iCheat: Apple's Tax Avoidance

It's becoming harder and harder to ignore a depressing fact: one of America's most admired companies is also among its least ethical. Yes, that would be Apple.

Now, in response to the latest expose on Apple --  the long New York Times article yesterday detailing the company's tax evasion -- any number of commentators have leaped to the company's defense to say that it doesn't behave any differently that many other companies that exploit tax loopholes. And yes, that is true. Just like it is true that plenty of other tech companies also turn to Foxconn to manufacture its products and  the abuses uncovered in plants where iPads are made are nothing unusual.

If all that is so, why single out Apple as being especially unethical?

Three reasons: First, is scale. Apple may be doing the same thing as other companies, but as the world's most valuable company, and one of it's most profitable, the impact of Apple's actions are greater and more harmful. When Apple engages in tax avoidance -- for instance, by transferring intellectual property created in the United States to offshore tax havens to avoid taxes on profits from that property -- the costs to the U.S. Treasury and to California is much greater than when other companies do the same thing. The Times, quoting a former Treasury official, estimated that if Apple had more honestly assessed what percentage of its profits were generated by its U.S. operations, it would have owed $2.4 billion more in federal taxes last year. Instead, the rest of us taxpayers had to make up that difference.

A second reason to single out Apple is because, as the nation's top company, it has a greater responsibility for ethical leadership. We rightly expect visible individual leaders and corporations to hold themselves to the highest standards because they are role models for so many others. Conversely, we should all be fearful when role models are pioneers of bad behavior, given how that can legitimize such behavior. If Apple, as one of the most influential companies in America, is a pioneer in tax avoidance -- inventing schemes like the "Double-Irish" as detailed by the Times -- that is going to have much more pernicious effects than innovative avoidance by an obscure company. As they say, the fish rots from the head down.

Third, Apple can afford to behave better. This is phenomally profitable company; its recent quarterly profits are among the highest ever recorded by any company. It is a veritable money-making machine for its shareholders. So why be so aggressive in trying to find every last loophole in the tax code? Why push workers to exhaustion and suicide in Chinese sweatshops? Why shift operations to Nevada to deprive California of a fortune in taxes (also detailed  by the Times) even as the state where Apple started, drawing on an educated work force, is forced to slash funding for its public schools and universities.

Steve Jobs once told Barack Obama that, in order to compete for tech jobs, the United States needed to train many more engineers and other skilled workers. Very true. But that's hard to do when top U.S. corporations are doing their best to starve the public sector of resources.

What the U.S. desperately needs right now, as it faces growing global competition and intense fiscal pressures, are not just corporate leaders who call for more investment in the foundations of national prosperity; but also leaders who are willing to put this priority above a narrow bottom line. Corporate wealth is created in America because of the public structures that make wealth creation possible -- the schools, roads, laws, and so on. Those who benefit from these public structures should contribute to sustaining them; and more, understand that strengthening them will make everyone richer in the end.

Maybe that is too much to ask in an era where corporations are multi-national entities and their managers serve only shareholders. It's sad. Americans take such pride in Apple. But, as it turns out, the company doesn't take much pride in America.

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