On Tuesday, executives of Apple got hauled before the Senate Homeland Security and Government Affairs Subcommittee to testify about their “tax avoidance” strategies, specifically their stubborn refusal to haul income earned overseas back to the United States, so it can be subjected to the highest effective corporate tax rates in the world, administered by those paragons of integrity at the Internal Revenue Service.
Governments should compete to attract corporations, not build razor-wire legal fences to keep them from escaping. And this weird quasi-legal concept of “tax avoidance” – which, unlike tax evasion, breaks no laws – is another effort by greedy politicians to extend their power beyond the laws they have duly debated and passed. Not only does Big Government control us through the tax code, it now expects us to obey unwritten commands and cater to its desires, by refraining from legal actions that minimize our tax exposure.
Senator Rand Paul (R-KY) was at the subcommittee meeting, and spoke powerfully in defense of Apple and other American corporations. Paul defended their right – indeed, their fiduciary duty to shareholders – to minimize their tax liability, just like every one of his esteemed Senate colleagues does.
“I’m offended by a government that uses the IRS to bully Tea Parties,” said Paul. “But I’m also offended by a government that convenes a hearing to bully one of America’s greatest success stories. I’m offended by the spectacle of dragging in executives from an American company that is not doing anything illegal. If anyone should be on trial here, it should be Congress… for creating a bizarre and Byzantine tax code that runs into the tens of thousands of pages… for creating a tax code that simply doesn’t compete with the rest of the world.”
Paul suggested that if Congress wants to find out why corporations are moving operations overseas, they should spend some time staring into “a giant mirror.” He also made the crucial point that today’s super-successful, profitable corporation was yesterday’s struggling start-up. Apple, like many business enterprises, went through some hard times before achieving the level of profitability that makes it look like a pinata full of cash to money-hungry politicians.
Paul noted that any accounting team that worked to deliberately maximize a company’s tax exposure would be guilty of “malpractice.” He thought it would be amusing to find some companies that intentionally make their tax liability as high as possible, and bring them before the subcommittee for testimony. He seemed to think it would be difficult to round up such executives. I would suggest using a butterfly net.
This ties back into his point about global competition. CEOs who trudge willingly onto the high-tax plantation created by the American political class will find themselves outmaneuvered by those who refuse to do so. That’s why a lawful, limited government cannot expect private citizens to look beyond what it legislates, and do what it wants.
Senator Paul called for Congress to pass business-friendly reduced tax rates to bring corporate income back to America, rather than trying to squeeze pennies from their pockets with subcommittee witch hunts. “Money goes where it’s welcome,” remarked Paul. “We’re chasing people away from us.” I would add that money can also be kept imprisoned, but it always dies in captivity.