Apple's Tax Tactics Deserve Defending, Not Shaming
Is it moral to pay higher taxes, even if that hurts employees, consumers, and shareholders? David Brooks seems to thinks so.
Employees of Apple "should be humiliated and ashamed" because of the iPhone company's "clearly sleazy" decision to minimize its corporate taxes, New York Times columnist David Brooks claims.
"The Apple corporation exists because of American institutions," Brooks writes, complaining that "Apple parked its intellectual property in an Irish subsidiary so it could avoid paying taxes in America and support those institutions. It saved $9 billion in 2012 alone."
The Times columnist complains that Apple "stiffed its own country."
"We turned off the moral lens," Brooks complains, contending that "remoralizing…the market is the great project of the moment."
Brooks doesn't so much argue that Apple's behavior is immoral as he does assert it, hurling tendentious language—"clearly sleazy," "ashamed," "stiffed"—without spelling out the reasoning behind this "moral" system that requires a corporate management to pay higher taxes than legally required.
It's a peculiar kind of nationalism. Brooks didn't object to Apple making its products in Asian factories, or to the company's employing a Briton, Sir Jonathan Ive, Commander of the British Empire, as its chief design officer, or to the company making 63 percent of its sales outside of the U.S. Yet when it comes to paying taxes, Brooks wants Apple to be strictly "America First."
This is an old argument. Back in 1947, Judge Learned Hand of the United States Court of Appeals for the Second Circuit observed, "Over and over again courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant."
It's not immediately obvious, at least to me, that it would have been more moral for Apple voluntarily to have paid $9 billion more in U.S. taxes in 2012. In that case, the $9 billion would have been available for politicians in Washington to spend. Some portion of it would probably have been wasted. Instead, Apple was able to use the money for other purposes—compensating employees, investing in the growth and development of its business, and creating value for shareholders and customers. Apple generates plenty of U.S. taxes anyhow, through the income taxes paid by employees, capital gains taxes paid by selling shareholders, and state and local sales taxes. When the Senate held a hearing about this issue in 2013, Apple CEO Tim Cook "noted that the company's $6 billion federal tax payment last year likely made it America's largest corporate tax payer," USA Today reported.
Apple chose to minimize its U.S. corporate income taxes at a time when those taxes, at a 35 percent rate, were so high and uncompetitive that even President Obama proposed reducing them. By avoiding paying at the 35 percent rate, Apple helped to build political pressure for rate reductions. The Tax Cuts and Jobs Act signed into law by President Trump reduced the U.S. corporate tax rate to 21 percent. Apple subsequently announced it would pay $37.3 billion in U.S. taxes on money that it will bring back to America under the newly lowered rates.
If Brooks wants to defend the 35 percent U.S. corporate tax rate that applied in 2012—a rate that, again, even Barack Obama said was too high—I'm open, but skeptical. It's long been a technical challenge and a political challenge for policymakers to agree on tax rates that maximize economic growth and generate the revenue necessary to pay for essential government functions. It's not at all clear that "shame" has been the missing ingredient needed for consensus.
For Apple to have paid a higher tax rate in 2012, the company might have had to charge its customers more for phones. It might have had to pay its contractors and their Chinese factory workers even less to make those phones. Or it might have generated lower returns for its shareholders, including a lot of U.S. pension funds. Doing those things so that politicians in Washington could have extra tax money to spend may be moral in Brooks' view of the world. But the tax choices Apple made instead are also morally defensible. That is something for Apple employees—and shareholders and customers, too—to keep in mind the next time David Brooks calls them "sleazy" or instructs them to be ashamed.