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Senate Panel Is Expected to Castigate Apple on Tax Tactics

May 20, 2013 by Leave a Comment

Apple, one of the most profitable companies in American history, has shielded billions of dollars from tax collectors around the globe by moving revenue to offshore subsidiaries and taking advantage of tax loopholes, according to company documents and tax experts.

Apple has more than $100 billion in cash assigned to foreign subsidiaries, where it is not taxed by the United States. Some of those subsidiaries, though technically lodged in Europe, are fully controlled by Apple’s executives in Cupertino, Calif.

When Mr. Cook and other top-ranking Apple executives appear tomorrow before the Senate Permanent Subcommittee on Investigations, lawmakers are expected to question them on Apple’s use of tax loopholes and shell companies to escape paying corporate income taxes on much of its profit.

Mr. Cook is expected to tell lawmakers that Apple is the largest corporate income taxpayer in the United States, according to a copy of his testimony posted online by the company. Apple, according to that testimony, paid nearly $6 billion in federal taxes last year, and “does not use tax gimmicks.” Moreover, Mr. Cook is expected to call for a sweeping reform of the federal corporate tax code. In particular, he will call for lowering rates on companies moving overseas earnings back to the United States.

“What he’s asking for is a reward for having gamed the system,” said Edward D. Kleinbard, the former chief of staff at the Congressional Joint Committee on Taxation, and now a law professor at the University of Southern California.

Apple referred all questions to its posted testimony.

The Senate Permanent Subcommittee on Investigations, led by Senators Carl Levin, a Michigan Democrat and John McCain, an Arizona Republican, has been investigating technology companies, including Hewlett-Packard and Microsoft, for years over complaints that such firms are taking advantage of an outdated tax code.

Apple provides a window on how technology giants have taken advantage of tax codes written for an industrial age and ill suited to today’s digital economy. Some profit at companies like Apple, Google, Amazon, H.P. and Microsoft derive not from physical goods but from royalties on intellectual property, like the patents on software that makes devices work.

Other times, the products themselves are digital, like downloaded songs. It is much easier for businesses with royalties and digital products to move profit to low-tax countries than it is, say, for grocery stores or automakers. A downloaded application, unlike a car, can be sold from anywhere.

The growing digital economy presents a conundrum for lawmakers overseeing corporate taxation: although technology is now one of the nation’s largest and most valued industries, many tech companies are among the least taxed, according to government and corporate data. As of last year, the 71 technology companies in the Standard Poor’s 500-stock index — including Apple, Google, Yahoo and Dell — reported paying worldwide cash taxes at a rate that, on average, was a third less than other S. P. companies’.

Article source: http://www.nytimes.com/2013/05/21/business/senate-panel-is-expected-to-castigate-apple-on-tax-tactics.html?partner=rss&emc=rss

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Republican Governors Push Taxes on Sales, Not Income

January 25, 2013 by Leave a Comment

WASHINGTON — Republican governors are moving aggressively to cut personal and corporate income taxes, including proposals that would increase reliance on state sales taxes, setting up ambitious experiments in tax reform that could shape what is possible on a national level.

Even as Washington continues to discuss, if not act, on ideas for making the federal tax system simpler and more efficient, governors, some with an eye on the next presidential race, are taking advantage of the improving economy and a gradual rebound in revenues to act.

In Louisiana, Gov. Bobby Jindal is pushing to repeal the state’s personal and corporate income taxes and make up the lost revenue through higher sales taxes. Gov. Dave Heineman of Nebraska is calling for much the same thing in his state. Gov. Sam Brownback of Kansas wants to keep in place what was supposed to be a temporary increase in the state sales tax to help pay for his plan to lower and eventually end his state’s income tax.

Along the way these governors are taking small first steps into a debate over what kind of tax system most encourages growth in a 21st-century economy. In particular they are focusing attention on the idea, long championed by conservatives but accepted up to a point by economists of all stripes, that the economy would be better served by focusing taxation on consumption rather than on income.

Taxing consumption has the potential to lift economic growth by encouraging more savings and investment. But the shift could also increase inequality by reducing taxes predominantly for the wealthy, who spend a smaller share of their income than middle- and lower-income people.

“The question of whether we should tax income or whether we should tax spending is really a proxy for a different debate,” said Joseph Henchman, vice president for state projects at the Tax Foundation, a conservative-leaning research organization. “Everyone agrees we’ll get more growth with consumption taxes. It’s just that some people prioritize fairness.”

Beyond citing economic growth, the governors and their supporters say their plans would help make their states more competitive in attracting employers and high-skilled workers, simplify their tax systems and curb pressure for more government spending.

For Mr. Jindal and other Republican governors who are considering a presidential run in 2016, there are obvious political benefits to having a robust income tax-cutting record to present to conservative primary voters.

But Democrats say the approach would lead to cutbacks in education, health care and other vital services while shifting relatively more of the tax burden to those who can least afford it.

“These aren’t pro-growth policies — they’re shell games that reward the wealthiest Americans at the expense of everyone else,” said Danny Kanner, a spokesman for the Democratic Governors Association.

Nationwide, sales taxes account for about 46 percent of state revenues, and personal and corporate income taxes for about 42 percent, according to the National Conference of State Legislatures. States with relatively low income tax rates like Louisiana, which raises about $3 billion a year from its personal and corporate income tax system, can more easily shift toward a sales tax-only system than states with much higher rates, like New York or California.

Louisiana already has the nation’s third-highest sales tax, after Tennessee and Arizona. Combined state and local sales taxes average 8.84 percent, according to the Tax Foundation.

It is not clear whether any of the proposals will make it into law; even in states with Republican-dominated legislatures, governors face difficulty as they pursue their proposals because changing the tax code almost invariably creates losers as well as winners. In Kansas, Mr. Brownback wants to pay for lower income tax rates in part by making permanent what had originally been a temporary sales tax increase, but also by eliminating deductions for property taxes and mortgage interest, setting off objections even in his own party.

And just as President Obama has raised income tax rates on upper-income families, Democratic governors including Martin O’Malley of Maryland, Jerry Brown of California and Deval Patrick of Massachusetts have supported or put in place income tax increases on the wealthy.

Article source: http://www.nytimes.com/2013/01/25/us/politics/republican-governors-push-taxes-on-sales-not-income.html?partner=rss&emc=rss

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Sarkozy and Merkel Call for More Fiscal Unity in Europe

August 16, 2011 by Leave a Comment

Amid a backdrop of official figures showing that economic growth in the heart of Europe is slowing and investors growing wary of a deepening debt crisis across the region, the two announced a series of proposals that they said were aimed at defending economic growth and strengthening the competitiveness of euro zone countries.

Ms. Merkel and Mr. Sarkozy vowed to set an example for other euro zone members by harmonizing their national policies on corporate income taxes and to establish a common tax on financial transactions by 2013. In addition, they said, French and German finance ministry officials would meet quarterly to share economic forecasts and coordinate policy.

“We want to express our absolute will to defend the euro and assume Germany and France’s particular responsibilities in Europe and to have on all of these subjects a complete unity of views,” Mr. Sarkozy said at a news conference alongside Mrs. Merkel at the Élysée Palace following two hours of closed-door meetings.

The proposals came as the leaders of the euro zone’s two largest economies faced mounting pressure to forge a joint approach to a widening economic crisis that has already engulfed Ireland, Greece and Portugal and threatens to pull in Spain and Italy as well.

In the United States, where stocks were still trading, the Standard Poor’s index of 500-stocks and other major indexes fell steeply as the two leaders held a news conference announcing the results of their meeting.

In what may likely be the most ambitious proposal, Mr. Sarkozy and Mrs. Merkel outlined a plan for each of the euro zone governments to enact legislation that would constitutionally bind their governments to balancing their budgets. This “golden rule” would be expected to be enshrined in the constitutions of all euro members by the middle of next year, the leaders said.

France and Germany also proposed the creation of what Mr. Sarkozy called “a true economic government for the euro zone” that would be made up of heads of state of all of the 17 nations that share the European currency. This council, he said, would meet at least twice a year and would be led by a president who would serve for a term of two and a half years. He said he and Mrs. Merkel would jointly propose that Herman van Rompuy, a Belgian and the current president of the European Union, be the first to take on this role.

“Germany and France feel absolutely obliged to strengthen the euro as our common currency and further develop it,” Mrs. Merkel said. “It is entirely clear that for this to happen, we need a stronger interplay of financial and economic policy in the euro zone.”

The summit meeting came as European stock markets were in retreat Tuesday for the first time in four days and the euro slid against the dollar following fresh economic data that showed growth in the euro area fell more than expected in the three months through June as growth in Germany came almost to a standstill.

Gross domestic product in the 17-nation euro area rose 0.2 percent in the second quarter of 2011 compared with the previous quarter, according to Eurostat, the E.U. statistics agency. Euro area growth was down from 0.8 percent in the first quarter.

G.D.P. growth in Germany, which has been the region’s economic locomotive, fell to 0.1 percent compared with the previous quarter, when the economy expanded 1.3 percent, the German Federal Statistical Office said. Analysts had expected growth of 0.5 percent.

Those gloomy statistics followed news on Friday that showed the French economy, Europe’s second-largest after Germany’s, did not grow at all in the second quarter. Slower growth means that tax receipts will also grow slowly, which will make it harder for Germany and France to support countries like Italy and Spain that are finding it increasingly difficult to borrow money at interest rates they can afford.

Greece is already in recession, while growth in Spain is slowing down more than expected this year. The Portuguese government expects the economy to contract 2.3 percent this year, compared with a previous forecast for a 2 percent decline.

German and Italian shares led a broad decline in European stocks Tuesday. Germany’s DAX index closed down 0.45 percent, while the FTSE Italia index shed 0.87 percent. France’s CAC 40 was 0.25 percent lower and Spain’s IBEX slipped 0.40 percent.

The S.P. 500 was down 1.40 percent in afternoon trading in the United States.The euro fell 0.48 cents to $1.4396.

Both leaders also flatly rejected — for now — an idea that has recently gained currency among a growing number of economists: The creation of new government bonds backed by all the nations of the euro zone.

“What we are proposing here is the means with which we can solve the crisis right now and win back trust, step by step,” Mrs. Merkel said. “I do not think euro bonds will help us in this.”

Mr. Sarkozy said he would not rule out euro bonds at some point in the future, but said greater coordination of economic policy among euro zone members was a necessary first step.

“Euro bonds can be imagined one day, but at the end of the European integration process not at the beginning,” Mr. Sarkozy said.

Euro bonds are a deeply controversial idea among both economists and ordinary Europeans. Critics say that they would not solve the financial crisis, and might create unbearable political tension instead. Voters in stronger countries would balk at assuming the obligations of less-prudent members. Some critics argue that euro bonds would unfairly raise borrowing costs for countries like Germany, and, rather than protecting the euro, could lead to the breakup of the currency union.

Article source: http://feeds.nytimes.com/click.phdo?i=7d91043b24e4fd068b47541346eef4c9

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