The Other Tax Hearing to Watch This Week

I’ve expressed my puzzlement and disappointment here before about how Apple, like so much of Silicon Valley, is reflexively liberal in its politics.  So it is with some curiosity that I note the story out last week about how Apple CEO Tim Cook was trying to “get out ahead” on the story of his appearance before a Senate committee tomorrow in Washington where he will essentially be called unpatriotic—by both parties unfortunately—because Apple doesn’t engage in the sadomasochism of bringing home to America the roughly $100 billion in profits it has earned overseas—and is keeping there to avoid America’s punitively high corporate income tax rates.

From all appearances Cook is going to grovel and apologize.  According to one story:

In an interview with The Washington Post, Cook says he plans to present specific proposals at the Senate hearing to overhaul the U.S. corporate tax system.

“If you look at it today, to repatriate cash to the U.S., you need to pay 35 percent of that cash. And that is a very high number,” Cook said in an interview Thursday. “We are not proposing that it be zero. I know many of our peers believe that. But I don’t view that. But I think it has to be reasonable.”

Cook also pointed out that if state and federal taxes are combined, Apple pays roughly $1 million per hour in taxes, possibly making Apple the largest corporate taxpayer in the country.

He shouldn’t be defensive.  Rather, he should take a page from Intel from about 20 years ago.  Back in the early 1990s, when California’s fiscal situation was similar to today (in other words, deeply under water), Gov. Pete Wilson proposed abolishing the sales tax on capital equipment purchases by manufacturers.  While Nordstrom or Home Depot have to locate where consumers are, manufacturers can locate anywhere, and the sales tax on capital equipment was a huge disincentive to expanding or building new plants in CA.  Intel figured this tax added as much as $60 million to the cost of a new plant.

Democrats naturally opposed abolishing the tax because “we need the revenue,” oblivious as always to incentive effects. So Intel’s tax manager appeared before the State Senate finance committee and explained the facts of life, as Intel was in the midst of deciding whether to build a new billion-dollar chip plant in California or New Mexico, which didn’t have a sales tax on capital equipment.  As I recall, his point to the committee went something like this:

You’re not going to collect this sales tax on capital equipment from Intel.  There are two ways you’re not going to collect this tax.  You won’t collect this tax if we build our new plant in New Mexico.  And you’re not going to collect this tax if we build our new plant in California.  Get it?

Of course the Democrats didn’t get it at the hearing.  Their economic illiteracy would be comical if it didn’t have such baleful consequences.  Gov. Wilson stuck to his guns, and the tax was eventually abolished, I believe.

So I wish tomorrow morning that Tim Cook would look senators directly and say this:

There are two ways you’re not going to exact America’s highest-in-the-world corporate income tax on Apple.  You’re not going to collect it if we keep the money overseas, as is our right under the tax code that you people wrote into law; and you’re not going to collect it if we bring the money home.  Get it?

I can certainly imagine Steve Jobs putting is this way.

Now back to the IRS scandal.

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