Last week was a big week on the hill, with many high profile hearings. One such hearing that was followed closely was the investigation of Apple. Apple has been accused of evading taxes, but they have apparently found a loophole in the corporate tax code.
Apple set up subsidiary accounts in Ireland for its international income, and keeps that money there. Under the current tax code, Apple doesn’t pay taxes to the U.S. on that money until it brings it back into the country, a process known as repatriation. Naturally, Apple has chosen to leave the money in Ireland.
This brings up the long debated question of when the U.S. will reform its corporate tax code. The United States has one of the highest corporate tax rates in the world. This disincentives businesses to develop and grow, and can lead to companies moving their operations abroad.
Ironically, many companies do not actually pay this high tax rate due to the fact that the tax code is filled with loopholes. Part of a successful corporate tax reform would be to lower the tax rate and simplify the tax code by removing these loopholes. During a Senate hearing last Tuesday, Apple CEO Tim Cook declared that in order to incentivize businesses to come to the U.S. and to become more competitive internationally, the tax rate needs to be lowered to the single digits.
The Business Roundtable recently released a study to the House Ways and Means Committee stating that our current corporate tax code has been putting a drag on the economy, hindering growth and inhibiting the creation of jobs. Many other studies have found similar results, stating that lowering the corporate tax rate will help the economy grow and support business creation and growth. Not only that, but revenues lost from the lower tax rate will be made up by more tax revenue from a stronger economy.
The New York Times notes that many large businesses are likely to copy Apple now that this tax loophole as been revealed. If this does in fact happen, maybe that will send a message to Congress. In order to be competitive internationally, we must support our businesses and help our economy succeed. One way to do that is to lower the corporate tax rate and stop taxing companies to death.