If you were confused by Apple having to repeatedly borrow money to fund stock buybacks while sitting on huge cash reserves ($178B as of last quarter), the reason is that the bulk of that cash is held overseas. Apple can’t bring it back into the USA without paying 35% tax on it, so it’s far cheaper to borrow.
Bloomberg reports that Senators Rand Paul (R) and Barbara Boxer (D) are proposing a bill that would allow companies like Apple to repatriate foreign-held cash while paying just 6.5% tax rather than 35%. The tax raised by this would, they propose, go to the Highway Trust Fund to pay for infrastructure programs across the USA.
It wouldn’t help Apple’s stock buybacks, however: companies taking advantage of the scheme would only be allowed to spend the money on investment, such as R&D and acquisitions. It specifically could not be spent on stock buybacks or executive compensation.
The chances of the bill making it into law seem slim. Business Insider notes that a previous repatriation program that did make it onto the statute books appeared to backfire, a government study finding out that the companies who took advantage of it actually cut both R&D spending and jobs.
The Joint Committee on Taxation also concluded that a similar proposal put forward last year would actually end up costing the government money in the long-term, and Senate Finance Committee head Orrin Hatch said the latest proposal wouldn’t increase government revenues and was “bad policy.”
Part of the reason for that is that if companies get one tax holiday, they will assume there will be others in future. It thus incentivizes them to push more profits overseas in the belief that they can bring them back next time around.
With Apple having just announced world record quarterly earnings, and having been investigated for taking advantage of legal tax avoidance schemes overseas, the public mood may also not be too supportive of the company getting a tax break in its home country.
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“With Apple having just announced world record quarterly earnings, and having been investigated for taking advantage of legal tax avoidance schemes overseas, the public mood may also not be too supportive of the company getting a tax break in its home country.”
Nice bait, Ben… SMH.
What do you mean? I don’t see that as click bait if that is what you are saying.
Bait to get Reply’s.
It seems to me that a better strategy would be to pass a law that would initially lower the tax rate (perhaps cut it in half), but then progressively increase it annually (say, by 10% of the difference between the current rate and a maximum limit, say, 75%). This would open a window for corporations to bring their money back into the US, but would also create a penalty for those who keep it overseas.
75% @%$! really? the benefits are Apple will at least consider importing the cash vs just leaving it out there. Better something than none, 35% alone is ridiculous especially when Apple is already the highest tax payer in the US
I don’t get why the limits on how the money can be spent would be a problem. Apple would just take the money it’s currently using on R&D and put it toward the buybacks. Then the repatriated money would be used for R&D. Not that hard to figure out.
I think there’s a deal afoot to exchange infrastructure for the Keystone pipeline.
It looks great. But it’s starting to look like cult churches, and that makes me a bit scared.