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The Spectacle Blog
There’s a question I think our media and political class ought to be asking now that Apple has announced another spectacular quarterly earnings report. Simply put, how can we spur greater economic growth and the creation of more innovative and highly successful companies such as Apple?
Such a discussion, unfortunately, is sadly lacking in the public dialogue and debate. President Obama, after all, doesn’t really care about economic growth. He’s more interested in punishing entrepreneurs and small businesses under the guise of tax “fairness.”
Republicans, meanwhile, seem more interested in containing the rising sea of red ink, which threatens to bankrupt America.
The GOP is right to focus on debt reduction; the debt bomb must be defused. Still, without far more robust economic growth, the path to fiscal suicide and national decline will be relentless and unyielding.
Fundamental tax reform would be a good place for Republicans to start. Because our tax code punishes success, Apple is forced, perversely, to keep most of its earnings overseas, where there is little or no taxation. Investing that money in America, by contrast, means paying a confiscatory 35 percent corporate tax rate, which is almost 12 times the rate that Apple pays overseas.
The amount of money involved here is quite significant. Apple’s corporate coffers have accumulated $110 billion to date. And American high-tech companies as a whole have an estimated $1 trillion in untapped overseas profits, reports Bloomberg.
President Bush’s 2005 Advisory Panel on Federal Tax Reform had the right idea: Move to a territorial tax system in which we recognize that capital, especially today, is mobile; and that, therefore, it simply doesn’t pay (literally and figuratively) to try and tax the overseas earnings of American companies.
Instead, allow U.S. firms to repatriate their overseas earnings and to invest in America.
“An economic distortion caused by the tax code — by which foreign corporations operating in the U.S. are favored over U.S.-based corporations, and U.S. corporations are discouraged from investing here — would be removed,” notes Justin Fox on the Harvard Business Review Blog Network.
Fox himself is agnostic about the benefits of a territorial tax system. Yet, he’s honest enough to admit (albeit with some equivocation) that what’s at issue is “whether we want to maximize economic growth or maximize corporate tax revenue.”
The Obama administration, of course, wants to maximize corporate tax revenue; it wants to create and feed the entitlement state. The Republicans should offer up a more promising and inspiring free-market vision, one centered on economic growth and the tax reform needed to effect such growth. Now.
View all comments (5) | Leave a comment
More Blog Posts by John R. Guardiano
http://spectator.org/blog/2012/04/25/apples-success-should-spur-a-m
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Patrick Arnold| 4.25.12 @ 10:46AM
I am a former American who has lived overseas, in Europe and Asia, since 1986.
The world has changed a lot during that time, but American thinking has not moved with the times.
American must COMPETE in the world. That means compete on tax rates, compete to get the best talent from everywhere in the world, recognize that other cultures, from China to India to Nigeria, have basically accepted the former American model of thrift, hard work and capitalism, and are prepared to COMPETE on the ground we have established.
Please. please, stop whining like a bunch of teenage girls and instead compete in the new, global, peaceful world we have had such a strong hand in helping to create!
That means lower corporate taxes, lower individual taxes, less government dependency, more individual self-reliance, less regulation, less introspection, and more world-beating companies and individuals prepared to take on these less-free societies as we've done for the better part of two centuries.
If America wants to be a bunch of sissy crybabies in a global economy, it gets exactly what it deserves.
There is no free lunch! And other less-blessed people are intent, through dint of their own hard work, to eat our lunch.
Compete or die, America.
Eugene Patrick Devany | 4.25.12 @ 12:29PM
There is no need to throw out the baby with the bath water by switching to a territorial tax system.
Consider business tax reform along the lines of an 8% income tax and 4% Value Added Tax. The US would have the lowest business tax rates of any developed country and there would be no need for a tax deferral. Apart from "tax haven" countries, US foreign subsidiary corporations will have paid foreign income taxes of 8% (or more) and, with standard credits, all profits could be brought back to the US tax free. [In the worst case there would be an 8% tax].
The 35% corporate tax rate is the problem and it should not be fixed with a walk around to a territorial tax system (even if favored by Mr. Romney for ill-considered reasons of foreign investment and a tepid view of a VAT [favored by Mr. Ryan]). A switch to a territorial tax system will also open a Pandora's Box of unwanted multinational tax evasion at the expense of US jobs.
Eugene Patrick Devany, JD, MPA
www.TaxNetWealth.com
Gregory O'Donnell | 4.25.12 @ 8:04PM
Great companies come by the creation of great products, it has always been this way and always will. GM is example of this, they built beautiful cars that many wanted, then they built ugly cars and no one wanted them and the only way to sell them is with rebates.
North America will not be a global power house unless it builds great products that people want, however we need to have a view that manufacturing things is what essentially gave us the economy that we had in the past.
This will change eventually but is going to take a tremendous amount of time and will start at the political level once voters start pushing this at election time.
Eugene Patrick Devany | 4.26.12 @ 11:08AM
The thought of great products is appealing just like the thought of home ownership for everyone. Unfortunately we no longer have the customers. Consider that the middle class lost thousands of dollars in purchasing power, the unemployed are not going to buy a lot of new products and abortion has resulted in 50,000,000 fewer potential customers over the last 40 years. Women have achieved equality in education and work but the bar has been lowered.
Individual tax reform along the lines of a flat 8% income tax and 2% wealth tax (excluding $15,000 and retirement savings) is needed to rebuild the consumer class.
http://www.TaxNetWealth.com
JmsA| 5.10.12 @ 12:13AM
It's more complicated than just manufacturing and economics; the paradigm or very essence of the country has been and continues to be greatly and rapidly altered.