Apple is borrowing money.
What beggars disbelief is
that Apple has over $140 billion in cash on its balance sheet. Why would it
borrow money? It has to do with U.S. international taxation.
The U.S. has a “worldwide”
tax system. This means that an American is taxed on worldwide income,
irrespective of whether the American lives in the United States. This creates
tremendous inefficiencies when an American expatriates – that is, move overseas
with no immediate intention of returning. It is more common than you may first
think. I for example have family who have expatriated. They have married and
have children of their own. It is more likely that I will play in the NFL than
they will return to the U.S.
Apply that “worldwide” idea
to business taxation and you begin to understand the problem. Take a company
with plants, workforces, storefronts and offices around the world – a company
like Apple. Tell Apple that it has to pay U.S. tax on monies generated in
Australia, South Africa or Japan, and you are motivating Apple to seriously
reconsider its reason for being a U.S.–based company.
There are exceptions in the
tax code, both delaying and accelerating the general tax treatment discussed
above. Apple has gotten itself caught in
one. It has been able to move profits away from the U.S., but it now faces
problems returning them to the U.S. Consider also that Apple is facing pressure
to share its cash hoard with shareholders. How does it get that overseas cash
into the U.S. to pay dividends?
It borrows. A company that is
probably on sounder financial footing than the U.S. government is borrowing
money because of U.S. taxation.
Brilliant policy there,
Washington.
We may return to this topic
in a future blog. For now, here is the Reuters video:
