Apple and tax reform: Controversy should provide incentive for Silicon Valley to join the tea party

By Sal Russo, 05/29/2013 (Via email)
Silicon Valley has been a phenomenal success story in almost every way, and sometimes that can breed a feeling that good times will go on forever. The tea party movement has not found a lot of Valley support in its efforts to scale back the size, cost and intrusiveness of the federal government. But perhaps the attack on Apple's tax avoidance strategy will serve as a wake-up call to the tech community.

Apple CEO Tim Cook's call for corporate tax reform was music to the ears of tea partiers. His company is illustrating a basic truth: When taxes get too high, people will avoid paying them either by using tax avoidance strategies, as Apple has done, or by not producing more goods and services that consumers want. All of it is bad for economic growth and provides fewer opportunities for American workers.

Apple's success has been defined by its simple, intuitive designs. It is too bad the same can't be said about the U.S. federal tax code. There is nothing sleek and sexy about the 73,954 pages of complex jargon that incentivizes offshore stashes and encourages the type of crony capitalism that gives favors to special interests.

Presidents John Kennedy, Ronald Reagan and Bill Clinton all supported lower tax rates; the wisdom of lower rates should be indisputable. Unfortunately, President Barack Obama has shown no interest in meaningful tax reform, only in his policy of high tax rates and special favors for industries or companies he favors.

That's why it's mind-boggling that employees of companies like Apple have supported Obama so overwhelmingly, even as his policies have impaired economic growth. During the 2012 election cycle, 87.3 percent of contributions from Apple employees to presidential candidates went to Obama - a total of $307,831.

Obama is happy to keep spending more money, raising more taxes, passing more regulations and promoting unsustainable increases in the national debt. Despite the results of these policies -- inhibiting economic growth and profitability -- Silicon Valley has unfortunately been loyal with its votes and money.

It is hard to make a strong case that Apple should pay the United States' exorbitant tax rates when the company can park its money overseas and pay limited taxes. The U.S. corporate tax rate is a whopping 35 percent. That is the highest in the world, and it is also 10 percentage points higher than the 34-nation Organization for Economic Cooperation and Development average.

If U.S. tax policy encouraged repatriation of overseas profits, some of those dollars would provide more in government revenue and, most importantly, give more generous rewards to shareholders. Think of what those billions of dollars sitting overseas could do to help these companies and our economy grow. Sen. Rand Paul was correct to put the blame on Congress, not Apple, for poor policies.

A 2011 New America Foundation study advocated the reduction of the corporate tax rate on repatriated profits to create an economic boost. The study estimated that the policy would result in 1.3 million to 2.5 million new jobs and an increase of $36 billion in federal tax revenue.

With anemic economic growth and crippling debt, it is hard to imagine that the public and private sectors cannot come together to demand this kind of change.

This is a good time for Silicon Valley to wake up and join the tea party in advocating for fundamental tax reform. Big and intrusive government with high taxes does not work if you want economic growth and opportunity for our people.

Sal Russo is chief strategist for Tea Party Express.