Economics was not one of my favorite subjects in college, so I avoided economic courses. But I do know a few things about human nature. If you tax income at too high a rate, corporations will look elsewhere for relief.
In 1991, Apple Corporation cut a deal with the Irish government so that only a certain bracket of its earnings would be taxed, giving it, writes Business Insider, “…a dramatically lower tax rate than it would have to pay in the U.S.” In return, Apple promised jobs, lots of jobs, which it provided. The company currently employs 4,000 at its Cork campus and announced in November that it will expand that number by 1,000 by 2017. It is estimated there are 18,000 Apple jobs across the country, including over 5,000 direct Apple employees.
The European Commission, which enforces EU law, now accuses Ireland of “…providing illegal state aid” to Apple, and, according to The Guardian, has chosen to clamp down “on tax avoidance schemes employed by multinationals.” The commission, having rejected Apple’s tax deal, now says the company owes $14.5 billion in back taxes to Ireland. This brought an ominous response from Apple CEO Tim Cook, who basically told the commission that they can have taxes, or they can have jobs, but they can’t have both.
The U.S. is one of two countries that taxes corporations at the highest rate. Japan is the other. Companies are in business to make money and when they do, most expand, making more money and hiring more people. Those additional employees pay taxes to the government. More jobs create a more stable economy. Even someone without a degree in economics can understand this.
The European Commission’s attitude is that it is unfair and illegal in the minds of Brussels bureaucrats for Ireland to cut a tax deal with a corporation, even though the deal benefits that country and presumably lessens the need for more aid from the European Union. No wonder a majority of British voters, tired of being dictated to by Brussels, decided to exit the EU. If legal appeals fail, Ireland could find itself in a similar position.
This is a rare instance in which the U.S. Treasury, which has been trying to crack down on tax avoidance schemes, has found itself on the same side of U.S. corporations. As The Wall Street Journal noted, “That is partly because the U.S., unlike most other industrialized nations, imposes a tax upon repatriation of foreign profits. Any tax that Apple pays to Ireland as a result of the EU’s ruling could generate foreign tax credits that ultimately would reduce the U.S. tax the Treasury could collect.” The Journal adds, “This could matter even if Apple never brings its profits home.”
The way to fix this so that governments can still get tax revenue from corporations and create jobs with their accompanying benefits is to reduce the corporate tax rate. Problem solved.
The trouble is, asking government to accept less money from people who earn it is like asking Dracula to settle for less blood. Private businesses produce jobs and capital. Government does not create capital, but it can harm its accumulation and in so doing, harm itself.
That is the harmful path the EU has chosen to take with this ruling. Richard Bruton, the Irish government’s enterprise minister, defended his country’s relationship with Apple: “There were no special deals ever in the Irish tax code but there were different phases. There was a period when every sector exporting didn’t pay tax on their profits, there was then a period when manufacturing companies had a 10pc rate and every other sector didn’t. So there were phases when there were different sectoral approaches but always statute-based, and there were no special deals.”
Ireland has struggled more than most European nations to come back from the recession. It would be worse than shameful if Apple pulled out and thousands of jobs were lost. What would EU bureaucrats say to those who lost their jobs? Or do they care?