What Would Steve Jobs Tell Congress?

Like many I watched the kabuki theater that is Congress perp walking Apple CEO Tim Cook in front of a committee to berate the company for legally applying the tax code, that Congress itself created, to preserve cash using the offshore entities the income was earned in. I was left with the question “would Congress have dared bring Steve Jobs in front of a committee in this manner?” knowing full well that Jobs’ personal popularity and habitual bluntness would have left Congress with proverbial egg on their face.

I also could not help but notice that the CEO of the legendary tax firm with a small manufacturing business on the side, General Electric, was not hauled in front of Congress to explain how not only does GE use the tax code to the full extent but also how they successfully manipulate members of Congress to create new tax subsidies and incentives that they can then exploit for shareholder benefit. as they should. Few members of Congress would want GE exposing the one-hand-washes-the-other hypocrisy that is the intersection of money, politics, and public policy.

What about Cisco? They have over $50 billion in cash and all but $5b of it is offshore. John Chambers is on record pointing out the obvious, U.S. corporate tax law is stunting job growth and forcing companies to invest outside the U.S. Let’s bring Chambers in front of Congress.

However, what is lost in all this is that the companies pay taxes at many levels and the growth they experience economic growth which leads to a myriad of additional tax layers. Directly as a result of strong performance, companies like Apple, Microsoft and Cisco institute share buybacks and dividends which fuel capital gains tax receipts. Microsoft alone has returned $170 billion of cash to investors as a result of buybacks and dividends, which for U.S. investors and entities is a form of income that is then taxed.

To paint successful companies as money grubbing tax cheaters misses the point entirely, and fails to address the structural flaws in the overly complex and burdensome tax system the U.S. currently relies on. Richard Epstein at the Hoover Institution put it succinctly:

And so we are left with a series of distracting hearings meant only to excoriate a profitable American company for making entirely legal, and totally rational, decisions. Those hearings may have been useful if they had addressed serious structural reform. For instance, one possibility for reform is to lower American tax rates, which would induce more businesses to keep operations in this country in the first place. A second, more radical, possibility is to consider shifting to a consumption tax, which would eliminate all the distortions of the current system by gutting the present two-tier corporate tax and allowing the tax-free return of capital from abroad for everyone.  But at this moment, the insatiable demands of the welfare state leave too many misguided champions of tax reform clamoring for more money to fill the federal coffers.