By Kevin D. Williamson
Wednesday, August 31, 2016
The interaction between big businesses and small
countries can be strange. Add in a big, transnational government, and things
get even stranger.
Apple is in trouble — largely symbolic trouble — over the
taxes it owes to the government of Ireland. Apple insists that it has paid its
taxes. The government of Ireland . . . also insists that Apple has paid its
taxes.
The European Union is of a different view.
I’m told that “British” is a horrifying term of abuse in
the Republic of Ireland, but the ladies and gentlemen in Dublin are getting a
good big dose of what made their former countrymen to the east wave a big
middle finger called Nigel Farage at the busy-bodies in Brussels and declare
their intention to skedaddle right out of the European Union post haste. They
might want to follow the British example.
Of course, it’s unlikely that Ireland would leave the
European Union.
Apple might.
Applexit? Maybe iLeave?
Ireland has relatively low corporate taxes for a European
country, which means that it has considerably lower corporate taxes than does
the United States, which for various stupid reasons maintains the highest
business-tax rate in the civilized world, which is what this really is all
about in the end.
That’s only marginally of interest in Brussels. What
Brussels cares about right now is that Ireland has lower taxes than many other
EU countries, which creates what the masters at the EU regard as unfair and undesirable
“tax competition.” Competition apparently is great for markets (hurrah,
choice!) but not for governments (hurrah, monopoly?), at least from the EU
point of view. The EU is, after all, a creature of the public sector and of the
political movements most closely affiliated with the public sector, and the
public sector likes its tax rates high, its revenue streams strong and steady.
That the lords of Copenhagen (Danish corporate tax rate: 24.5 percent) should
have to compete with the lords of Dublin (Irish corporate tax rate: 12.5
percent) is considered unseemly, even as all of them enjoy their competitive
advantage over the grubby little lords of Washington (U.S. corporate tax rate:
39 percent). Competition is for taxpayers, not for tax-collectors.
Apple doesn’t pay 12.5 percent in Ireland. It reached an
arrangement with Dublin back in the early 1990s — a perfectly legal agreement
that any sovereign state would be entitled to enter into — that leaves it
paying a much lower effective tax rate. The ladies and gentlemen in Dublin like
this arrangement just fine, because even at a low rate, they get to collect a
heap of taxes from a firm that otherwise wouldn’t have much reason to do any
business in Ireland other than retail sales, a firm that employs thousands of
Irish workers at very good wages and that keeps parked on its Irish books some
$200 billion in liquid assets, or about $44,000 for every man, woman, and child
in Ireland. That’s one company.
The Irish are said to be charming, but it isn’t good
conversation that’s keeping all that Apple schmundo over in leprechaun-land.
It’s the 39.1 percent tax bite U.S. authorities would take if those profits
were repatriated to the United States. It isn’t the weather, or the
infrastructure, or the work force that has companies like Apple and global
pharmaceutical giants going big in Ireland, though Ireland can boast of having
great assets in all those areas.
It’s the money. Profitable firms like to keep their
profits.
Apple engages in some legal and accounting hijinx to make
all this happen in Ireland. But none of what it does is illegal, so far as the
U.S. government is concerned. None of it is illegal so far as the Irish government
is concerned. And it’s not exactly illegal in the European Union’s view — just
not the way Brussels would like to see it done. The European Union has ordered
the Republic of Ireland to collect back taxes that the Republic of Ireland says
are not owed to it. If Ireland is indeed still a republic and not a prefecture
of a European superstate, then it has the sovereign authority to make final
determinations in such matters for itself. If Ireland doesn’t have that power,
then it seems like the Irish went to a great deal of trouble in pursuit of that
whole national-sovereignty thing.
Washington is, quietly and sometimes not-so-quietly, on
Brussels’s side in this business. That’s because it thinks of that $200 billion
Apple has on its Irish books as its own money, at least 39.1 percent of it.
It’s a familiar and unedifying process: The geniuses in Washington create
enormous and powerfully perverse economic incentives, companies and individuals
respond to those incentives in a way that complies with the law, and the
geniuses in Washington denounce the taxpayers for following the laws written by
the geniuses in Washington. That happens domestically, as when private-equity
firms pay the capital-gains tax on their capital gains (weird, right?) instead
of the much higher corporate-income tax rate, which doesn’t actually apply to
their capital-gains earnings. The people in Washington are by education
(“education”) overwhelmingly lawyers, so they usually know better than to claim
that anything illegal has been done, which is why we get into speeches on
“economic patriotism,” an ancient fascist expression that has found favor among
Democrats such as Bernie Sanders, Hillary Rodham Clinton, and Barack Obama in
recent years.
We could decry overseas tax shelters for the next decade
or two, and change absolutely nothing, or we could — here’s a crazy idea — be the tax shelter. You know what
Ireland, Norway, and Sweden all have in common? Within living memory, all were
desperately poor. That’s why there are more Irish Americans than Irish
nationals, more Norwegian Americans than Norwegians, and more Swedish Americans
than Swedes. Hunger will make you get on a boat. Sweden grew wealthy under a
form of laissez-faire capitalism strikingly different from the EU norm today, with
lower taxes and a smaller public sector than its European counterparts.
Norway did much the same thing, helped along by a great deal of oil (which can
be both a blessing and a curse). Ireland eventually got sick of being poor and
followed a similar program.
It would be interesting to see what would happen if that
strategy were followed by a very rich nation — one that accounts for something
like a quarter of the economic output of the entire human race. One need not
give in to the fantasy of self-funding tax cuts to consider that there might be
some significant growth effects and a great deal of new innovation if a whole
lot of business that’s being done in Ireland and Singapore and Korea got done
in California and New Jersey and Texas instead. The corporate tax code already
is filled with so much crony-tastic favoritism that politically connected firms
pay relatively low rates. Why not make it a good deal across-the-board and
out-Irish the Irish with a 10 percent flat tax on corporate income? Corporate
taxes in total only account for about 11 percent of federal revenue, so we
wouldn’t even have to cut that much spending to make it revenue-neutral. There
are other tax reforms that should be made, but cutting — or eliminating
outright — the corporate income tax isn’t the worst proposal on the books,
either.
Don’t fear the tax shelter. Be the tax shelter.
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