Dissecting That Byte from the Apple
Terry H. Schwadron
Jan. 24, 2018
Last week’s announcement by Apple, Inc., the world’s most profitable company, that it will become the first big technology to return its overseas cash, pay $38 billion in taxes and invest $350 billion in jobs and plants in the U.S. over the next five years was unexpected.
Intended or not, it was also being used as an endorsement for President Trump’s policies to lower corporate taxes as an incentive for job creation. The company itself long has said it had a responsibility to invest in U.S. jobs, adding that, clearly, the tax changes provided a relatively economical way to do so.
Though it was part of Apple’s long-term investment strategy, Trump took no time to take credit for his policies as the reason for Apple’s actions.
In fact, on reflection, it is a kind of reward for bad corporate behavior, holding American business profits in a faraway safe until the U.S. government offers sufficient financial incentive to pay company taxes.
The decision was a surprise to me. I had doubted even with incentives that Apple and others would bring their cash home from tax havens where they pay nothing. Apple has had $250 billion of untaxed profits banked on the small isle of Jersey in the English Channel, because Jersey doesn’t assess taxes at all. For years, Apple has run afoul of both American, Irish and British tax authorities for moving corporate monies around to avoid paying taxes.
Being wrong in this case clearly is welcome. Apart from the immediate payoff, albeit at reduced rates (about 15.5% tax), this move almost certainly will prod other multinationals into making similar moves.
With this single move, Apple has made Trump’s notions of incentives for the economy appear to come true, and provided the single biggest example that we will be hearing over and over in electioneering later this year, whether the tax change caused it or not. Even more, Trump credits his tax bill with $2,000 bonuses that Apple is offering its employees.
In all, Apple believes it will now create 20,000 jobs in the United States.
In its statements, Apple chief executive Tim Cook said, “We believe deeply in the power of American ingenuity, and we are focusing our investments in areas where we can have a direct impact on job creation and job preparedness. We have a deep sense of responsibility to give back to our country and the people who help make our success possible.”
Apple said it will add to its current 84,000 American employees through hiring at a new campus focused on technical support for customers in a location yet to be identified. The company also said it will build several new data centers in the United States (North Carolina and Iowa already have been identified) and said it had broken ground on a new parts warehouse facility in Reno, Nevada. Obviously, however, some of these had been planned before the tax changes, and, of course, the company made little mention of the millions of dollars offered by local officials in tax breaks to lure Apple.
Compared with recent years of investment, there is a question about whether Apple would have spent this money in any case, just not necessarily in the United States. Indeed, Cook told ABC News that “let me be clear, there are large parts of this that are results of the tax reform, and there are large parts of this that we would have done in any situation.”
Apple will also spend to increase the size of a previously announced fund to support its network of suppliers for parts, on new coding and app-development education initiatives.
Interestingly, technology companies are among the first to say that they have trouble finding enough trained personnel in the United States. Cook is joined by Bill Gates of Microsoft and other tech voices in consistently pushing for loosened immigration rules for talented software developers and engineers.
Of course, the president claims so much credit for every positive economic happening that finding the measureable nuggets becomes difficult to parse. And his claims often are for developments that, like chimera of all kinds, disappear almost as soon as they appear.
So, industrial jobs claimed as “saved” from export to Mexico or other countries overseas last for a few months before the economics of the marketplace decide that jobs will move anyway. That’s what happened with Carrier Inc., the Indiana air conditioning company. Trump also has taken credit for announcements about corporate investments long in the works, as in the case of auto companies, or for bonus payments being made by many companies in lieu of actual wage improvements. Walmart recently announced wage hikes at the same time they announced they would lay off workers, for example.
In like fashion, it seems that the president’s newly announced tariffs on solar panels and imported washing machines may have temporary effects, but beyond that, the effects will be decidedly mixed. The announced 50% tariff on imported washing machines should protect American jobs against less expensive South Korean models, and at least one U.S. manufacturer announced that it would add 200 jobs. The 30% tariff imposed on solar panels will prompt average cost hikes of 4% to 10% in the United States, and will slow installation of solar panels, which generally are not made here. One manufacturer noted that the tariffs will expire in four years, leaving little incentive for building American factories. Total U.S. manufacture of solar panels accounts for about 2,000 jobs; the loss in solar panel installations, currently a business worth 10 times the jobs of coal, may force upwards of 20,000 layoffs.
The force of 90 straight months of economic improvement, with corporate profits running consistently high and yes, with the tax bill changes, there clearly is a new corporate desire to invest in plant and perhaps in jobs. That means that the Obama years proved critical in recovering from a near worldwide economic collapse as much as it is because of a rocketing stock market in the first year of Trump.
It is also true that as a New York taxpayer, I’m looking at paying more in taxes myself to underwrite Apple’s newly found corporate tax discount. And, when you start to add it all up, the $38 billion one-time payment from Apple will not go far in covering $1.5 trillion increase in federal debt over the next 10 years to finance the corporate tax incentives. On top of that, my taxes will end up paying for a bigger military, while reducing the money I want paid for job training, support of the arts and education, consumer and environmental protections and wider needs for access to health care.
When the accolades for Apple and other investing companies wane, I’d like to hope that what we get as a result is some actually reasonable assessments rather than pie-in-the-sky aspirational views of the national economy. Let’s celebrate that we have continuing and improving overall productivity without having to insist that the national economy will double in size in 12 months.
The goal for a government that wants to do better by its people should not be just more corporate profit. Rather, it should be shared prosperity, good wages, and elimination of wage inequality.
Just tell Apple, I’ll look up those government progress reports on my Mac laptop.