THE BLOG
06/06/2013 03:35 pm ET Updated Aug 06, 2013

A Sour Apple

Apple is one of America's favorite companies. Consumers love their products and true Apple devotees are a loyal bunch. That's why news of Apple's off-shore profits and tax avoidance made big headlines. "Apple Avoided Taxes on Overseas Billions," wrote the Wall Street Journal on May 20. But is this really a surprise? Big corporations do everything they can to avoid paying taxes. And, despite making good use of all the advantages that comes with being an American company, these corporations don't feel compelled to pay into our society.

"We sell iPhones in over a hundred countries. We don't have an obligation to solve America's problems. Our only obligation is making the best product possible," an anonymous Apple executive said in 2012. Globalization has had many effects, but one of the greatest seems to be that corporations now have so many "homes" that they pick and choose the locations that offer them the best regulatory and tax breaks. They have no allegiance to country or people -- unless they need something. As Senator Carl Levin said in hearings in May, Apple and companies like them shirk their tax duty but "depend[s] on the safety, security and stability provided by the U.S. government."

Clyde Prestowitz, founder and head of the Economic Strategy Institute, recounted this story about helping Apple create markets in Japan in the 1980s:

In the 1981-86 period I was one of the U.S. government's top trade negotiators, especially with Japan. At that time, Apple was trying to crack the Japanese market for personal computers and getting nowhere. Steve Jobs and other Apple executives had the funny notion that the U.S. government had an obligation to help them and asked me and other negotiators at the Commerce Department and the Office of the U.S. Trade Representative to help them get on the shelf in Japan. We did all we could and in doing so came to learn that virtually everything Apple had for sale, from the memory chips to the cute pointer mouse, had had its origins in some program wholly or partially supported by U.S. government money.

But, keeping profits off-shore is not the only way that companies like Apple avoid taxes. In August 2011, Democratic Senators Carl Levin of Michigan and Sherrod Brown of Ohio introduced, for the third time, legislation that would close the gap between the book value of stock options recorded when they are issued and the actual value of the options when they are exercised, often years later at many multiples of their original worth. As the tax code now stands, corporations can deduct this difference as "excess stock-based compensation," a term convoluted enough to hide a multitude of sins. The greatest beneficiary of this double-standard accounting in 2010 was Apple, which deducted $743 million in excess compensation and received, in effect, a tax subsidy of $260 million.

Apple is certainly not the only corporation that operates this way -- and, as was acknowledged in today's hearing, their tax avoidance did not actually break a law -- but that does not make it right. Our corporate "citizens" need to take the responsibilities as well as the rights of citizenship. It turns out that what is good for business is not good for America.

We want to be proud of our American companies and support them but there is more to being a business than just making goods. We've have a long tradition of good corporate citizenship in this country but these large multinational corporations with American roots no longer pull their weight and to my mind it's very unpatriotic. If they want the loyalty of the American people and they want the benefits that come with being "citizens" of this country then they must pay their fair share -- in taxes -- just like the rest of us do.

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