I’ve never been a fan of John McCain. I can appreciate his service without blindly following his philosophy. And nothing proves to me that the man is an absolute idiot more than his current attack on Apple, Inc.
In the interest of full disclosure, I am an Apple fan. I’d like to think I’d feel the exact same way if McCain attacked any other corporation the way he is attacking Apple, but I may not have the information about those companies that I do about Apple.
That said, McCain is just way off base in his thinking about the mega tech company. In statements he made in the Senate hearing about Apple’s alleged tax evasion, an evasion in which it has never been asserted that Apple violated any laws, McCain claims that “It’s time for Apple to invest in America.”
Funny, that’s EXACTLY what Apple was trying to do when they pulled the alleged shenanigans that got them called before the hearing. Here’s the back story.
Over 30 years ago, back when Steve Jobs was in charge the first time, Apple started to expand into overseas markets. They developed a holding company to handle the overseas business, Apple International Operations (AIO) and looked for a tax friendly country to set up shop. Ireland came to the rescue and offered AIO a sweet deal on corporate tax income if they set up shop on the Green Isle. Apple accepted, and AIO has operated out of Ireland ever since. Starting with the iPod and moving on to the iPhone and iPad, Apple has seen it’s overseas market skyrocket. Two thirds of their sales and three fourths of their revenue is now from selling products and services overseas.
During all this time, the one thing Apple has always kept in the good old USA is research and development. As such, Apple has a mammoth campus in California, and is building an even larger building. The giant ring shaped “Campus 2” will be the home of Apple’s R&D for decades to come. This is a multi-billion dollar investment in America that McCain flat ignores.
Since 2001, and I’d argue that the change really started in 1998 with the colorful iMac and Steve Job’s return to the company, Apple has seen revenue skyrocket. Completely free of debt, Apple has amassed a fortune in cash. While Apple often pays generous dividends to shareholders, and buys companies and technology from that stockpile, many shareholders have complained that Apple was under leveraged with its lack of debt, and over hoarding on their cash. Apple listened and decided that over the next year, through dividends and share buy backs, Apple would return $100billion to shareholders worldwide.
Except the vast majority of shareholders are in the United States. So despite the billions Apple is investing in America building Campus 2, Apple plans to return $100billion to the US Economy. But to do that, Apple was about $17billion short. AIO, however, was not. AIO could have transferred about $26billion to Apple and after Apple paid $9.2billion in taxes it would have the $17billion it needed for the $100billion investment.
However, since that represents a 35% tax payout, Apple looked around for another way. And when Apple walks into your bank, with hundreds of billions of dollars in cash and asks for a deal on a loan, banks listen. Apple swung a sweet deal on a $17billion loan on the strength of the billions in cash and the yearly income of tens of billions it currently makes each year. As a result, Apple will be paying 2% on $17billion rather than 35% on $26billion.
It was this huge loan that caught the eye of McCain. For a sense of scale, this is roughly the same amount of money the Bush administration ultimately gave the Auto Industry during the bail out. No matter how you cut it, $17billion is a huge sum of money. What upset McCain isn’t that Apple took out a massive loan, but that they did it to avoid paying $9.2billion in taxes.
Again, $9.2billion in taxes versus the $100billion in American Investment in the form of share buy backs and dividends. After Apple already paid billions in taxes last year, and will pay billions in taxes this year.
Again, Apple didn’t break any laws. And the accusations that Apple lobbied for tax loop holes is ludicrous. Apple pays far less than other tech companies in lobbying. While that is about to change, historically Apple has been a small player in politics.
But like a typical politician, when McCain sees a pot of money, he looks to figure out how he can tax it. McCain desperately wants to get the governments hand into Apple’s cash reserves. So accusing Apple of evasion makes sense… even though the money didn’t come from American consumers or American sales.
If McCain was serious about trying to get American companies to repatriate their cash reserves, maybe he should try to be more like Ireland. Or any other tax haven country. Allow these companies to repatriate their reserves at a reasonable rate, say 2%-5%, and they will do it. If Apple could return money from overseas sales (the sole reason for AIO to exist) at the same rate as Ireland, there would be little reason for AIO to continue to exist.
But ultimately McCain is an idiot because he truly believes Apple doesn’t invest in America. So let’s see exactly what Apple DOES invest in this country.
Apple employs 50+ thousand people at highly competitive wages. Besides being a massive employer of American talent, all those employees pay income tax, taxes collected by Apple FOR FREE as a service to the government (and another issue for another blog). Apple imports, and pays import taxes, on millions of units brought back from manufacturing in China (and don’t think that Apple hasn’t looked elsewhere for manufacturing, they have.) Apple has a billion dollar campus in California and is expanding it on a massive scale to increase R&D space. Apple has routinely HIRED during the recent recession while other companies in their sector have been laying people off. And, perhaps most importantly, Apple created an entire economy with it’s App Store, a marketplace that didn’t exist 5 years ago and has paid developers around the nation over $9billion in sales. And don’t forget the upcoming $100billion in payouts to shareholders. All of which will be TAXED.
Furthermore, Apple did absolutely nothing different than what John McCain does every year. McCain has accountants that file his taxes and make sure that the Senator has the smallest tax exposure possible. That’s all that Apple has done. Perhaps we should be asking McCain what he has done to “Invest in America” instead. Can he boast as much investment in America as Apple has done?