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There is a really important lesson from all of this, and it is not that Apple is wrong for rationally exploiting global tax laws to avoid paying US taxes. The

There is a really important lesson from all of this, and it is not that Apple is wrong for rationally exploiting global tax laws to avoid paying US taxes. The fact that California has no tax jurisdiction in Nevada, and that the US has no tax jurisdiction in Ireland, is an unassailable fact of life. Tax laws are subject to regulatory competition like many other things, and ignoring that -- insisting that this is an issue of morality or fairness -- is silly. If the US had a globally competitive corporate tax rate (say 15%), it would make most of these tactics irrelevant. There's no need to shelter income in Ireland if they have the same tax rates. Because of the reduced sheltering, such a reform would probably raise revenue on net. But even if it didn't, it would have many ancillary benefits, such as repatriating many billions of dollars in corporate profits and increasing the degree to which they are deployed in the US, which would far exceed the costs. Even better would be to reduce corporate income tax to 0% and increase dividend and capital gains rates to personal-income-tax levels to make up for it. The main reason dividend income is treated preferentially in the US is that corporate profits are already being taxed (in theory). Those multi-level nature of the US tax code creates unnecessary loopholes, as well as costs and confusion. Counter-intuitively, eliminating the corporate income tax would make it much easier to tax corporate income, because those profits necessarily flow back to investors either in the form of dividends or capital gains. If you are a resident of the US (and california) and you own 1 apple share, you pay taxes on your share of Apple's income. Even better, it would be progressive. Rich people pay more, poorer people pay less. Simple, right?

protomyth 14y ago
Uhm... the other problem increasing taxes on capital gains is that most Americans in the under 50 crowd are going to use those for retirement.
- acslater00 14y ago
  The actual appreciation of their investments would be higher if you eliminated corporate income tax. And you would still get to defer payment until you sell the actual investment. Properly designed, it all evens out.
  - protomyth 14y ago
    The problem is "defer payment until you sell the actual investment." which is when I have no other income coming in. This isn't going to be a rich person's problem, it effects pretty much everyone under 50.
    - jarek 14y ago
      Specific interests being mentioned in a tax policy discussion? Unheard of!
      - protomyth 14y ago
        I take your meaning, but I am not looking for a interest group tax deduction. I am really wondering about what all of us need out of a tax system. It is more about when is it ok to tax and when is it just moving money around (SS and Unemployment are two I can think of off the top of my head). I admit to being in the flat-rate tax camp with exclusions for one time capital gains (selling stock not dividends) and estate tax. I also wish they just gave a large basic deduction ($15K or $20K) and had everyone file as individuals.
- _delirium 14y ago
  Capital gains in retirement accounts are tax-sheltered (in a Roth IRA, completely tax-exempt). And it's a serious exaggeration to say that "most" Americans are going to use capital-gains for retirement. For the vast majority of Americans, capital gains are a negligible proportion of their total income. Raising capital gains rates and using the proceeds to lower regular income tax rates (to bring the two tax rates closer together) would lower many more people's taxes than the reverse would.
TheEzEzz 14y ago
> If the US had a globally competitive corporate tax rate (say 15%), it would make most of these tactics irrelevant. Until Ireland further lowers its taxes. Your argument leads to a race to the bottom. The problem with only taxing dividends is that corporations only pay out a small portion of their profits in dividends. I may theoretically be a billionaire in my holdings, but I only need a million in dividends per year to live my preferred lifestyle. Thus I only pay tax on the million dollars instead of on my billions. You can try and get at the money via capital gains, but what if the bulk of the money is being held by a foreign company, with only a small amounts to pay dividends to the owners filtering into the main company?
- acslater00 14y ago
  That's great. If apple makes $1b, if the bulk of the money is held by a foreign SUBSIDIARY, my stock will go up, and I will pay capital gains. If they give it to me as a dividend, I will pay taxes on that. If they reinvest it in the company and the investment makes money, my stock will go up even more. And if they reinvest it in the company and squander it all, no taxes will be collected on the income, but they won't be able to write the loss off anything either. The only thing that truly captures the vagaries of 'where money is held' is the stock price. Wall Street don't care if that money is in New York or Guatemala, if Apple has it it's making the stock go up.
  - jarek 14y ago
    Wall Street does care about there the money is. That is why tech companies have spent huge sums lobbying for a repatriation amnesty.
    - yummyfajitas 14y ago
      Tech companies want repatriation amnesty so they can invest the money in the US. I have no idea why we want to prevent them from doing this.
      - FireBeyond 14y ago
jacquesm 14y ago
Of course it is an issue of morality. I could choose to avoid paying taxes in the society that I'm a part of. It would be in my economic interest to do so. But it is morally wrong because it is that same society that enables me to make my money in the first place. Simple, right?
- forrestthewoods 14y ago
  That doesn't make any sense at all. Tax avoidance is perfectly legal. Tax evasion is not. Playing within the rules created by society is not morally wrong. Every deduction you take on your personal income taxes falls under tax avoidance which you can't possibly be describing as morally wrong. "The legal right of an individual to decrease the amount of what would otherwise be his taxes or altogether avoid them, by means which the law permits, cannot be doubted." - US Supreme Court
  - hej 14y ago
    > Playing within the rules created by society is not morally wrong. There are people who honestly believe that? It’s not that simple, it really isn’t. I, for example, think there are many immoral but legal things and I want it to stay that way. The law is not supposed to perfectly mirror our morality, that would be a clusterfuck, tyranny, and otherwise a really bad idea. (For example: I think not tipping in the restaurant is immoral. I, however, never ever want that to become a law. Just one example.) In short: Just because it’s legal, doesn’t mean it’s right. Just because it’s not right, doesn’t mean it should be illegal.
    - bmelton 14y ago
      The best way I can visualize it is like playing a game of poker. Bluffing is misrepresenting what you have to fool your opponent into something you don't, or more commonly, something better than you actually have. There are a variety of ways to bluff, with either betting patterns or by outright lying verbally. There are different rules in different casinos that determine whether or not you're allowed to talk about your hand, so exactly how you perform your bluffs may be limited. Regardless, you should bluff, at least occasionally. The person who never bluffs is likely limited in the amount of money they can make as everyone will fold to the always truthful player. Ignoring the societal questionability of poker on the whole, some poker players consider bluffing to be immoral. Generally, and certainly the people who recently fell for a bluff might feel so more strongly than those who just successfully bluffed but, and this is important, bluffing is within the rules of the game. So long as you're not breaking the rules, there is no penalty for being clever.
jandrewrogers 14y ago
Short-term capital gains are already taxed at income rates. Long-term capital gains are lower in part because they are not inflation protected, which can substantially discount the real returns. Having a lower tax rate is simpler than computing inflation-adjusted returns for every long-term transaction. For example, if you buy an asset for $500k and sell it for $600k ten years later, you actually lost money after adjusting for inflation but you still have to pay taxes on the $100k capital gain. Another factor is that long-term capital gains taxes are much less efficient than income taxes in terms of adverse impact on the economy. If you need to raise additional revenue, it is better for economic growth to take it from income (or sales) than capital gains.
- jusben1369 14y ago
  That's really not the reason short term and long term are taxed differently. It's based on a perceived notion that we want to reward long term investment as a preferable activity over shorter term speculation.
  - jandrewrogers 14y ago
    I agree, this is partly the case. There are a number of incentives in the capital gains tax code beyond the well-known ones that are structured very much for the benefit of long-term investments in smaller companies. There is no rational tax basis for this benefit except to benefit small companies. The argument about inflation adjusted returns is really the baseline case. Most investors account for it. However, they also adjust for risk as well. I would prefer investments in tech startups to be attractive, net, after accounting for the tax code relative to boring investments like debt instruments.
- Drbble 14y ago
  That's silly. The government does lots of inflation adjustments andbracketing and phaseouts in financial programs already. And "long term" starts at two years, where inflation is just barely relevant.
  - 14y ago
noonespecial 14y ago
I think part of the problem is that the loopholes are for sale. Their original existence may be accidental, but their continuing existence is not.
jack7890 14y ago
Are you like an internet economist or something?

protomyth 14y ago

Uhm... the other problem increasing taxes on capital gains is that most Americans in the under 50 crowd are going to use those for retirement.

acslater00 14y ago
The actual appreciation of their investments would be higher if you eliminated corporate income tax. And you would still get to defer payment until you sell the actual investment. Properly designed, it all evens out.
- protomyth 14y ago
  The problem is "defer payment until you sell the actual investment." which is when I have no other income coming in. This isn't going to be a rich person's problem, it effects pretty much everyone under 50.
  - jarek 14y ago
    Specific interests being mentioned in a tax policy discussion? Unheard of!
    - protomyth 14y ago
      I take your meaning, but I am not looking for a interest group tax deduction. I am really wondering about what all of us need out of a tax system. It is more about when is it ok to tax and when is it just moving money around (SS and Unemployment are two I can think of off the top of my head). I admit to being in the flat-rate tax camp with exclusions for one time capital gains (selling stock not dividends) and estate tax. I also wish they just gave a large basic deduction ($15K or $20K) and had everyone file as individuals.
_delirium 14y ago
Capital gains in retirement accounts are tax-sheltered (in a Roth IRA, completely tax-exempt). And it's a serious exaggeration to say that "most" Americans are going to use capital-gains for retirement. For the vast majority of Americans, capital gains are a negligible proportion of their total income. Raising capital gains rates and using the proceeds to lower regular income tax rates (to bring the two tax rates closer together) would lower many more people's taxes than the reverse would.

TheEzEzz 14y ago

> If the US had a globally competitive corporate tax rate (say 15%), it would make most of these tactics irrelevant. Until Ireland further lowers its taxes. Your argument leads to a race to the bottom. The problem with only taxing dividends is that corporations only pay out a small portion of their profits in dividends. I may theoretically be a billionaire in my holdings, but I only need a million in dividends per year to live my preferred lifestyle. Thus I only pay tax on the million dollars instead of on my billions. You can try and get at the money via capital gains, but what if the bulk of the money is being held by a foreign company, with only a small amounts to pay dividends to the owners filtering into the main company?

acslater00 14y ago
That's great. If apple makes $1b, if the bulk of the money is held by a foreign SUBSIDIARY, my stock will go up, and I will pay capital gains. If they give it to me as a dividend, I will pay taxes on that. If they reinvest it in the company and the investment makes money, my stock will go up even more. And if they reinvest it in the company and squander it all, no taxes will be collected on the income, but they won't be able to write the loss off anything either. The only thing that truly captures the vagaries of 'where money is held' is the stock price. Wall Street don't care if that money is in New York or Guatemala, if Apple has it it's making the stock go up.
- jarek 14y ago
  Wall Street does care about there the money is. That is why tech companies have spent huge sums lobbying for a repatriation amnesty.
  - yummyfajitas 14y ago
    Tech companies want repatriation amnesty so they can invest the money in the US. I have no idea why we want to prevent them from doing this.
    - FireBeyond 14y ago

jacquesm 14y ago

Of course it is an issue of morality. I could choose to avoid paying taxes in the society that I'm a part of. It would be in my economic interest to do so. But it is morally wrong because it is that same society that enables me to make my money in the first place. Simple, right?

forrestthewoods 14y ago
That doesn't make any sense at all. Tax avoidance is perfectly legal. Tax evasion is not. Playing within the rules created by society is not morally wrong. Every deduction you take on your personal income taxes falls under tax avoidance which you can't possibly be describing as morally wrong. "The legal right of an individual to decrease the amount of what would otherwise be his taxes or altogether avoid them, by means which the law permits, cannot be doubted." - US Supreme Court
- hej 14y ago
  > Playing within the rules created by society is not morally wrong. There are people who honestly believe that? It’s not that simple, it really isn’t. I, for example, think there are many immoral but legal things and I want it to stay that way. The law is not supposed to perfectly mirror our morality, that would be a clusterfuck, tyranny, and otherwise a really bad idea. (For example: I think not tipping in the restaurant is immoral. I, however, never ever want that to become a law. Just one example.) In short: Just because it’s legal, doesn’t mean it’s right. Just because it’s not right, doesn’t mean it should be illegal.
  - bmelton 14y ago
    The best way I can visualize it is like playing a game of poker. Bluffing is misrepresenting what you have to fool your opponent into something you don't, or more commonly, something better than you actually have. There are a variety of ways to bluff, with either betting patterns or by outright lying verbally. There are different rules in different casinos that determine whether or not you're allowed to talk about your hand, so exactly how you perform your bluffs may be limited. Regardless, you should bluff, at least occasionally. The person who never bluffs is likely limited in the amount of money they can make as everyone will fold to the always truthful player. Ignoring the societal questionability of poker on the whole, some poker players consider bluffing to be immoral. Generally, and certainly the people who recently fell for a bluff might feel so more strongly than those who just successfully bluffed but, and this is important, bluffing is within the rules of the game. So long as you're not breaking the rules, there is no penalty for being clever.

jandrewrogers 14y ago

Short-term capital gains are already taxed at income rates. Long-term capital gains are lower in part because they are not inflation protected, which can substantially discount the real returns. Having a lower tax rate is simpler than computing inflation-adjusted returns for every long-term transaction. For example, if you buy an asset for $500k and sell it for $600k ten years later, you actually lost money after adjusting for inflation but you still have to pay taxes on the $100k capital gain. Another factor is that long-term capital gains taxes are much less efficient than income taxes in terms of adverse impact on the economy. If you need to raise additional revenue, it is better for economic growth to take it from income (or sales) than capital gains.

jusben1369 14y ago
That's really not the reason short term and long term are taxed differently. It's based on a perceived notion that we want to reward long term investment as a preferable activity over shorter term speculation.
- jandrewrogers 14y ago
  I agree, this is partly the case. There are a number of incentives in the capital gains tax code beyond the well-known ones that are structured very much for the benefit of long-term investments in smaller companies. There is no rational tax basis for this benefit except to benefit small companies. The argument about inflation adjusted returns is really the baseline case. Most investors account for it. However, they also adjust for risk as well. I would prefer investments in tech startups to be attractive, net, after accounting for the tax code relative to boring investments like debt instruments.
Drbble 14y ago
That's silly. The government does lots of inflation adjustments andbracketing and phaseouts in financial programs already. And "long term" starts at two years, where inflation is just barely relevant.
- 14y ago

noonespecial 14y ago

I think part of the problem is that the loopholes are for sale. Their original existence may be accidental, but their continuing existence is not.

jack7890 14y ago

Are you like an internet economist or something?