"Think Apple looked at tax rates before it decided to open their stores ? Did McDonalds bring back McRibs because the tax rate was low enough ? Companies make strategic decisions every day. They invest because they want to grow the company. They invest because they are competitive and they want to win. They invest because they want to make more money. They don’t invest because they just had their tax rates lowered."
My Views on Corporations & Taxes — Mark Cuban (via apoplecticskeptic)
Apple is keeping 2/3rds of its massive cash reserves off-shore because it doesn’t want to pay taxes on them here. That’s money that the company could invest here, but isn’t. So Cuban is spectacularly wrong.
And as for McDonalds, there is evidence that the McRib reappears in correlation to downward fluctuations in hog prices. Which suggests that McDonalds’ decisions are extremely price sensitive. Taxes are a price. McDonalds gets that. That’s why their CEO just recently called for tax cuts as a way to repair the economy.
I need to call you out on the first link Jeff. At no point in that article does the CEO or CFO of Apple claim that they are keeping cash reserves off-shore to avoid tax rates in America. Whether that is empirically true is up for debate. But at no point does Rosenman quote language in which Apple’s Executive Officers claim that their holdings ratios are a result of U.S. Tax rates. Here is the portion of Rosenman’s article where he quotes Tim Cook and Peter Oppenheimer:
New CEO Tim Cook isn’t opposed to a dividend payout. He said as much in Apple’s conference call: "That said, I’m not religious about holding cash or not holding it. I’m religious about a lot of things but not that one."
However, dividend-yearning shareholders’ hopes were instantly crushed by CFO Peter Oppenheimer’s dose of reality:
"I’d like to add to Tim’s answer, just to remind everybody that a little over $81 billion of cash that we ended in the September quarter were a bit more than $54 billion or [two-thirds] of that was offshore."
Why are so much of Apple’s cash reserves offshore? Rosenman himself points out the answer:
Although Apple’s wealth is burgeoning, it’s the foreign money that is really booming. More and more, earnings have been socked away in yen, euros and the real as Apple moves into overseas markets. Currently, over two thirds, or $54 billion, lies offshore, a development that has profound implications for Apple and shareholders. Notice that cash is growing much faster overseas than in the United States because Apple’s rest of world business is on fire. At this rate, Apple’s foreign money will tower over its U.S. holdings, probably reaching a 3:1 ratio by 2013.
This, of course, is to the benefit, and not the detriment, of Apple’s American shareholders. Growth in foreign holdings increases the value of Apple’s shares. The same thing was pointed out by GE CEO Jeffrey Immelt when he was asked by Lesley Stahl for CBS News why 60% of GE’s revenue was earned overseas:
Stahl: Sixty percent of GE’s revenue is foreign.
Immelt: When I became CEO it was 30. Now, I wish all our customers were in Chicago. I mean everything about the U.S. is easier than doing business [overseas], but this is where the growth is.
Apple is keeping cash reserves overseas because that’s where the growth potential (i.e. market share) is, not because tax rates are lower. Reducing America’s corporate tax rate would not encourage Apple to bring their cash reserves back to America because their decision to invest (or not invest) in Apple’s business enterprise has more to do with demand and less to do with their tax rate. And if Jeffrey Immelt’s account is to be believed, then it’s actually easier to do business in America than in Europe or Japan. But they aren’t investing that money in America because the growth potential is simply not there.
Now we can argue about whether this growth potential is a function of structural consequences inuring from our tax policy writ large. But the specific conclusion that Apple’s business decisions are a function of quibbles over tax rates is Rosenman’s own conclusion, not that of Apple’s executive leadership. And to the extent that his analysis may be valid, he contradicts himself by pointing out that Apple’s overseas investment is a function of growth potential in overseas markets, rather than flight from America’s corporate tax rates.
As far as Mcdonald’s CEO is concerned, a recent survey of small business owners suggest that taxes are the least of their concerns when it comes to their hiring decisions. NPR discovered the same thing when they contacted medium-sized firms about their economic concerns. The assertion of McDonald’s CEO that business taxes are what’s slowing the economy sown are contradicted by the broader business community he is a part of.