Saturday, May 25, 2013

Political Theater is to Theater as Military Music is to Music

This week Senator Carl Levin and his Homeland Security and Government Affairs Subcommittee held a hearing on tax practices for multinational corporations. (A copy of his opening statement is included in the hot link with his name.)  Note, the Senator is not a member of the Finance Committee, which writes tax legislation so the purpose of the hearing was not legislative in any real sense of the world.  Also note that he was able to pull out his own personal iPhone as a prop to make sure the media could snap a photo.

Levin's opening statement is a good example of his biases.   He called the Apple policies, which has operations all over the world, a "tax avoidance" strategy.   Levin seems to have no understanding of the monstrous tax code that he helped to create.  Nor does he seem to have any idea about the complexity of operating a corporation all over the world.   Corporations that do business in many countries have to deal with individual tax policies of the countries they operate in.  At the same time they need to work hard to deal with fluctuating exchange rates and a whole host of other challenges.    

Obviously, there are lots of US based companies that have subsidiaries outside of our borders.  One wonders (actually I do not wonder) why Senator Levin failed to include some other large multinationals in his web - for example, what about General Motors?

Tim Cook's opening statement was clear and unambiguous.  He said “We don’t depend on tax gimmicks. We don’t move intellectual property offshore and use it to sell our products back to the United States to avoid taxes. We don’t stash money on some Caribbean island. We don’t move our money from our foreign subsidiaries to fund our U.S. business in order to skirt the repatriation tax.”   Cook also pointed out that the APP store alone has created 300,000 jobs in the US and generated $9 billion for those developers.   Levin seems to have missed the point.   But then the point of this exercise was not to build understanding.

The ranking member on the subcommittee, John McCain, took the same kind of one sided approach to looking at the situation.   McCain event went so far as to quote Senator Levin in his opening statement.   Levin seems to think that if all the operations of Apple were repatriated that all of his pet social programs would be better funded.   Here is the relevant quote from Levin's opening statement -

"Because of those cuts, children across the country won’t get early education from Head Start. Needy seniors will go without meals. Fighter jets sit idle on tarmacs because our military lacks the funding to keep pilots trained. Apple and the other companies exploiting tax loopholes depend on the safety, security and stability provided by the U.S. government. Their economic existence depends on the U.S. government’s energetic protection of their intellectual property – property which they develop here, and keep under the protection of the U.S. legal system, while shifting the income it generates overseas."

One member of the committee got it right about the purpose of the show trial that Levin called a hearing.

There are several problems with these types of media events.   They don't ever bother to deal with the kinds of issues that are fundamental like tax complexity.   They start with a conclusion hoping to generate not sound public policy but media coverage.   Second, they make many of the participants look like buffoons. (And that may not be a bad thing.)   After reading Senator Levin's opening statement and listening to his questions of Apple Executive Tim Cook, it is pretty clear that Levin never had a course in basic accounting.  Third, and most importantly they do nothing to advance a legislative agenda or to solve a problem.    The US Tax Code is overly complex and based on the last decade or so its rate structure is considerably higher than other nations.   That makes it a lot harder for US corporations to be successful.   Tim Cook's responsibility to shareholders is to assure that Apple is a profitable company not to fund Levin's pet social programs.   If Cook does his job well, the government will generate a lot of tax revenue.  (And based on the statement from Cook, they did.)  In Levin's ideal world some Senate staffer would have the responsibility to determine Apple's tax liability.

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