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 What Rand Paul Fails to Understand about Apple’s Tax Dodging

During the May 21 Senate hearing on Apple’s tax practices, Senator Rand Paul (R-KY) said lawmakers should apologize for “bullying” the company and holding a “show trial,” and says he’s “offended by the tone” of the hearing. Senator Paul, who took the opportunity to call for a “repatriation holiday,” claims that the debate over tax reform should not include a discussion of the tax avoidance practices of a corporation like Apple.

As CTJ has explained, the hearing uncovered how Apple is shifting profits out of the U.S. and out of other countries and into Irish subsidiaries that are not taxed by any government. Senator Paul’s response is a non-sequitur: What Apple is doing is legal, therefore Congress should not debate whether or not its practices ought to be legal. 

Tax Reform Will Go Nowhere Unless We Know How Specific Companies Like Apple Avoid Taxes

Senators Carl Levin (D-MI) and John McCain (R-AZ), the chairman and ranking Republican of the subcommittee that investigated Apple, understand three basic facts that escape Senator Paul. First, our corporate tax system is failing to do its job of taxing corporate profits. Second, virtually no one in America can understand this until someone explains how individual corporations are dodging their taxes. Third, the corporations themselves will, quite naturally, lobby Congress to defend and even expand the loopholes that facilitate their tax dodging.

Once you understand these three facts, it becomes clear that the only path to tax reform is to explain to the public how certain big, well-known corporations are avoiding taxes.

An abstract debate about corporate tax dodging — a debate that doesn’t mention any specific corporations — is not likely to result in reform. Just look at President Obama’s approach. He first made his proposals to tighten the international corporate tax rules in May of 2009. The proposals made barely a ripple in the media at that time, and no one in Congress even bothered to put them in legislation.

On the other hand, the New York Times expose on GE’s tax dodging in March of 2011 was discussed by everyone from the halls of Congress to the Daily Show. CTJ’s big study of Fortune 500 companies’ taxes — including 30 companies identified as paying nothing over three years — was published in November of that year and is still cited today in debates over our broken tax code.

Senator Levin has legislation to crack down on corporate offshore tax avoidance — which includes several of the President’s proposals. Levin’s bill includes an Obama proposal — reform of the “check-the-box” rules — that Obama himself backed away from under pressure from corporations. (CTJ’s explanation of Levin’s hearing and report on Apple explains how the company took advantage of the current “check-the-box” rules.)

Senator Paul’s Solution: Facilitate More Tax Avoidance with a “Repatriation Holiday”

As CTJ explained last week, Senator Paul proposes a tax amnesty for offshore corporate profits, which proponents like to call a “repatriation holiday.” We explained that Congress tried this in 2004, and the result was simply to enrich shareholders and executives while encouraging corporations to shift even more profits offshore in the hope that Congress will enact more “repatriation holidays” in the future.

Senator Paul’s slight of hand during the hearing was impressive. He argued that instead of targeting Apple, the discussion should be about how to fix the tax system (assuming away the possibility that an explanation of Apple’s practices would facilitate that discussion), and then moved on to argue that the necessary fix is a repatriation holiday. In other words, leave Apple alone because its tax avoidance practices are legal, and instead let’s legalize even more tax avoidance.

This has generally been the position of Apple, which has lobbied for a repatriation holiday. Apple CEO Time Cook argued at the hearing that Apple would like a more permanent change to the tax code, one that would slash taxes (if not eliminate taxes) on offshore profits that are repatriated.

The truth is that corporations like Apple lobby for as many tax loopholes and breaks as they can get. We may see them as morally culpable. Or we may think it’s natural for people to ask for the very best deal they can get — just as children naturally argue for the latest bedtime possible and the largest quantity of ice cream possible. Either way, Senator Paul’s claim that America’s interests can be served by simply giving corporations what they ask for is absurd.