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EDITORIAL: Apple’s huge cash reserve highlights need for corporate tax reform

Those who doubt the necessity of reforming America’s corporate tax laws should consider cash-fat Apple Inc.

The Wall Street Journal reported Monday that the company is sitting on $250 billion — that’s a quarter trillion — in cash reserves, almost all of it parked abroad. The amount is “greater than the market value of either Walmart Stores Inc. or Proctor &Gamble Co. and exceeds the foreign currency reserves held by the U.K. and Canada combined,” the paper noted.

The company’s windfall has doubled in less than five years. By the end of 2016, it was accumulating cash at a rate of $3.6 million an hour, the Journal reported

Why is Apple essentially stuffing greenbacks in a mattress? Because it would pay a huge tax penalty if it brought the money home.

As Steven Pearlstein of the Washington Post noted in March, “The current tax regime encourages companies to move operations, assets and even corporate citizenship overseas, while raising less and less money every year as companies come up with ever more ingenious and ethically questionable ways to avoid it.”

The combined U.S. federal and state corporate tax rate is 39 percent, among the highest in the world. And while it’s true that many companies pay a lower effective rate, American multinationals still have higher tax burdens than their counterparts in many other jurisdictions.

In addition, the federal government taxes American corporations on income earned overseas if they bring it back to the United States. That’s why many companies, such as Apple, prefer to lock up their cash in foreign instruments rather than invest it in domestic endeavors.

“There is a growing political consensus that the time has come for change in the tax rules to encourage repatriation of the vast troves of corporate earnings held outside the country,” wrote Jeff Sommer of The New York Times last year.

Donald Trump’s tax proposal calls for lowering the corporate rate to 15 percent and perhaps creating a one-time tax holiday to encourage companies such as Apple to bring their profits home. This makes sense. Critics of such a plan argue these corporations are less likely to create jobs or new businesses with the money than they are to reward investors. But so what? Either way, the money is working in the United States rather than sitting idly in some foreign investment vehicle.

Apple is not alone. Microsoft, General Electric, Pfizer and others all prefer to leave large chunks of earnings stranded overseas. While this makes good sense from a corporate standpoint, it simply nuts for Washington politicians to impose tax policies that encourage this behavior.

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