Editorials

EDITORIAL: U.S. must overhaul and lower corporate taxes

Apple Inc. isn't doing anything illegal, or different than lots of other U.S. corporations are doing to shave their tax bills. It's just being more ingenious and aggressive than most about playing every possible angle.

But if flogging Apple -- as a congressional panel did last week -- focuses attention on the corporate tax mess and pushes reform forward, so be it.

Apple, based in the Silicon Valley, is a juicy target because it is so well known and because its profits are so astronomical. Between 2009 and 2012, the company shielded at least $74 billion in profits, in part by funneling the money through shell subsidiaries in Ireland that have no employees or offices, according to the U.S. Senate Permanent Subcommittee on Investigations. Investigators estimated that Apple avoided at least $3.5 billion in federal taxes in 2011 and $9 billion in 2012.

The problems with corporate taxes go far beyond Apple, however. And they increase the tax burden on everyone else.

Our tax code is outdated, shot through with loopholes begging to be exploited by corporations. While the official federal corporate income tax rate is 35%, the average rate that U.S. companies actually pay is closer to 25%. Many profitable firms pay less, or even nothing at all. In 2011, the effective corporate tax rate was the lowest in at least 40 years.

One major flaw is that it's too easy and too lucrative for multinational companies to shift and shelter profits abroad. Apple has the biggest overseas stash at about $102 billion, but other companies -- especially high-tech firms, whose assets are mostly intellectual property -- have piles of cash, too. According to one estimate, just the largest 83 companies have $1.46 trillion sitting offshore.

In the first time an Apple CEO testified before Congress, Tim Cook vigorously defended the company's practices. He denied that Apple is relying on "tax gimmicks" and pointed out that it has a duty to shareholders to do everything legally allowed to reduce its taxes.

That current corporate tax rate is among the highest of developed nations and hurts the competitiveness of U.S. companies, CEOs point out. Many other countries, however, have ended special provisions that allow corporations to lower their tax bills.

The goal ought to be the same here -- a simpler, fairer system that broadens the base, treats different industries more equally and lowers the overall rate.

President Barack Obama has backed an overhaul of corporate taxes, outlining a framework last year to eliminate loopholes and reduce the rate to 28%, while raising an additional $250 billion over 10 years. In March, he went further, telling Republicans that he's willing to consider working on it separately from reforming individual income taxes, and to support a bill that does not increase revenue.

While it's well and good for members of Congress to spout outrage over Apple's tax tactics, it would be far more productive to get to the hard work of fixing the tax system.

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