Apple Inc. recently “took a bite” out of its corporate tax liabilities and caused a public outcry. But the ethical issues raised by such a move do not begin or end with them alone.
The discovery that this innovative technology giant (that has successfully placed cutting edge tools in half of the homes in America) has legally avoided paying U.S. federal income tax on billions of dollars of net income has many outraged and questioning the ethics of their actions.
The company was called before a Senate committee to give an explanation under the suspicion that the company was involved in a scandalous – allegedly illegal — practice.
“During its investigations, the subcommittee found that Apple considers three key subsidiaries, all based in Ireland, to have no tax jurisdiction at all. One of those Irish affiliates, Apple Sales International (ASI), reported sales income of $74 billion over four years but paid hardly any tax. In 2011 ASI had pre-tax earnings of $22 billion but paid just $10 million in tax, a rate of 0.05%.”
In rebuttal, the company’s CEO, Tim Cook, gave a plainspoken response: “We pay all the taxes we owe, every single dollar,” said Cook, who also insisted that Apple doesn’t rely on tax “gimmicks” and doesn’t “stash money on some Caribbean island.”
For the record, other technology giants, Google and Facebook, have also found legitimate tax minimizing strategies that have spared them from forking over federal corporate taxes on profits. It is widely known that many other multi-national corporations are practicing similar tactics.
While some lawmakers decry these legitimate “loopholes” in the tax code as unfair or worse, unethical, I would argue that we are witnessing the a modern example of shrewdness in action.
Jesus himself observed that the “sons of this age are more shrewd” at working the system than the righteous. Certainly most people, in looking at their own taxes, may find themselves feeling foolish in comparison.
With a breathtaking display of international structural maneuvers, Apple found a way to shield its income earned outside of the U.S borders. With today’s muddled tax code, a good tax adviser can make all the difference in the world. And any company knows that paying more taxes than legally required does not make their shareholders happy.
The current tax code and associated regulations, estimated to contain almost 5.6 million words (nine times as long as the Bible) allows for corporations and individuals alike to take advantage of clearly stated means to reduce their tax liabilities.
Some would argue that is wrong or unjust. But it is legal. Thus, it is neither unfair nor unethical nor unpatriotic to wisely plan to minimize your income tax. Conversely, it is not fair or ethical to break the law and defraud the government of what is rightfully owed.
The Bible makes it clear for Christians that we are ethically bound to “render unto Caesar what is Caesars” (Matthew 22:17). We are also instructed in Romans13:7 “if you owe taxes, pay taxes”. Paying taxes is a responsibility supported by scripture. But paying more than the law requires is not.
The Senators first reaction – “to close the loopholes” — is a misguided effort that will likely cause corporations and small business owners to seek to relocate their corporate entities and their corresponding jobs outside of the reach of the tax collector. Escaping the taxman is a corporate mandate that has and will continue to kill many jobs.
The case of Apple’s excessive success at legal tax avoidance should lead our legislators to examine the real unethical practices with our current system – sacred political cows allowed to opt out of taxes and political constituencies given a free pass. An estimated one-half of all Americans pay no federal income tax while the top 5 percent of wage earners pay nearly 50% of the revenues collected by the federal government.
I support a reform of both government spending and the tax code itself. Corporations and individuals should pay fewer taxes not more while all Americans should pay their proportionate share.
Our elected representatives should see this as a wake-up call and present to the American people a convincing plan that they can operate within an efficient and effective budget that allocates resources for the common good as intended by the Constitution.
Punishing the most efficient stewards of resources to garner more for the most inefficient users who often redistribute it for political favors and special interests is not good public policy. Partisan use and abuse of the IRS and the tax code is also an ethical issue. Placing a contrived burden on political rivals and protecting political allies and their cash does not build confidence in the current system. This should be another focus of outrage.
We need a sweeping overhaul and simplification of the tax code. This has been long overdue and many good plans have been repeatedly rebuffed. Every citizen of America that drives our highways enjoys the peace provided by our public security and the benefits afforded by our freedom should pay the same proportion of taxes regardless of income.
A flat tax would be a tax code all could understand; or, disbanding the current income tax structure altogether to consider a national sales tax, for example, would ensure that all pay as they consume – which naturally would impact big spenders more than modest consumers.
As presidential candidate Herman Cain once famously quipped, “If 10% is good enough for God, it should be good enough for the government.” The old adage, “Only two things in life are certain, death and taxes” is now only true for half of us. How ethical is that?
Chuck Bentley is CEO of Crown, a nonprofit business and personal finance policy and educational organization, and best-selling author of “The S.A.L.T. Plan: How to Prepare for an Economic Crisis of Biblical Proportions” as well host of the nationally syndicated radio feature, My MoneyLife™, follow him, @chuckbentley. For more information, go to www.crown.org.