A leaked memo from Apple CEO Tim Cook to his staff explaining why he met with Donald Trump -- a guy who called Apple traitors for refusing to defeat their own security -- explains the rationale: "tax reform."
Apple pioneered dodgy tax strategies that involve pretending that all of their profits were realized in countries with low to nonexistent tax-rates, like Ireland -- and then went further, claiming that its profits came from activity that took place in no country at all (!).
Where Apple led, others followed, so now the tech sector has $560B in profits "overseas" (in reality, much of that money has been laundered and is now in the form of US Treasury Bills, which pay interest out of the taxes that law-abiding companies and individuals pony up). Though companies can borrow against this money and enrich their shareholders through self-devouring buybacks, these shenanigans are a distant second to the preferred course of action, which is to move the income onto the company's global, liquid balance-sheet, accessible at the CEO's direction.
Donald Trump has promised a tax-holiday for these companies, letting them repatriate their tax-avoidance money to the USA at a one-time rate of 10% -- by Apple's own reckoning, this would let the company avoid $40-$50B in taxes -- showing you that trumpism has something for everyone. You don't have to love his pro-surveillance agenda, or approve of the violent homophobic bigot he's put in the Vice President's seat, but you can still wholeheartedly believe that not paying taxes makes you smart -- even if your company owes its R&D and its workforce training to the country you're starving of funds.
The other tech leaders who showed up -- from Mr "Don't Be Evil" to Madame "History Repeats Itself" -- surely all had their own reasons for being in the room, from pragmatism to a personal, howling moral void -- but one thing they all shared was an awkward pool of money stashed offshore that Trump was offering to let them bring home and bathe in.
It's worth asking whether these tax holidays do any good. All evidence points to no: the last time this was tried, when GW Bush gave corporate America a 5% repatriation holiday in 2004, companies brought $312B back to America, and used it to give soaring raises to their executives and huge gifts to their shareholders in the form of buybacks -- and then they fired the shit out of their US workforces and doubled down on overseas outsourcing.
Heck of a job, Donny.
This creates two incentives for multinationals. First, it encourages them to use ludicrous accounting shenanigans, many pioneered by Apple, to pretend as much of its profits as possible were “earned” in foreign countries, like Ireland, with super-low tax rates. Second, they’ll hold the money hostage overseas until the U.S. government becomes so desperate for revenue that it offers them a sweetheart deal to bring it back.
This already happened in 2004, when the George W. Bush administration offered companies a special one-time offer: If they brought back their profits to hire more U.S. workers or engage in research and development, their tax rate would be cut from the statutory 35 percent to 5 percent. Companies happy repatriated $312 billion, and then went about firing workers and using the money for stock buybacks and huge hikes in executive pay.
Since then multinationals’ overseas profits have built up to an even greater level: a stunning $2.4 trillion, over four times the size of the current federal budget deficit. The eleven technology companies whose representatives met with Trump account for about one-fourth of that $2.4 trillion— in other words, they’re holding untaxed overseas profits equal to the federal deficit.
Apple CEO Tim Cook Met With Trump to “Engage” on Gigantic Corporate Tax Cut [Jon Schwarz/The Intercept]
(Image: Donald Trump speaks as (2nd L to R) PayPal co-founder and Facebook board member Peter Thiel, Apple Inc CEO Tim Cook and Oracle CEO Safra Catz look on during a meeting with technology leaders at Trump Tower in New York U.S., December 14, 2016. REUTERS)