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December 5, 2017 | Government Largess to Large Corps Ballooning Public Debt

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel ( Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog:

The Irish economy collapsed in the 2008 recession and financial crisis, leading to a massive government bail-out of investment banks and highly levered corporations. The efforts shackled the taxpayers with generational debt that they have been laboring to repay amid cuts to other social programs.  At the same time, Ireland shares the common plight of developed nations everywhere:  toxic processed food habits, and soaring sick-care costs, amid an aging population that is putting increasing strain on productivity and government resources.  It is within this context that one reads the following headline this morning:  Ireland forced to collect €13 billion in tax from Apple it doesn’t want.

The Irish government reached an agreement with Apple to start collecting the €13bn ($15bn) owed by the tech giant after the European Commission ruled in August 2016 that the iPhone maker must reimburse the Irish state for unpaid taxes that illegally permitted Apple to pay substantially less tax than other businesses.  Irish political leaders argue that collecting the back taxes could dent the country’s attractiveness as a low tax entryway for multinationals seeking access to the EU.

The funds are now to held in escrow while both Apple and Ireland appeal the decision to the European Commission, arguing that Cork-registered companies should be able to claim “stateless” income–profits that are beyond the jurisdication of any state to tax them.  See:  Apple and Ireland will fight the EU’s tax ruling all the way:

Apple is expected to take a similar line when it lodges its own appeal: that no rules have been broken, and that the company is the victim of a political attack that retrospectively and unreasonably unpicks tax treatments which have endured for decades without objection.

How has Apple been investing the gift from taxpayers of tax-lite cash flow?  The lion share has been used to buy back its own shares and increase dividends to shareholders.  See: Apple has been a buyback monster and Apple sells $5 billion of debt to fund share buybacks and dividends:

Apple is about three-fourths of the way through a program that’s returning$300 billion of capital to shareholders by the end of March 2019. At the start of July, the company was sitting on more than $261.5 billion of cash — 94 percent of which was outside the U.S., Chief Financial Officer Luca Maestri said on an earnings call. The Cupertino, California-based company declared a regular quarterly dividend of 63 cents a share last month.

There is a direct connection here between the corporate capture of political leaders that has helped to queer government policies in favor of the largest corporations at the expense of everyone and everything else. Low corporate tax rates, subsidies to mature businesses, and other largess from governments are directly related to the massive debt and crushing costs (health, environmental, social) now weighing on the stability and progress of the free world.

The sooner we re-ban share buybacks as illegal market manipulation (as they were before 1982) and stop helping the largest corporations slip through tax loopholes, the sooner we will begin the investment-intense work of rebuilding a sustainable future.  Funneling a further embarrassment of riches onto some shareholders, and investment banks doing the underwriting, at the expense of the public purse, must end now.

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December 5th, 2017

Posted In: Juggling Dynamite

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