When Apple's Tim Cook appeared before the Senate this week, many observers were expecting the CEO to be grilled by outraged senators about how his company has avoided paying billions in U.S. taxes by moving parts of his business to Ireland. That's not how it went down.
A day after a congressional panel released a scathing report, accusing Apple of a massive tax-dodging scheme, the Apple CEO vigorously defended Apple's tax structure, testifying that he not only followed tax laws, he also followed "the spirit" of tax laws. Cook then managed to turn the discussion on its head by scolding the U.S. government for its outdated tax system with an outrageously high corporate tax rate. Cook also pointed out that the U.S. government could learn a thing or two from Apple's philosophy:
"Apple has always believed in the simple, not the complex," testified Cook. "In this spirit, Apple...suggests to the Subcommittee today to pass legislation that dramatically simplifies the U.S. corporate tax system." The U.S. corporate tax rate is currently at a whopping 35 percent, and Cook isn't the first to point out that 35 percent is just too high.
In 2011, 60 Minutes reported on how many big tech and other companies find ways to keep their profits at arm's length from the IRS, sending correspondent Lesley Stahl to knock on doors and chase down addresses of major American companies so-called headquartered in Switzerland and Ireland. The report explains how the U.S. corporate tax rate of 35 percent provides the incentive to move revenues-- and jobs-- offshore.
According to economist Martin Sullivan, these new tax havens are now standard operating procedure for major companies. "U.S. multinationals are shifting their research facilities, shifting their manufacturing facilities, and shifting some regional headquarters into Switzerland and into Ireland. And those are massive numbers of jobs."
No wonder the outskirts of Dublin are beginning to look like Silicon Valley. Sullivan told 60 Minutes that Ireland taxes corporations at just a third of the U.S. rate. "Well, if you have a 35 percent rate in the United States and, for example, a 12.5 percent rate in Ireland, there's an incentive to move your factory to Ireland," he said.
"The U.S. Treasury in effect is subsidizing investment in Ireland," Sullivan added. According to the 60 Minutes report, 600 American companies have moved parts of their businesses to Ireland and those companies employ 100,000 workers there.
If Ireland is such a great place to locate your company, you might wonder why every company hasn't set up shop there. "Almost everybody is in Ireland," Sullivan told Stahl. "You're stupid if you're not in Ireland."
Do you think the U.S. should lower its 35 percent corporate tax rate?