually gone the route of borrowing money. So, they borrow money in the US and pay a low interest rate while their cash sits overseas.

> In order to pay dividends and not pay taxes, Apple has actually gone the route of borrowing money. So, they borrow money in the US and pay a low interest rate while their cash sits overseas.

Wow really. That's clever but also weird. Don't they sustain themselves US being largest market?

> Apple has a whole bunch of money sitting overseas that it has not paid taxes on.

To clarify: they haven't paid US taxes on it. They've paid whatever taxes are levied by the foreign countries they're operating in, but the US also double-taxes that same money if it's brought back into the US.

I may be wrong but my understanding is US taxes the difference between foreign and domestic tax rates.

Also once they pay tax (again) on it to get it into the U.S., it gets taxed a third time if they distribute it to the shareholders.

> Why would Apple return money back to its shareholders?

They're obligated to obey the wishes of the shareholders, who are the owners of the company. If the shareholders want it, the shareholders get it. (That's assuming the shareholders haven't been suckered into buying shares without voting rights, etc.)

That's what the parent is talking about. Sometimes companies pay out a large, one-time dividend. The other way to pay out to shareholders is to buy back shares on the market. Each approach has its strengths.

Their corporate responsibility is the maximize return to shareholders. If they cant do anything with the money (and seems they cant) they should be returning it with larger dividends, buy backs etc.

If they did do something with the money, i wonder if automation is at the stage where they could invest in local supply chains and bring iphone manufacturing to the US. Chinese labour is not as cheap as it used to be, all the parts are still in china for now though.

> Why would Apple return money back to its shareholders? Doesn't it already do that by paying a dividend?

Did you read the post?

Why do people always suggest that shareholders should be the first to benefit from company profits? Shareholders don't do anything to create value. Apple doesn't benefit at all when someone buys or sells their shares.

Why do companies not disburse excess profits like this to those that were responsible for creating the value in the first place?

Because ultimately shareholders (barring kooky Google stock arrangements) own the company. Practically, they select board members (Apple recently added the "3%+ stakeholders may nominate new members" clause), who select the CEO, who would propose and implement such a scheme.

So distributing it to employees, while noble and just (imo) would require shareholders to vote against their own immediate interests.

In practice, there's probably some friction, but you can damn well believe with numbers this large Tim Cook would be sued in a heartbeat if he attempted to implement such a scheme.

Shareholders are not the first to benefit, they are the last to benefit. Profits are by definition what remains after everyone else has taken their part, if anything.

Here you are confusing the secondary market for shares (an existing shareholder selling to someone else) with the primary market (new issuance of shares).

The primary market for shares absolutely benefits companies by giving them large amounts of cash now, in return for a claim on future earnings. This can allow a company to create more value than it otherwise would be able to do.

The secondary market is mainly a benefit to shareholders, not companies; but without a liquid secondary market, there would be fewer people willing to invest in the primary market.

Try creating value without shareholders. Most companies would exist, or wouldn't be as successful, without them.

Jobs + Woz created the Apple II, investors funded inventories, production, marketing, and everything else.

What are you talking about. Shareholders own the business and appoint the directors to make decisions.

It's their business and presumably want a return on their money.

The tax holiday is probably the only good thing a Trump administration could do at this point.

I hope Apple gets that tax holiday. It is Apple's money that they want to keep themselves. Ideally government should have pro actively worked to give them a tax break.

How is returning money to investors so investors can invest somewhere else be productive in the Apple sense? If they acted on that reasoning they would do donations

You are right, really if we want companies to bring money back we just need lower taxes. The games companies play to eek out an additional 5% and overcome taxes is massive. Better to have lower taxes here in the US while our dollar is still valued so high to offset and maybe they will have a reason to repatriate and continue investment here. We need more money moving in our country immediately, the velocity of money[1] and gdp to compensation [2] are horrid right now, worst in history.

Our dollar being too high in value is an advantage to wealthy and buying more abroad but harms workers here competitively no matter what they do. It also makes companies with money in other areas able to do more outside of the US, good but also bad.

Another thing that would help immensely is companies no longer being allowed to provide benefits, a legacy bug, just salary, enough to get their own services as those are private and companies should not be involved in that. Healthcare would need to be either single payer or private but solely individual and not tied to your employer which is a single point of failure, it may also fix medical pricing one day if more consumer focused.

Both lower taxes and companies not having to worry about providing benefits/healthcare would be immense competitive moves. Companies in Canada, UK, Mexico etc etc don't have to worry about providing healthcare benefits and it makes it easier to start a business, change jobs and in general allows more focus on business and products.

[1] https://fred.stlouisfed.org/series/M2V

[2] https://fred.stlouisfed.org/graph/?g=2Xa

yes, monetary velocity is the lifeblood of an economy, but no, lowering corporate taxes would only increase velocity at the top, and velocity in the upper echolons of the economy is not good for the economy overall. instead, you want to create incentives that create velocity in the middle and lower strata of the economy, where it will do the most good.

one option is to tax the money regardless of accounting technicalities that assign revenue to international subsidiaries. then it doesn't matter where the money resides accounting-wise, since there would be no special treatment of overseas cash.

another tax-advantaged option that's entirely within apple's control is to distribute more of its income to its employees (especially retail employees who generate above average returns on investment for the retail industry), who in turn would spend the money rather than hoarding it, thereby increasing overall economic velocity (particularly in the lower tiers of the economy).

we should hold the IRS (and government economic policy overall) to the singular task of making sure tax law is applied evenly and fairly across all economic strata, so that we all have an even playing field. we should not tolerate corporate welfare in any form. corporations are not babies.

"another tax-advantaged option that's entirely within apple's control is to distribute more of its income to its employees "

You mean "shareholders's income". It's not Apples income to run social programs with.

Lowering (or preferably eliminating) corporate income taxes benefits investment at every level, from Apple all the way down to startups. If your business plan shows that if you hit plan you will generate $1M in profit your first year, and will reinvest $600k in the business, the rest going to CA and US taxes. Now contrast that to the reinvesting the full $1M in the business. In the second case the business will be able to grow faster and increase company asset/equity value faster, of course it will be more valuable. And this means it's more likely to get funded.

no, i don't mean shareholder's income. the income of a firm flows to many constituents, not just shareholders. the idea that a shareholder is the only important stakeholder is, frankly, myopic and self-centered. that's not to say that shareholders are unimportant, but they are but one part of a whole that makes a firm successful.

apple's situation itself disproves your central tenet that lower corporate taxes equates to value generation. apple is fully taking advantage of lower corporate taxes, yet it's unable to invest its massive hoard of cash fast enough to generate any additional value. that money is literally wasted by sitting in apple's bank account.

if more of that cash had been distributed to employees, some of it would have gone to buying more consumer products, like iphones (economic velocity), and some of the more enterprising employees would have decided to start a new venture (value creation).

It's money is being loaned to thousands of businesses, creating massive value.

Shareholders own the company, all its assets and all its profits. Without their willingness to allow their investment, assets and profits to be kept in the company, it doesn't exist. Suppliers and employees are only part of the equation because they are paid to be, and if they don't like their pay will walk at the drop of a hat.

If your business becomes unprofitable your shares can be rendered worthless, and you can't "quit" and exchange worthless shares for ownership in a better company.

> You mean "shareholders's income". It's not Apples income to run social programs with.

I know you didn't say this exactly, but it is not true that a company exists solely for looking after shareholder's income. They also have other things to look after, such as social obligations.

Here is an article with some more detail about it (PDF): https://centres.insead.edu/social-innovation/who-we-are/docu...

Yea that article is BS. The idea that corporations have obligations beyond their owners is pure parasitical nonsense. Obviously they have an obligation to behave legally, but their profits and assets are owned by shareholders.

Tim Cook is worth around a billion dollars, he has massive personal resources to pursue charitable activities on his own. Should he reduce the dividend an aging widow depends on to use corporate resources instead?

The article you cite says that it's about what a corporation "ought" to do. It's not currently part of the corporate charter in the US, and unless explicitly called out, a company is ultimately only responsible for shareholder value. If that means tossing money at the local community so they can continue to do business there, they will do that.

Wouldn't you be able to write off those investments against the $1 million in income? In that case it shouldn't matter what the tax rate is.

Wages, salaries, sick leave, health insurance, and retirement funds are social programs?

I think the contention is that paying more if these than us. Ecesssry for staff recruitment and retention is basically that.

My own take is that paying staff more than necessary can be counterproductive because it can lead them to retire early or feel wealthy enough to leave for less stressful or more enjoyable jobs, thus disadvantaging the company.

> one option is to tax the money regardless of accounting technicalities that assign revenue to international subsidiaries.

So wait, how do you handle the Chinese who want to tax Apple as well? And would Apple be at a disadvantage to non-American companies like Lenovo or SAP, so we would have to tax all companies in the world on all business they do anywhere if they have a business presence in the USA. Otherwise, all companies would simply stop being American because they would be severely disadvantaged otherwise.

Not workable.

Does a VAT work?

The regressive nature could be removed by an income based rebate or UBI.

> The regressive nature could be removed by an income based rebate or UBI.

Like Universal Basic Income or Mincome, this sounds great and even conservative intellectuals like the concept (Milton Friendman was a major proponent of mincome).

In practice - the problem is this gets framed as "sending YOUR TAX DOLLARS to LAZY POORS". So we're likely to end up with the regressive consumption tax and no rebates or UBI, whether that's day-1 or a decade or two down the road.

In practice I've also noticed that many EU retailers will attempt to charge VAT even on export goods (which should not be taxed), and I'm sure they're reporting them as exported and just pocketing the extra 20% tax.

You can get your VAT refund at the airport, retailers can't give it to you directly.

I mean internet orders. That's the point of export as far as VAT is concerned.

EU retailers should not be charging VAT on orders they deliver overseas.

VAT is how most countries that aren't the USA handle this problem. But even then, this isn't global taxation that the USA wants to implement uniquely, if something was made and sold outside of the USA, the USA would never have a chance to VAT it.

I honestly can't tell if you're being ironic/sarcastic here. If this is seriously what the US wants to do, no amount of domestic tax reform is going to achieve it. Military conquest would be the only option (at least for unilateral global taxation). Then 'domestic' tax reform afterwards.

I think it would. I'm starting to get that familiar 'realities are diverging' feeling reading some of the comments on this post.

Other than the options you have suggested to deal with the regressive nature of consumption tax (which seem sensible to me), I thought the Republican tax proposal is essentially to: lower tax on returns to capital (by reducing the corporate tax rate) and institute a value-add consumption tax (in the form of a cash-flow tax).

The republican proposal equalizes American taxes with much of the rest of the world with respect to imports and exports. Basically, in most countries, goods coming in (imports) are charged VAT while goods going out (exports) get a VAT rebate. Since the USA doesn't do that ATM, goods going into Mexico get VAT applied to them on the Mexican side but do not get rebated on the American side, while Mexican goods coming in get rebates from Mexico but nothing occurs in the USA beyond normal sales tax.

This is a different thing from taxing global profits, which is uniquely American (well, and Eritrea). VAT is something else.

Overall corporate tax revenue is only 9% of revenues and 6% for C-Corps with remaining in pass-through S-Corp, LLCs or sole-proprietors[1]. I think the tax revenue we get from corporate taxes people think is immense but it is not in terms of collected revenues but it is massive in terms of each businesses tax rate hit (35%+ non competitive today) to mostly small/medium biz. Companies having up to 1/3 more revenue to use for other things I think will end up in larger pay and will make up for the loss in corporate tax revenues going to income tax and a possibly dividend tax increase

[1] https://taxfoundation.org/us-corporate-tax-revenue-low-becau...

I'm curious where support for the idea that spending by upper echelons does not help the economy while spending by lower echelons is comes from.

Just think about two scenarios.

1. A person struggling to make ends meet ends up with an extra $200 a month.

2. A person who makes enough to meet all of their needs and many of their wants ends up with $200 extra a month.

Which one is more likely to spend that $200?

I'm not rich but I am in group #2. If I got an extra $200 a month it would probably go into savings or debt payoff. That's good for me, but it doesn't help the economy.

Why does debt repayment or savings not help the ecoomy? It's not like the cash goes under someone's mattress. It goes back into the system.

Consumption drives demand. Which drives the economy.

People with 2 million in bank are not going to spend that. It's sitting there. After a point there's on so many investments that can be made.

contrast that with people who need cash to buy things right now.

The second stimulates the creation of work.

> It's sitting there.

No, it's not. The bank loans it out. There's a reason the banks offer free checking - it's not because they're in the charity business, but because they loan out the deposits and make money off of that.

Yes, banks take that money and use that to fund loans, which are assets for banks, which then earn interest and the loans go out into the market for people to use. Usually to fund houses or investment, or certain other big ticket purchases for consumers.

There's more to it, and you can go deeper, but for the context of a simplified comparison, loans and investment were excluded.

The full explanation is that investment focused money has to be supported by consumption. You cant keep investing without people consuming stuff. Otherwise there's really no economy.

So consumption in the middle of the pyramid and bottom of the pyramid, generally has more impact on the economy:

2 million distributed between a bunch of people who will spend all of it immediately in purchases (toilet paper, food, clothes) has an immediate and direct impact on the economy.


2 million to 1 person, who spends only 50k on daily expense, buys 1 car, and invests the rest, (there's only so many houses/cars and big ticket purchases people are going to make with their money. You don't need 7 dryers for example.)

That's the reason. Investments aren't going into the economy directly. They need someone else to be creating demand, thus creating investment need.

All invested/loaned money gets spent. That's the whole point of getting a loan or an investment - you need to spend the money.

Nobody gets a loan or sells their company in order to store the cash in their mattress. Nobody hoards cash. Nobody with any fiscal sensibility, that is.

Money in a mattress is not working, and wealthy people especially always put the money to work (otherwise they become not-wealthy). Putting the money to work means it gets spent.

Investors are seeking high ROI and low risk too, though. This creates challenges for "putting money to work".

If risk is ignored and the money is thrown down a pit through ineffectual business, it's pushing on a string, velocity-wise. The company added the same kind of temporary stimulus you'd get by hiring people to dig ditches or do a cash transfer, but in a less efficient way than either one of those. Sometimes you get a hit, but dealing with direct investments is high overhead and introduces more conflicts of interest.

Capital that prefers lower-risk bets, on the other hand, ends up pooling in financial instruments designed for a low nominal risk: indexes, bonds, treasuries, real estate, and more sophisticated cocktails like the repackaged subprime mortgages that contributed to the 2008 crisis. These tools act indirectly on businesses, and so the money only gets "spent" in the sense that someone in finance is getting paid to handle the trades, somewhere along the way. Hence you get the effect of "velocity at the top", because money is sloshing around in a musical chairs game disconnected from goods and services, going from one large institutional investor to another. Each trade raises the pressure to speculate, allowing the market to trend upwards without actually doing much of anything for consumers, gradually increasing the likelihood of a crash.

And that is why Apple can end up sitting on $246B at the same time that the economy runs at less than full employment. Their strategy is already executing at full funding. They're financed for anything they could ask for, so if they're not doing it, they didn't want to do it. So they have to make a decision as an investor instead, and one of those options is to sit out if they perceive the market to be too risky.

> Investors are seeking high ROI and low risk too, though. This creates challenges for "putting money to work".

Hoarding cash has a negative ROI (inflation). They are still going to put it to work. Apple is not sitting on $246B in idle cash.

> Each trade raises the pressure to speculate, allowing the market to trend upwards without actually doing much of anything for consumers, gradually increasing the likelihood of a crash.

There's no evidence of that.

Simple evidence for that is from the experience of many funds - there are only so many investments that can be made around the world that have higher than benchmark returns.

So its normal for funds to return their capital back to investors as they say "hey, we really cant find more targets".

You seem adamant on assuming that investment = money at work.

This is like saying that pressing on the pedal = accelarate, while magicking away all the work done by the engine, and various other moving parts. The transmission mechanism.

Investment, is not consumption.

It is investment, in order to take advantage of consumption.

Directly providing consumption, is a far better method of improving economic activity, than by investment, in the current market scenario.

Oh wait - maybe I have a bead on where you are coming from:

In the scenario where all infrastructure and all factories were working at max capacity, any further investment in Infra/capex, will lead to an improvement in demand.

In the current scenario though, that is not the case, and adding more factories will not result in an increase in economic output.

Simply put, building a factory, but having no customers is investment with 0 return.

Banks can't loan 100% of their assets so, at least 5% does just sit there.

I know, that is the "reserve requirement". It's a government requirement, and not particularly relevant to this discussion.

If you compare 100 with 95 clearly 95 is less efficient. QED.

> Consumption drives demand. Which drives the economy.

That's one way to look at it. But obviously at an extreme it doesn't work. The best way to increase monentary velocity and consumption is hyperinflation, but nobody is advocating that.

If consumption were truly driving the economy, Venezuela and Zimbabewe would be monentary powerhouses.

Debt repayment destroys money.


Banks don't have a shortage of money if less people save. In theory yes, but in practice, banks can borrow money at basically a 0% interest rate from the government. If the government sees that there isn't enough money in circulation, they will just put more in circulation.

It does but no value is created.

So we should encourage a system where people struggle to make ends meet as long as it's not you?

How did you get that out of their statement?

History. If you for example compare US growth per capita with top tax rate you find the highest growth during high tax periods.

The dirty secret that many people don't want to acknowledge is that government spending can create economic activity (as opposed to just moving it around).

The roaring economy of the 50s was the result of massive government intervention during World War II - literal central planning in many cases - as well as numerous social and public-work programmes (GI Bill, National Interstate Highway construction, etc) funded by intense taxation on upper brackets (95% tax rate).

> The roaring economy of the 50s...

That's a huge oversimplification. It helped that Europe and Asia were devastated by the war, and our gearing up industry for war led to huge dividends for us because we still had factories and raw materials which remained intact.

And evidence on the new deal is equivocal [0]. It didn't seem to have much impact until the war.


Does correlation equal causation? You could also argue that the threat of a Soviet war led to the highest periods of economic growth as well.

Clearly it was bell-bottom pants.

The highest growth occurred when there was no US income tax at all.

Only if you ignore population growth.

The US went from subsistence farming to industrial superpower before the income tax. The case for high taxes causing greater economic growth needs a lot more work.

The greatest equalized economic growth. Go ahead and ask miserly monarchs how it works to grow the wealth of the few at the expense of the many. The U.S. could not long have tolerated robber barons without major social trials.

> The U.S. could not long have tolerated robber barons without major social trials.

Then, as now, there was a lot of envy/dislike of wealthy people. That doesn't support the idea in this thread that wealthy people are bad for the economy.

There's lots of evidence that the concentration of wealth is bad for the economy, but I suspect from your posting history that you'd ignore it all in defense of the ultra-wealthy (which you're not one of and will never be, of course).


It's your right to believe whatever you want, but that's what this world-view is, belief, and nothing based on evidence or reality.

Extreme concentration of wealth reduces competition which is bad for the economy. Further, wealthy people tend to spend money on less economically scalable things. A paying a 5 star cook may move money around but you can't turn a 5 star cook into a factory the way you can automate a fast food kitchen.

Sure they invest, but that also tends to hurt the economy by driving up relistate prices etc without actually increasing output. They also tend to do vanity investing which is why VC firms for example average such terrible returns.

> Extreme concentration of wealth reduces competition which is bad for the economy.

There's no evidence of that. The canonical robber baron, Rockefeller, steadily drove down kerosene prices by 70%. They did not go back up. See "Titan" by Chernow.

> wealthy people tend to spend money on less economically scalable things.

This makes no sense to me.

> hurt the economy by driving up relistate prices etc without actually increasing output.

This is claiming that rich people spend more money than non-rich for the same item. There is no "rich premium" paid for things. Even so, the person who gets paid that money then goes and spends it - it doesn't disappear from the economy.

> They also tend to do vanity investing which is why VC firms for example average such terrible returns.

You're asserting that wealthy people are terrible at managing their money. It's like saying an Olympic athlete doesn't know how to train effectively.

Would you prefer to take financial advice from a rich person or a poor person?

>You're asserting that wealthy people are terrible at managing their money.

Or maybe, the assertion is that wealthy people are good at managing money in ways that benefit their entrenched holdings, but not good at finding the Next Big Thing. Or in ways that simply improve the economy overall.

Your entire argument can be countered simply by the example of the Ford Motor Company and its decision to pay workers more than the bare minimum so that they could actually afford to purchase the vehicles they were making. This lead to huge gains over other boutique automobile manufacturers at the time which produced vehicles that cost several times that of the Model T. And improved the economy of the area immensely.

In general, extreme concentration of wealth is bad for the economy because it does not allow enough people to make decisions that cause growth overall and improve the wealth of the nation. The most obvious historical example is that of the high middle ages where all of the land, currency, military power, etc. was in the hands of the few and 90% or more of the population was at a subsistence level. The wealth of the nation was not spent on improving the lives or economy of the people, but on defending the holdings of the rich from other wealthy people.

In contrast, the renaissance started when that wealth was distributed among merchants, craftsmen, and bankers who were able to invest their income and gains back into technology that improved productivity for everyone (but most especially for themselves) and resulted in an overall wealthier nation.

Monopolies are well studied, fungible global commodities like kerosene have complex interactions. But, nothing in Titsan says a more competitive market could not drive down prices by 71%. However a more obvious counter example is Mexican telecom market.

You can't automate million dollar paintings. If you sell 300,000$ watches the cost is part of the appeal, it's just conscious consumption.

Supply demand curve, if someone wants to buy land as an investment there is no new land created which increases prices somewhere. See any city with significant vancant housing stock from foreign investors.

JK Rowling did not become wealthy by being a wise investor. The Walton family includes someone who diversified and guess what they have less money than the others, demonstrating incompetence. I could go on but having lots of money and being a competent investor are very different things.

Does someone pay you to defend billionaires?

US was well past subsistence farming in 1776. Guns and Ships don't grow on trees, and people don't eat cotton. Further with a population of 2.5 million and huge tracts of land there was a lot of low hanging fruit such as fur trapping.

Just track GDP in (1776 vs 1913 / population in 1776 vs 1913 ) / (1913 - 1776). Well don't do exactly that you need to use logarithms because exponential growth. You end up with significantly less than 2% annual growth.

> US was well past subsistence farming in 1776.

Not really. Nearly everything a farm family needed was produced on that farm at the time. Note that Jefferson made his own nails on his plantation. People were short, malnourished, and bone evidence of having worked incredibly hard. There was no farm mechanization.

A consistent food surplus was not produced until around 1800.

That's not what substance farming means. Plantations sold crops for profit to buy thing such as slaves or raw materials. Nails require mining to produce Ore and have nothing directly to do with farming. So, yes plantations may have been reasonably self sufficient, but that has more to do with transportation and transaction costs than everyone working in a field somewhere.

PS: Rememebr prior to the revolution the US was sending a great deal of wealth back to England. The even then the colonies enjoyed a relatively high standard of living at the time.

Not having a consistent food surplus means subsistence farming.

(There's always been some level of trade.)

Your definition of basically spending what you make would end up with subsistence fortune 500 CEO's. People who don't directly farm are by definition not subsistence farmers.

PS: Yes, subsistence farmers can include minimal trade, but not support more than local governments as that would imply a significant surplus.

The more widely used definition of subsistence farming implies literal self sufficiency and living in a simple self constructed dwelling, not sending your children to college while slaves work in the fields or hiring local artisans to construct a grand estate (Monticello).

The relative sizes of the two groups.

Corporations don't pay taxes, customers do. Lowering taxes means prices go down which increases economic velocity far more than redistribution. Dead-weight loss is a real thing. $1 collected in taxes results in < $1 in economic benefit. $1 in tax cuts result in $1 in economic benefit.

Well, you're correct in that taxes usually create dead-weight loss. But this is not always the case (e.g. taxes that price in negative externalities). And tax dead-weight loss varies depending on the type of tax: http://i.imgur.com/NxWo7DP.png

If you lower taxes to encourage overseas profits to come home then won't you drive what you already consider to be a strong dollar even higher.

Tax policy is typically used in the opposite way, if the dollar drops and the US government wants to shore it up, it will alter tax policy to encourage repatriation. The Bush administration did it in the early 2000's if I recall correctly to help strengthen the dollar.

The policies to drive down the dollar are probably less likely to happen long-term (reserve currency, oil pricing, military purchasing, manufacturing offshore cheaper and to get around labor/environment/healthcare issues, Bush doing it also raised the cost of oil during war which benefits some people), lower taxes has wide support.

If more money/investment is back in the US then it may actually help wage stagnation and get people raises. It will at least happen in the small/medium business arena which would also love to have healthcare removed from employment.

To help small/medium business, lower taxes and remove benefits from employment. They will have more to pay employees.

Better to have a strong dollar with lots of capital and high productivity, than the inverse.

Forgive me but the dollar is already relatively strong, interest rates are the lowest they've been in centuries, there is no lack of capital floating around the US economy for those who can use it. I am questioning what the point of encouraging overseas profits to come back under such a situation? You drive the value of the dollar even higher which at a certain point forces companies to offshore faster.

You are using the word "relative". I'd say the US has gradually become capital starved, our tax system is eating our seed corn. Our growth rates have been pathetic the last 40 years.

More capital is always better. It lowers the bar for investment. It increases productivity, allowing us to get more of the best jobs. The strong dollar is a sign of success.

And don't forget that reprinted profits aren't always revinested, lots of it is paid out to shareholders who consume some of them, creating demand.

Your "seed corn" argument is not obvious to me, especially since we are talking about corporate taxes. Care to elaborate?

I think one of the unintended effects of the loose monetary policy at home and abroad is the extreme rise in home prices in all major cities. I think most of this was not intended by the policy makers. But investor dollars follow safety and returns - real estate has been an amazing investment since 2008 (look at major cities like Toronto, Vancouver, SF, etc.). We're talking about doubling you capital in less than 10 years. This is not stopping ... I don't think it will until rates go much higher.

We could always raise property taxes and enact laws that encourage the treatment of homes as the necessity of life they are, rather than as investments to be bid up in the hopes that a greater fool will come.

We don't have to lower taxes. We just change the tax law to tax that money whether they bring it back to the US or not.

You could do that but it would create more games with headquarters being outside the US and even small businesses/medium businesses would start doing that. There would be a million loopholes around it.

I say corporations won the war, they have the legal teams to keep winning. As a response let small/medium sized businesses compete better by just lowing business taxes to really low levels, or progressive taxing as you grow. Right now the high tax rate only really affects our engine small/medium businesses who provide 50% of GDP, 65+% of jobs and 33% of exports.

The only companies paying taxes are small/medium businesses, the tax system here almost is a competitive advantage to large companies over small/medium. If larger companies aren't going to invest here, get competitive help to the small/medium companies and entrepreneurs that are to challenge them.

I don't know about corporations having all this wrapped up. There is a lot of pressure on them since 2008 plus one leak after another - Lichtenstein, Luxembourg, Panama, Switzerland etc hasn't made it easy to be tax haven. If they had "won the war" we wouldn't be discussing it here.

Many of those were personal income tax dodging, corporate tax dodging is usually island tax havens or Ireland recently (Apple/Facebook).

Personal income tax dodging is bad as that is where most tax revenue comes from. Taxes should probably be lower on income as well though to discourage tax games and retaining more tax whales (wealthy tax payers). People of all brackets need more money in their pocket for this consumer economy that hasn't really rebounded.

"Bloomberg: Sorry America, Your Taxes Aren’t High"


How low is low enough? Pay your damn taxes.

Only takes into account federal taxes (30%ish). There are state (3-5%), sales (6-10%), property (based on property), county taxes (less than 1%), self employment/FICA tax (15%). For small/medium business or pass-through business sole-proprietor/LLCs etc have a self-employment tax of about 15% on top of the income (for Social Security / Medicare i.e. FICA, regular employees pay half while the company pays the other half).

There are lots of taxes beyond income tax. Basically taxes take about .35-.50 out of every dollar earned through income, sales, other taxes. Business expenses for businesses, kids, credits and other things can help bring it down as well as standard deductions but it is still high.

This seems a lot until you notice that really rich people don't pay these taxes. They make capital gains or receive dividends, which are either tax free or taxed at a much advantaged rate. This is why there is such a great separation between the 1% and the rest of the population.

The article specifically states that the OECD analysis estimated 'payroll taxes, federal income tax, state and local government taxes.'

"Excluded are the countless other ways that governments levy taxes, such as sales and value-added taxes, property taxes, and taxes on investment income and gains."

They also don't include self-employment tax (15%) and sales tax (6-10%). Sales tax and self-employment alone are over 20% close to 25% not counted in the article. Property tax can be close to 1% (depends on property), dividend taxes also aren't included (10-15%).

So you are saying that you want Samsung to be able to build phones tax free in China, but Apple should pay 40%+ income taxes (CA+US) for doing so?

Please let me move all my retirement savings into foreign stocks before you pass this law, please.

California has enormous advantages in intellectual capital that outweigh a high tax rate.

Imagine it is 2007 and you can choose to invest in Apple and receive 60% of profits, or Samsung and receive 100% of profits. What's the better investment?

>...Imagine it is 2007 and you can choose to invest in Apple and receive 60% of profits, or Samsung and receive 100% of profits. What's the better investment?

Imagine it is 2007 and you can choose to invest in Yahoo and receive 60% of profits, or Samsung and receive 100% of profits. What's the better investment?

That's a good point. But surely you accept that California has some inherant advantage? If the effective tax rate is 15% in South Korea and 20% in California, investors will still pour money into Silicon Valley won't they?

>...But surely you accept that California has some inherant advantage?

For now at least, it does seem to have an advantage and draws capital. (For example, Samsung has a huge R&D center in silicon valley.) Of course for every successful IPO in the valley, there are many others who don't make it near that far.

The original poster was saying "...We just change the tax law to tax that money whether they bring it back to the US or not.". This would mean for example, that when selling in China, Apple would have to pay Chinese AND US/CA taxes on the profits made there and Samsung wouldn't - this would put US corporations at a huge disadvantage to their competitors. While I can see the goal is to get more tax money from corporations, it is obvious to see there would be a number of unintended consequences.

I'm still not sure the original poster is wrong. Yes, Apple's would be at a disadvantage due to higher tax rates but maybe that would be offset by the inherant advantages that California offers tech companies. If such advantages are strong enough to overcome a 5% difference in tax rates with South Korea, maybe they are strong enough to overcome a 40% difference. Investors will moan and complain but ultimately they will continue to find startups in California because it still offers the best return on investment.

>...Yes, Apple's would be at a disadvantage due to higher tax rates but maybe that would be offset by the inherant advantages that California offers tech companies.

What you are forgetting is that US law doesn't discriminate against foreign owned companies. (Which is good - it encourages investment in the US.) So if a corp with US headquarters would pay 30-40% taxes on profits made in non-US countries, this would make those companies very uncompetitive against a foreign company.

>...they will continue to find startups in California because it still offers the best return on investment.

If something like this was done, there may still be lots of money invested in CA, but eventually it would be mostly companies with a HQ outside of the US.

The thing is, Apple hasn't really made those profits in a foreign country - there is very little profit to be made from manufacturing mobile phones in China which is why Apple outsources this task to Foxconn. There is also little profit to be made in selling phones - if Apple's retail arm was a separate company it would have no leverage to negotiate a good deal.

The bulk of Apple's profit has come from design, marketing and engineering by employees, plus outstanding judgment and leadership by Steve Jobs. Those things were done in California. The problem is that Apple uses accounting tricks to transfer the profit to Nevada or Ireland or some other low-tax jurisdiction.

It doesn't matter where the company's headquarters are located. If Samsung has profitable operations in California it should be taxed on that activity at the same rate as any other Californian business. That leads to another point - there are plenty of Californian businesses which cannot use the same accounting tricks that Apple uses. So you have a situation where two businesses that draw from the same pool of resources pay different tax rates. It could be that Business A uses those resources more efficiently but Business B gets funding because its tax rate is lower. That strikes me as inefficient.

Running a business in California is like growing crops in a particularly fertile field. You get a great yield, but you should also pay high rent.

You are bringing up a few new issues here.

In regards to Apple, Tim Cook in his testimony to congress said:

>...The Company’s FY2012 total US federal cash effective tax rate was approximately 30.5%.1

>…Apple does not use tax gimmicks. Apple does not move its intellectual property into offshore tax havens and use it to sell products back into the US in order to avoid US tax; it does not use revolving loans from foreign subsidiaries to fund its domestic operations; it does not hold money on a Caribbean island; and it does not have a bank account in the Cayman Islands. Apple has substantial foreign cash because it sells the majority of its products outside the US. International operations accounted for 61% of Apple’s revenue last year and two-thirds of its revenue last quarter. These foreign earnings are taxed in the jurisdiction where they are earned (“foreign, post-tax income”).


>...It doesn't matter where the company's headquarters are located.

If you are a US company, it does.

>...If Samsung has profitable operations in California it should be taxed on that activity at the same rate as any other Californian business.

It is. The difference is that Samsung subsidiaries that make a profit in Germany don't have to South Korea corporate tax when they want to invest in South Korea. In fact, the US is the ONLY country (other than Eritrea) that does this - every other country has figured out that this discourages bringing investment capital back to the home country. The guy who posted the original snarky post about just taxing all the worldwide income of a US corp didn't try to defend it when people posted some of the more obvious consequences. US companies need a level playing field against the companies from other countries

>...That leads to another point - there are plenty of Californian businesses which cannot use the same accounting tricks that Apple uses.

I think you are referring to how some of the big corps essentially pay no US corporate tax. A number of economists have said a much better system would be a revenue neutral system where you remove the corporate tax and increase taxes on capital gains and dividends as that is much easier to tax and corporate taxes tend to hurt the workers in a company and hurt the consumer by increasing prices. But that is a different issue.

>...Running a business in California is like growing crops in a particularly fertile field. You get a great yield, but you should also pay high rent.

CA has unique strengths and weaknesses for a business. There are smart people all over the world so there is no absolute guarantee that CA will do as well 40 years from now as it has done over the 40 years, but that again is a different issue and worthy of its own discussion.

Feel free. Enjoy your already bond-level returns that asset class enjoys.

Technically, that would require taxing a foreign company for foreign business activity. It's out of the US's jurisdiction.

It might work if we use our military to make all companies pay USA taxes no matter if the money is earned abroad and/or by a foreign company. /s

No, this isn't workable.

Pay your taxes or don't sell your products in the country.

Don't say something can't be done when it can easily be done. We'll embargo your goods at container ports and land borders if necessary. If you're a digital company, we will drop your ASN traffic at the border.

Donald Trump becoming president is fairly indicative that nothing is off the table.

Hey, there are two companies, IBM and SAP. They both do a lot of business abroad, pay taxes abroad, and whatever.

Now which one do you want to pay all their taxes on all their international income? IBM? SAP? Pick carefully: why should SAP have a competitive advantage over IBM?

Digital companies ALREADY pay taxes for everything that happens INSIDE of the USA. What we are arguing about is stuff that occurs OUTSIDE of the USA.

Donald Trump becoming president simply means crazy idiotic proposals are now on the table. But then again he is realizing "gosh, this is really hard, not as easy as I thought" like health care, wall building, labelling china a currency manipulator, tax reform, etc...

> Donald Trump becoming president simply means crazy idiotic proposals are now on the table.

I'm actually pretty fond of some of his proposals, such as deporting illegal immigrants who have committed crimes and making it much more difficult to hire H1Bs (I don't like many other policies he's put forth, but you can't get everything you want); but then, that's what happens when both parties ignore a large chunk of America. Public policy starts coming down the pipe that gets called "crazy idiotic", and then its policy.

American citizens are taxed on all worldwide income, why is it crazy that businesses should be as well? If you pay taxes to some other country, sure, you get a deduction for that. But tax accounting fuckery where you're paying no taxes on a large amount of income? Nope.


Illegal immigrants who committed crimes were being deported before Trump, H1Bs were already difficult to hire and so on. To be honest, I don't care what Trump does as long as he doesn't start a huge ass war or crash the economy, and I have honest fears that both of those are a possibility from someone who finds every so much harder than he thought.

Nah. Apple's "foreign business activity" in Ireland is a tax dodge.

It is, but it's a dodge based on money from products manufactured and sold outside of the US, owned by a company not in the US, so it's still not clear how the US could legally insert themselves into there.

Isn't Apple Ireland owned by the US company?

What is Samsung's foreign business activity? Cause it doesn't pay US income taxes on it, ever.

Why? It was earned outside the US so how does the US have any moral claim to it?

The US lays claim to income tax on its citizens' earnings outside the US, even when they're wholly resident in other countries, so ...

That doesn't make much sense in this case. You can't arbitrarily tax foreign corporations that aren't on US soil.

I hope you never hold public office. Please, if you plan to run, let me know so that I can adjust my investments accordingly.

I don't care about your investments, I care about entities paying their taxes.

Why do you think a foreign company should pay US taxes?

Apple isn't a foreign company.

Except that the foreign company which profited by 246B is foreign. If it weren't foreign, then taxes would have been paid to the US on the monies as they were made, and there wouldn't be close to that amount of money offshore. As the article says, "Repatriation is front and center. That is good for the country and Apple." That is different from envious theft.

There is more than one company called Apple. Which one do you mean?

Is the point not about tax evasion?

No. It is not even clear this is tax avoidance, let alone evasion. No country on Earth taxes companies that are foreign to it, unless they do business inside the borders.

So are you recommending that a foreign company should only pay taxes on what they earn in the US, but a US company should pay taxes on everything it earns everywhere? (i.e. the US government should get 36% of the profits even if something is built/sold in another country, just because the company has its headquarters in the US?) You do realize this would put US corporations at a huge disadvantage to corporations in any other country, right? You can imagine some of the unintended consequences.

I think only Eritrea and the US taxes corporations when brining back money into the country. For obvious reasons other countries realized this was not a good approach and don't do that.

That would massively disadvantage US companies operating abroad, compared to foreign companies. E.g. Ford builds a car in Spain, ships it to France and sells it. They pay a US tax to do so. VW does the same, but pays no US tax, therefore the VW car will be cheaper. It would kill US companies global competitiveness.

You would have to radically change tax laws and likely it would not stand up to the courts.

How close to zero do you want to get?

So just to be clear, you think the government should provide Apple employees in the United States with healthcare, but you don't think Apple should contribute to the cost of that?

What could America possibly ever need dollars for? They can print them at will..

(And yes, individuals might want to work for dollars. But the American domestic economy as a whole only needs to accepts dollars in order to make other people accept them in return for their useful goods and services.)

Also, a strong dollar is useful for all consumers---not just rich people.. (The limits to dollar strength are not in export, but in making monetary policy too tight for the domestic economy.)

Alternately, just crack down on Apple's tax evasion.

> They are already paying a dividend with free cash flow from their US business ...

Actually they are selling bonds to fund this as well as share buybacks.[1] So yeah, they would like to repatriate at some point, but there's no rush.

[1]"The Cupertino, California-based company has been tapping credit markets... to reward shareholders instead of repatriating that overseas cash because it would be taxed by the U.S." https://www.bloomberg.com/news/articles/2016-07-28/apple-sai...

The cash pile is a tool to influence US government policy. The IRS would like a slice of that cake, and as long as they keep it out of reach, it's a tasty carrot cake.

Even if they needed money inside US they could borrow it from an US bank and guarantee it with the money held outside US. So there is still no need to repatriate it and pay taxes, they would only pay a very low interest rate.

I wonder if Apple perceive some kind of systemic global risk (either economic and/or strategic). Maybe this is a 'flight to safety'. Or maybe they think the next 'industrial revolution' is near, so they're positioning their money to buy up (or create) highly productive US capital.

It's fascinating that Apple simply stashes this cash and effectively sits on it. They generally never do large acquisitions over 500M nor do they invest in new areas as heavily as Google as Amazon. Perhaps it stems from the companies near death experience in the 90's that is still embedded in it's DNA - so they just save the cash just in case.

There are many far more productive things they could be doing, but in the meantime they're not doing any of those, are they? Also, how do you know their (hypothetically) productive investments would pay off more than those made by shareholders who received the cash as a dividend and invested it elsewhere? Are you really arguing that Apple has the highest imaginable ROI of all available options?

Some people's veneration for corporations seems based more on religious than economic thinking.

This is a component of the current tax reform debate, particularly on the Republican side.

Many advocate a "Destination Based Cash Flow Tax"[1], which is a Border Adjustment Tax - i.e. the tax applies on the destination of the product rather than the source.

1. https://en.wikipedia.org/wiki/Destination-based_cash_flow_ta...

This is a terrible idea. Just another overcomplicated system for smarter companies to game.

The answer is simple. Eliminate the corporate income tax, and increase personal dividend tax rates to ordinary income rates.

Then any profits that are reinvested are not taxed, increasing investment, productivity and wages. Any paid out to shareholders for consumption are taxed at the exact same rates any other income gets taxed on, making our personal tax system more fair and progressive.

The answer is simple. Eliminate the corporate income tax, and increase personal dividend tax rates to ordinary income rates.

Get out of here with your genius ideas.

The problem is due to our 2 party divide and conquer system, sane policy like this will probably never happen as it is one for each side, the warring teams of the political sports leagues, red v blue.

If we actually had a system that was based on compromise not dividing, bribery and wealth then this would probably be a good deal.

"If we actually had a system that was based on compromise not dividing, bribery and wealth then this would probably be a good deal."

Please see your sibling comment, authored by me - this already exists and is in wide usage ... almost every (small) business you have ever dealt with works just like that.

>> this already exists and is in wide usage ... almost every (small) business you have ever dealt with works just like that.

The first part "Eliminate the corporate income tax" is lessened by pass-through.

Pass-through taxation exists in LLC/S-Corp/sole-proprietorship which does remove corporate tax and increases the personal income tax level. This is definitely in effect but there are still 9% of tax revenues from corporate C-Corp taxes which some small/medium businesses may be but mostly large corps. So truly corporate income tax still exists and tax games will be played.

The second part "increase personal dividend tax rates to ordinary income rates" is definitely not in effect. Dividend tax rates are 10-15% depending on income and hold time short vs long. The idea is that if companies aren't paying taxes and give that in dividends, revenue is collected more at the non-value creation end just investment end. Which is good and bad but great for cashflow of US companies to not have to pay taxes, lots of that could later be re-couped at dividend payouts.

I realise that the US has a progressive personal income tax scale, but my impression (as a foreigner) is that it's severely gamed at the upper end. Didn't Warren Buffet once point out that he pays less tax than his secretary, despite being a billionaire (and presumably with the income to match)?

If this is the true (that high income earners pay very little personal income tax), what you're suggesting would remove all tax on foreign capital and shift nearly the entire Federal tax burden on to middle and low income earners. And I thought the Republican proposal was to halve corporate tax rates and make up the revenue by taxing domestic consumption (in the form of a CFT).

To clarify, Buffet pays a lower tax rate, of around 17%.

From http://www.politifact.com/truth-o-meter/article/2011/sep/21/...

* Buffett said that his taxes amounted to "only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent."

> The answer is simple. Eliminate the corporate income tax, and increase personal dividend tax rates to ordinary income rates.

I agree that it's overcomplicated. Equally I'd argue eliminating corporate tax isn't the right mechanism either, as foreign shareholders could evade US taxes entirely. Which to an extent is an encouragement for investment, but equally it evades the infrastructure the US provides to businesses.

Right now we have the reverse of this - effectively double taxation on dividends for US shareholders (corporate tax and income tax). Dividend imputation is my preferred solution - However, I am biased seeing this in effect in Australia as franking credits.

I'm not sure why we wouldn't want foreign investors to invest here tax free. If a chinese investor can build a building in the US, that building still pays all of it's local and property taxes that should account for it's infrastructure cost. And if not, that's problem with those taxes, not the US corporate income tax.

The Chinese investor isn't a US citizen, doesn't get to vote, or benefit from government programs, isn't using US infrastructure, essentially is a cost-free source of capital. Why would we want them to invest in another country instead?

Yes, but that doesn't account for costs at the state or federal level - roads, ports, space programs, the military.

Even if the business doesn't benefit directly from that infrastructure, they benefit from being present in an economy that supports that infrastructure.

The US is a great place to invest because of that environment, seems reasonable that it has some level of cost.

Because they shouldn't get to use our infrastructure in order to profit from their investment for free.

This is a terrible idea.

For those of us (like me) who only really understand taxes in the context of individual earnings and income tax (and the ever annoying property taxes), can you explain why?

"Firms currently pay corporate taxes on their profits. Border-adjustment would change how those profits are calculated. Accountants could no longer deduct imports—say, goods brought in from China—as costs. And their exports would no longer count as revenues. For tax purposes, “profits” would be domestic sales minus domestic costs. Effectively, imports would be taxed, and exports would be subsidised. As a result, retailers, who stock their shelves with imported wares, are lobbying against the change. Exporters, such as the aerospace industry, broadly support it."

It's a sneaky form of tariffs. Tariffs are a terrible idea. Free trade benefits all parties.

Currently there is a large amount of corporate expenses around conforming to and gaming the corporate income tax code. Eliminating the corporate income tax is a massive simplification that not only makes investment more attractive, but it eliminates those costs that produce nothing, and the spending redistributed to actual productive activities that produce goods and services. Finally, eliminate corporate taxes benefits importers and exporters equally, it's not industrial planning to pick or favor winners and industries, it relies on market forces not political ones.

Free trade benefits all parties except for the people who previously benefited from the redistribution of wealth/income that that the tariffs effectively caused.

We've opened up free trade, and gotten rid of many hodge-podge, patchy tariffs, but we haven't replaced the wealth/income redistribution with anything else. The tax system is now less progressive than it was.

Every tariff removed should have had the government income it represented replaced with an increase in some other broad-based tax to compensate. Otherwise you're not just making the system less patchy, you're actually just taxing less, and lower taxes generally means worse income and wealth inequality.

So tariffs are a terrible idea, but I think no tariffs at all can be worse. I'd rather have a patchy inconsistent push against rising wealth inequality than none at all.

"The answer is simple. Eliminate the corporate income tax, and increase personal dividend tax rates to ordinary income rates."

This is already the case for many, many businesses.

"S Corps" (and other passthrough entities) are widely, widely in use and behave just as you suggested - the business pays no taxes, the monies flow to the owners, and the owners pay personal taxes on those flows.

It's very simple and it works very well.

It is not a fringe practice or a weird setup - almost every business you transact with is set up as a passthrough entity.

There is a catch...

A passthrough entity needs to pass all that cash through, more or less, inside of that tax year. You can't just sit on funds or store them up in your bank accounts or save for future R&D, etc. - you need to pass it all through this year.

And so if you are a mega-corp, that is a problem since there are many, many reasons you might want to store funds across several years ... and that is the class (C-Corp) that gets taxed.

So what you suggest is here, now. We, as a society, have decided that there is something negative about corporations slowly building up cash troves year after year without taxation and so we don't allow that. But I see they are doing that anyway, offshore, so perhaps it's time to rethink that...

> It is not a fringe practice or a weird setup - almost every business you transact with is set up as a passthrough entity.

Citation needed. S-Corps are almost exclusively small and medium businesses.

Nothing is simple when it comes to the U.S. tax system. The reason why the law is so complicated is because it has to be applied fairly everywhere in the country.

Eliminating corporate taxes for every U.S. company in the entire country just because a few very large companies have a ton of offshore cash doesn't make sense. And your assumption that it will be made up by increasing dividends seems misguided since the people that decide whether the company pays a dividend are the largest shareholders who want to minimize their own tax burden as much as possible. They'll simply figure out a different way to pay out those gains that don't involve a dividend (more buybacks, mergers/acquisitions, etc.).

I agree that it would be good to figure out a way to bring some of that cash back to the U.S. even at a lower rate, but this is definitely requires a scalpel and not a hatchet to fix.

Big ticket acquisitions like something in the Netflix realm, overseas money could buy 4 Netflixes at their current market cap or maybe they would have made a play for Time Warner if the money had been available domestically. Those are both just "for instances" of course.

It never really occurred to me that that money would be more useful paying for things outside the US. In my mind I thought 'tax free but useless vs taxed and useful'.

So this essentially means that building anything outside the US (factories, research, whatever) comes at a 30%~ discount, since doing the same thing in the US would result in a tax payment.

So tax loopholes like this, Double Dutch, etc, are explicitly putting a premium on further production/investment in the US (and other areas whose taxes are being avoided).

That there exists a certain political lean in the US that explicitly is against fixing these tax loopholes is absurd to me.

They don't manufacture anything in the us

It's always a gamble trying to create certain incentives, but could the gov't give a tax holiday assuming the repatriated cash is invested within the US?

It's an interesting idea, but I'm not holding my breath as usually the implementation is difficult and what ends up happening is companies game the system and get the cash back in the US without having to do anything.

Do they even want to repatriate? Have they done lobbying to that purpose?

I also wonder if they want to repatriate. It seems to me like this giant pile of cash represents a pretty compelling strategic advantage ... the argument for repatriating tends to be along the lines that repatriating will allow a large one time dividend or stock buyback -- a nice short term money grab for shareholders. The only thing standing between the shareholders and this giant pile of money is the repatriation tax.

Seems like Apple is better off with the tax status quo - it provides a good excuse to combat the short term investor demands for return of the cash pile and allows the accrual of what could prove to be a very serious long term advantage ...

I wonder how often the mere (ominous/encouraging) existence of the cash pile proves useful during supply chain development/negotiations ...

They are paying dividends by borrowing money, not from free cash flow. By repatriating they can repay the debt and pay shareholders a large one time dividend with some of the remainder.

Apple is probably waiting for a tax holiday. I really hope they get it.

If they don't need it, they should return it to their shareholders.

The argument here was about not needing the money in the US (but possibly investing it elsewhere on the planet), not not needing it in general.

That's not what Warren Buffett would do:


Buffett is running an investment company. The day Berkshire Hathaway can't do a better job of earning long term returns than it's shareholders can, is the day it no longer justifies it's existence.

There have certainly been times where Buffett has struggled to find good investments, and in the short run a dividend might have seemed wise. But those times always pass and letting cash pile up until opportunities arise has worked very well for him.

Apple isn't an investment company. They are a consumer products company. Their new product ideas should not require large amounts of capital. Even the silly car idea should never get more than $10B or so in funding until it's proven, which is mice nuts in their grand scheme.

So they should return excess capital to shareholders. The only limiting test is how much is 'excess'. Tim Cook is likely being very conservative, but in the future if Apple has to ride out some bad years, having a hundred billion or so in the bank might prove the difference between success and failure.

no, they shouldn't. That's just your opinion.


Buy a U.S. company?

stock buybacks

They're smart to wait for a more favorable tax environment for repatriation. It really is backwards that we tax money returning to the United States so aggressively. It's greatly in our interest to bring that money home.

As an individual I am taxed on income I earn overseas. Why shouldn't a corporation?

Because it would be really foolish for our tax system to do that, and cripple US competitiveness.

Imagine Samsung builds phones in China. It's chinese subsidiary has to pay Chinese taxes on the profits from selling those phones. But it doesn't have to pay income taxes to the US on them.

Now Apple builds phones in China. It's Chinese subsidiary has to pay China income taxes on the profits from selling those phones. Now it also has to pay and additional 40%+ income tax combined to the US & the state of California, all because the subsidiary is owned by Apple USA?

Samsung would say, thank you US tax code! Our high end Galaxy phones can now sell for substantially less than iPhones and we'll get even more market share!

The way things are today is and enough. Apple still owes that 40% whenever the subsidiary pays those profits back to Apple US. Hopefully they'll pass a repatriation bill so the federal rate will drop to 12% or so (20%ish with CA state income tax), and Apple will bring the profits back.

You should really think about whether corporations should pay any income taxes at all. Profits are either reinvested in growing the business (and creating jobs), or paid to shareholders, who already have to pay taxes on them. Double taxing profits before they can be paid to shareholders, or single taxing them before they can be reinvested, is a significant disincentive to investing in the US. It's trapped trillions in US capital overseas.

Corporations shouldn't get taxed only if they reinvest the money. More often than not, it's stashed in the Cayman islands or some other tax haven.

Yea, the money in the Cayman islands is "invested", it's earning interest only because it's being loaned out to other businesses.

But my point is rather than trap US capital in overseas bank accounts earning limited interest, it's far better to have it brought back to the US and invested directly in businesses (or returned to shareholders).

You get that the only reason they do that is because of taxes ..., right?

Perhaps you shouldn't be either. The US is one of very few countries that do this

Actually, most countries do this.

Don't confuse the taxes levied on a US citizen's income when living abroad with Apple's situation.

Apple is a US corporation.

Not sure why this is downvoted to gray, it is correct. In most countries, if you are a tax resident, your foreign income is taxed. What is unusual about US is that it also taxes foreign income for US citizens that are living abroad, almost no countries do this.

Well, we are in good company with Eritrea I guess... https://en.wikipedia.org/wiki/International_taxation#Citizen...

I think because the original comment is ambiguous. It isn't clear whether by "income I earn overseas", he's referring to income earned while a tax resident of another country (for example living and working there) or income earned while a tax resident of the US (for example through overseas investment or < 1yr work).

One commenter appears to have assumed the former, the person replying assumes the latter.

Even foreign income that the host country considers to be a pension with special tax treatment (like 401k)


I know someone who is giving up US citizenship on return to Australia for this reason.

Well if you look at it from a Govt's perspective it makes sense. Even though you are US citizen living outside US you still part of the club for which you have to pay membership fees. If you dont like that you are free to leave the club and take some other citizenship.

No, because you don't cost the govt anything. You don't use any public services in the USA, you use the public services where you live. You're paying for literally nothing but a passport.

> You're paying for literally nothing but a passport.

Which is exactly what I meant, you are paying the membership fees whether you use the services or not. The US govt knows that, if you dont like you are free to give up that passport which I am sure you wont.

Renouncing US citizenship is not something you do by filing in a form and sending it along with your passport to the US embassy. It can take years, plus many lawyers, and in the mean time you have to continue paying taxes, and pay for the process thereof.

It's not that simple.

and it even costs a fixed fee to get a passport.

If switching citizenship was on the level of ease like switching rental apartments, complex but doable, then you'd have a point, but you generally don't have that much choice in your citizenship. It is one of the last bastions of socially accepted generational discrimination. Countries try to keep you in their club and try to keep others out of it, even if discriminating between people based on where they were born is objectively morally wrong.

Not that I think it's a good idea to get rid of borders today, just that a natural extrapolation of western morality, which favors choice over birth, leads you down a path to a borderless world.

I am a citizen of a foreign country, I have a job in that country, I store my money in that country, I buy practically all of my products in that country. Why should the fact that when I was a baby, the US government decided to give me citizenship cause me to pay more taxes (or at least pay more to file) than my neighbor who is not a US citizen?

So why dont you renounce your US citizenship?

The US govt knows that most non resident US citizens even if they dont like paying taxes are still going to pay it because those citizens still want to be part of club US.

Renouncing citizenship is expensive and non-trivial. The US global taxation regime is a trap.

Yes I know its convoluted but do want to keep paying taxes every year or just renounce citizenship , it's your choice.

Just renouncing US citizenship costs several thousand dollars in legal fees and could take up to 5 years. What you are suggesting is similar to telling someone who is complaining about rent prices to just buy a house.

Well why doesn't the US government just decide to tax its citizens the same as nearly every other country in the world? You're saying that the solution to a bad system is to move, rather than just making the system less terrible.

I am talking about realistic scenarios, that person can renounce US citizenship, changing the US tax code is not in his hands, is it?

It is not correct until that "As an individual I am taxed on income I earn overseas. Why shouldn't a corporation?" implied living overseas as well.

I always thought this kind of made sense. I mean, you still enjoy the benefits of being a US citizen. You are also more likely to use the embassies and consulates.

"Apple is a US corporation"

But the overseas profits were earned outside of the US by non-US corporations, so why should they be taxed in the US? If I buy shares in Samsung, it doesn't suddenly have to pay 35% of its Korean income as taxes to the US.

> Apple is a US corporation.

IIRC, the US considers corporations as people. Am I wrong?

You don't lose your constitutional rights just because you form a corporation, a nonprofit, a group, or a party. That's the meaning of corporations are treated like people, laws restricting the ability of corporations to express themselves have to be weighed against the owners rights to express themselves.

I wasn't saying that I would loose my rights once I form a corporation. I was trying to say that corporations, as considered people, can [should?] be treated as such regarding taxes or expression or fill-the-blank just as you or I am.

If I am taxed by the US for every single penny I earn regardless of source, why should not US Corporation LLC Inc? We are both people. We both have income. Perhaps we both have foreign bank accounts. Every inch of my income gets taxed but US Corporation LLC Inc gets to stash big monies with no regard? I am confused.

When you invest in any corporation as a US person, you are only taxed on income you receive as dividends, or capital on your gains if you sell the investment (and any imputed income); not on your share of the undistributed income of the corporation. It's the same for a US corporation, they generally conduct business overseas through a wholly owned subsidiary corporation, organized within the overseas jurisdiction. If the subsidiary passes income back to the parent (a dividend), the parent will have to pay income tax on that; if the income remains within the subsidiary, so does the tax burden.

If the US corporation directly accumulates income overseas, then it would be liable for US income tax as well.

It's a lot easier for a large corporation to arrange its affairs in this manner than a natural person, though.

Also the corporation has to pay taxes on it's income, then you have to pay taxes on that same income if it's paid to you.

You actually have it better than the corporation!

That's right. You have to pay taxes when you produce your work overseas. Corporations do not have to pay taxes when they produce their work overseas. It sounds unfair, but if you subscribe to the idea that corporate profits are more important than human life, as many in the US do, it makes perfect sense.

Only for the free speech ammendment, and if you reinterpret "free speech" as "money". The most ironic part of that decision is that it's called Citizens United

Its even worst than that. Read about FATCA - a total failure of US Government (politicians) implementing draconian bill that force other countries to report US Citizens offshore accounts back to USA.

Only few politicians were against really knowing how the law will play. While those who push the law wanted all the countries involved to simply report on USC, the report itself is very complicated and confusing. Result? Majority countries that signed up for FATCA simply stopped opening USC account and shut down all accounts that belong to us citizens.

Two of my friends shut down their legitimate companies in Hong Kong overnight because they didn't have bank account anymore. Another friend started working with HK citizen so that he will represent him on paper and got screwed up out of his business. Result -- discrimination against USC around the word in terms of banking and less competition around the world from us-people.

That is one of the most ridiculous US tax laws we have. Even though we're only taxed on income over 100k.

Actually earned income over 100k. Unearned income is taxed from the first dollar -- including things like social security benefits, capital gains and more.

You're confusing it with citizenship based taxation which is a different infuriating issue. Most countries tax your global income when you're a resident.

Most countries don't tax you though when you are NOT a resident.

Dutch citizen working and living in the US does not file taxes in The Netherlands. US citizen living and working in The Netherlands does file taxes in the US.

"I got beat with a stick, why shouldn't he?" What sort of fucked up reasoning is that you have to suffer too?

I dont think either the individual nor corporation should be taxed on overseas income but if you disagree that's fine, but at least put forward a non crabs in a bucket style argument.

No other sane country I know of does that. Must countries have mutual agreements, where income is only taxed in the country where the money is earned (certain rules apply of course). Only the US as I am aware, has these pretty nonscense rules of double taxation.

As a non-citizen living in the US I am taxed on income I earn in my home country. This is literally taxation without representation!

You're still entitled to vote as a nonresident citizen.

That's heavily dependent on your citizenship. Some countries limit the right to vote depending on how long you've been out of the country.

I cannot vote in the US while the US taxes my income earned in other countries. This is very weird.

You can vote using the last residence you lived at while in the U.S. Unless you've never lived there, then you have to use your parents' last address or something. Not that the tax system isn't terrible for other reasons.

Canada does the same thing: residents are taxed on their worldwide income while they reside in Canada regardless of their citizenship.

Is this really true?

When I worked for US corporates I had to get a US ITIN, and then fill in some paperwork annually and/or at the start of each job. The paperwork (W8BEN, I think) told Accounting not to collect tax in the US, because the earnings would taxed in the UK under a reciprocal treaty.

The US is one of the very few countries to demand that US citizens pay tax to the US gov on all their earnings, and then pay tax again to whichever country they're resident in.

This tragic/hilarious asymmetry between ordinary citizens and corporations says a lot about the balance of power in the US.

It is, but generally speaking due to tax treaty you're not double taxed. All your US taxes paid are credits in Canada.

The old loop hole used to be that if you were (Or intended to be) non-resident for 2 years or more you didn't owe taxes to Canada (you would need to do a deemed disposition of all your assets for tax purposes though). But then you couldn't vote either...

I've had to fill in a W8BEN for my investment account in Canada (it would potentially allow me to buy US-located assets).

And keep in mind that the vast majority of countries have tax treaties with the US such that you'll get tax credits for foreign taxes paid. You'd only pay taxes in both countries if you're living somewhere with lower taxes than the US.

Overseas corporation isn't a US corporation.

Let's fix that: it's ridiculous that I pay US taxes on income I earn overseas. Other than Eritrea, the US is the only country that taxes its diaspora.

Also China. But yes, it's rare.

That's also bullshit.

Because a individuals earning income from the corporation will already pay taxes too. The taxes on the corporation are essentially a double-tax.

"double-tax" is a nonsense concept. There are dozens of overlapping taxes in the world.

> There are dozens of overlapping taxes in the world

And we shouldn't have any of it.

It's not nonsense. You have to determine what level of taxation is appropriate on investment, if you ignore secondary taxes you are ignoring the real cost to investors.

If you think 50% is a reasonable tax on investment, then fine. But don't pretend it doesn't exist.

That is far from clear. $250B is 7% of the current M1 money supply. Putting it back in circulation could cause significant inflation.

In 2004 it was estimated the tax holiday brought back $300B, and I would expect it to be a bit higher this time. But there was no burst of inflation in 2004 so I wouldn't expect one this time either.

So why not just print $300b? If adding $300b to the economy didn't cause inflation, why not do it again?

Given every citizen $1k like in the futurama episode. Or use it to fund meals on wheels for a century.

But those $300b weren't sitting there idle, they were already in the economy in the first place. They don't have to be in the US to be loaned/invested in US companies.

> They don't have to be in the US to be loaned/invested in US companies.

They don't? That's news to me. How do you invest in a U.S. company without bringing the money into the U.S.?

Sen. Levin never misses a chance to obfuscate the situation for political gain, does he?

"can already make a wide range of investments on a tax-free basis, but cannot purchase their own corporate stock or invest in their own businesses, such as by building a new plant. Foreign earnings used for those purposes would instead be treated as repatriated and subject to normal corporate tax rates."

Apple can take the accumulated profits it stores in Apple Ireland that is currently invested in Irish/european banks, and invest it in US banks. And it probably does.

But it can't pay dividends with that money to shareholders, or it will be hit with 40%+ income tax rates (CA+US) on it.

And it can't invest it directly in Apple US to build a campus or R&D center, or factory, without paying 40%+ income tax rates.

What is "money returning to the US"? If Apple US foreign activities earned income, they need to tax that income. If Apple Ireland earned income, they need to tax that income in Ireland and there is no "repatriation" tax.

Apple says Apple Ireland has no income since all of its profits go towards paying licensing fees to Apple US. So it's income for Apple US, but they haven't paid the tax on it?

Right now that money seems to be in limbo with no one having paid any tax on it. If Apple wants to recognize that as US income, surely they should be paying the tax on it. But let's not create some tax holiday so large companies can pay zero tax on foreign activities.

That money is mostly Apple intellectual property that's been sold to a foreign apple company and then relicensed to Apple USA... they are just paying themselves to move the money out of the country.

Not true. Apple has to justify how the profits on it's operations are calculated, it's not so easy as that.

Apple spends hundreds of millions of dollars designing the iPhone 7 in Cupertino, and then billions marketing it.

It makes it in China, spending tens of billion to make it for an average unit cost of $300.

It has subsidiaries in many foreign countries that sell it for an average of $600.

Where should the profits be calculated? Should all net profits accrue to Cupertino, so that no foreign subsidiary makes any money? That doesn't make sense at all and no US tax authority has ever tried to make Apple account for profits that way.

And think about what happens under a system where foreign subsidiaries have to be rolled into the US tax calculations. Apple has to pay 40%+ of that net margin to the US and CA in income taxes. So their effective unit cost of the iPhone 7 is now $420. It now only has $180 in net margin to pay for world wide sales, marketing and R&D, so they have to be tempted to raise their prices substantially.

But Samsung gets to make a very similar phone using very similar parts for $300. They don't have to deal with world wide tax systems, so if they price their phones at $600 their Korean taxes will only be on a fraction of the $300. They can even cut prices if they don't need margins as high as Apple.

This is the perfect tax system if your goal is to sell more Samsung phones and fewer iPhones. I'm sure it would be great for the US economy.

It makes me think why companies haven't hired lobbyist that convince Congress to pass some sort of repatriation bill. It would pay itself in a month

There is occasional talk of a tax amnesty that would bring the money back.

Thats a doubled edged sword.

The whole reason why companies keep money overseas is because they are waiting for a tax amnesty deal.

But if they knew that no tax deal was EVER coming, then they'd be more willing to bring it back over.

Even better would be if we just dumped the US Corporate income tax, it's essentially a tax on investment and reinvestment. Not only would all of the money would come back but more of it would stay here. The profits will still get taxed when paid out as dividends.

But right now we have high corporate rates. We double-tax the profits with an average rate of around 50% when paid out as dividends (whether you are in the lowest or highest bracket, little difference). We single-tax reinvestment of the profits at around 40% with state income taxes included.

Do foreign investors pay any tax on profits that turn into dividends if the corporate tax rate goes to 0%?

What about on the capital gains that results if the money is used on stock buybacks instead?

If the corporate rate goes to 0%, capital gains and dividends should be taxed as ordinary income, and the top income tax brackets should be pushed up to their historic 1950's levels, and the profits going out to foreign investors needs to be taxed somehow. Trickle down clearly doesn't work, and we need to start fixing this situation.

What makes you think they haven't already hired lobbyists for this?

As money influenced as the US system is, you can't just order any legislation you want for a price.

How do you explain the recent changes with ISPs being allowed to sell browsing histories? I get that not anything can be paid for, but it's not a good situation.

They shouldn't have been allowed to begin with to send out. But there is nothing to do about it of course.

It's money that they've made overseas from selling products through their foreign retail and wholesale divisions, so they didn't really "send it out."

Actually, we're talking about money companies have ascribed to overseas operations, sometimes because that's actually where they do traditional manufacturing and sales ... and sometimes because they've created the darnedest shell companies to make it seem as if they're earning all their profits in Luxembourg, Ireland, the Bahamas or other tax havens.

Jesse Drucker wrote a lot about such tax maneuvers during his years at Bloomberg News. An overall link to his work is here: https://www.bloomberg.com/authors/APuiS-bL1Fc/jesse-drucker

Bullshit. This is not money that has been "earned" overseas. Its money that has been earned in the US but put on the book as overseas income.

That would actually be tax evasion, and it's illegal. There is no evidence for your assertion.

What actually happens is Apple sells product to international subsidiaries to sell in their countries. In some cases international subsidiaries build products and sell them to Apple US and other subsidiaries.

The profits from international sales and production are profits in the subsidiaries that sold or made them. They aren't taxable in the US until those subsidiaries pay dividends to their owner, Apple US. Given that the US and California corporate income tax rates combine to equal 40%+, Apple US chooses not to take dividends from the subsidiaries at this time, and allows the profits to accumulate in savings accounts overseas.*

*this is a simplification of course, but basically accurate. One thing Apple does is funnel lots of the subsidiary profits to Apple Ireland, because Ireland's tax rates for the bank account interest is extremely low. But it all works out the same as Apple Ireland is a subsidiary of Apple US, and Apple US can't touch those profits without losing over 40% of them to US/CA taxes.

You can talk about how that would be tax evasion and it would be illegal but in practical terms that is exactly what they are doing.

They just have hired a bunch of lawyers to tell them how to do it so that it is legal.

By the way, when you talk about selling product to international subsidiaries you are actually talking about putting their IP ownership in international subsidiaries and then having the American subsidiary pay licensing fees so that no profit is made in the US.

If it were that easy everyone would do it.

They are

Where are the money they made in the US then?

.. in the US. Probably paid out in dividends and salaries.

Currently Apple pays around $12B a year in dividends. It has averaged over $10B a year the last 5 years or so.

It's expected if a repatriation bill passes, Apple will pay out a special one time dividend to shareholders, and some think it will be as big as $100B.

And invested by Blackburn or whatever the Nevada corp is...Google it.

It's called Braeburn, a type of apple.

So they have 246B + US hoard?

No, they have $246B minus around $80B in debt. Some of the $246B is overseas.

Yeah so it's not money made overseas which was the original claim I was asking about.

Apple have famously not paid out much dividend though.

Whoever down votes will you please explain exactly where I am wrong here?

Making a series false statements without references.

What series of false statements?

Look back at your statements.

Yes whats the long series of wrong statements? By all means please correct me.

Nobody wants to bother, since you can check them easily yourself with google. That's why you are being downvoted without explanation.

Whats up with the attitude?

Asking a genuine question is not reason for downvote.

You are asking other people to do work for you that you could easily do yourself.

Rather than letting obviously wrong statements stand unchallenged people just downvote them. There is no obligation to explain.

A question is a wrong statement? Nice try.

Your questions contained implicit statements just like this one:

Why can't you stop spreading falsehoods?

Either way - you asked why you were downvoted, and now you have an answer.

In other words you can't point to any series of false statements so instead you just make things up.

Got it thanks.


There you go. So even your claim that I'm making things up is false.

Intellectual honesty is a currency around here.

What does that link prove? By all means.

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