The Spectacle Blog

Apple’s Success Should Spur Debate About Tax Reform and Economic Growth

By on 4.25.12 | 8:56AM

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.

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