More Evil Than Genius? How iPad and Google Glass Makers Are Secretly Scamming America
Facebook founder and CEO Mark Zuckerberg during an interview session with The Atlantic at the Newseum in Washington, DC on September 18, 2013
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To really understand the extent of Google and Apple’s innovative zeal, you may want to look past their groundbreaking products – and more at their tax avoidance strategies. In a new scheme that defies belief, some of the nation’s top tech giants are managing to evade taxation on money by parking it overseas – and then somehow taking government payments on it.
Though the rest of the business sector had a head start, tech firms have begun to lobby Washington with more persistence over the past few years; the top 10 spent more than $61 million in 2013. The more hopeful among us might believe this shift could possibly produce more beneficial results for the public. (After all, Google’s motto is “don’t be evil,” right?)
But while it’s true that, in certain discrete areas, tech lobbying has yielded positive results — like when companies aided grass-roots efforts to stop Internet censorship legislationsought by Hollywood — in the vast majority of cases, Silicon Valley wants what the rest of our multinational conglomerates want: low taxes and cheap labor. And they’ve been at the forefront of efforts to ensure that.
Take a look at the recent Bloomberg report on companies stockpiling cash in offshore tax havens to avoid higher U.S. rates, for example. (Though the new FiveThirtyEight.com downplayed the significance of this buildup, in actuality it has increased at a fairly steady 10-15 percent rate since the start of the Great Recession.) The tech sector has led the way on this, moving their patents and other intellectual property to low-tax countries to give the appearance that their profits have been earned offshore.
According to Securities and Exchange Commission filings, Apple, Microsoft and IBM accelerated their overseas profit hoarding in 2013 more than their counterparts, adding $37.5 billion to the pile. Over the past three years, Microsoft’s cash stash has more than doubled, and Apple’s has quadrupled. In all, seven tech companies – the three mentioned above, along with Cisco Systems, Oracle, Google and Hewlett-Packard – have $341.3 billion sitting in offshore accounts. At current tax rates, the companies would have to pay $119.45 billion of that to the IRS if they repatriated it. Much of this money is held in segregated U.S. bank accounts, solely for the purpose of avoiding taxes by nominally keeping it offshore.
Sure enough, tech firms are among the companies lobbying for a repatriation tax holiday, which would allow them to return that money home at ultra-low rates. The LIFT Coalition(short for Let’s Invest for Tomorrow), run by former Obama administration communications director Anita Dunn, advocates for the repatriation holiday, and includes Intel, Cisco, Hewlett-Packard, the Semiconductor Industry Association, and “ TechNet,” a separate lobbying coalition that counts as its members Google and Facebook.
These lobbying coalitions claim that repatriating the money will allow companies to invest and spur economic recovery, although the last repatriation tax holiday, in 2004, did nothing of the sort. The top 15 companies that made use of that holiday to move money home actually cut 20,000 jobs in the aftermath, while increasing their executive compensation and stock buybacks, according to a report from the Senate Permanent Subcommittee on Investigations (Hewlett-Packard and IBM were among the 15 companies benefiting the most). Sadly, both the recent Republican tax reform proposaland the Obama administration’s budget call for a repatriation tax holiday along the lines of the lobbying coalition’s wishes, so their efforts could bear fruit.
But it’s actually worse than all this. A report from the Bureau on Investigative Journalismshows that these tech firms are actually taking government payments on the money they have parked overseas to avoid taxation. That’s because that money isn’t sitting under a mattress somewhere in Bermuda or the Cayman Islands; it’s invested, and the No. 1 investment these firms use is the ultra-safe, ultra-liquid instrument of U.S. government debt.