Should Business Be ‘Grateful’?

In fact, we should all be grateful when tax reform leads to better incentives.


Apple’s CEO Tim Cook greets customers during the opening of the new Apple Michigan Avenue store in Chicago, Ill., Oct. 20, 2017.
Apple’s CEO Tim Cook greets customers during the opening of the new Apple Michigan Avenue store in Chicago, Ill., Oct. 20, 2017. PHOTO:DANIEL ACKER/BLOOMBERG NEWS

Even from some who should know better, Corporate America is hearing that, to validate the new tax law, companies must do particular things with particular dollars, and not do other things.

Companies must invest in new plants and equipment in the U.S., not abroad.

They must hire U.S workers and give them raises. They must not cut jobs or send jobs overseas.

Any dollars held in offshore accounts must now, traceably, by serial number, be seen to come back to the U.S. These dollars, however, must not be used to buy back stock or increase shareholder dividends, because doing so would be a sign of “ingratitude.”

Does this make any sense? Of course not. For one thing, if a company buys back shares, the sellers must do something with the money, either invest it or consume it. The benefit of the tax law lies entirely in increasing the incentive to invest in the U.S., not in trying to pre-guess every corporate decision about what to do with cash. And who shouldn’t be grateful for more investment?

Let Apple serve as a symbol for the crazy politics of (we barely can bring ourselves to type the words) “corporate gratitude.” Apple’s $240 billion in foreign cash holdings are the largest of any company’s. Yet Apple’s own research-and-development spending amounts to only $10 billion a year.

If Apple wanted to spend more, it already could, including by borrowing against its overseas holdings. Apple has no sane use for its vast accumulation of foreign earnings except to return them to shareholders, who would be rightly aggrieved if it didn’t. 

If the politics of corporate gratitude somehow rule this out, then Apple’s wisest choice might be to delay bringing the money home, since under the law it can postpone for as long as eight years the new 15.5% repatriation tax. Who would be grateful then? Only the foreign depositories that get to keep Apple’s money.

Apple’s Tim Cook was one of many CEOs who petitioned Democrats and Republicans to clean up the corporate tax mess. Should he be grateful?

He certainly should be less annoyed. Previously, as a careful steward of his shareholders’ wealth, he could hardly voluntarily subject Apple’s hoard to the 35% tax rate, especially when precedent and promises from both parties indicated the rate would eventually be cut.

Now he can bring the money back and pay $37 billion to the U.S. Treasury.

Mr. Cook, though, has good manners and understands the value of appearing grateful for this opportunity. He carefully couched his advocacy of tax reform by supporting a proposal (not enacted) to earmark any repatriation proceeds for a liberal-pleasing “infrastructure” fund. Now he will have to find another kind of prayer to offer up to cover Apple’s behaving rationally with its resources.

Other companies that, unlike Apple, have large, modestly paid domestic workforces have already found a solution. AT&T , Wells Fargo and Comcast have arranged to be seen dishing out celebratory bonuses to workers, a form of gratitude that works well with President Trump.

Which is not terrible: The usual way companies say “thanks” to politicians is with campaign donations.

But such showy employee bonuses are not more than window dressing. These companies will continue to follow the same old incentives and price signals they always have in choosing how to deploy cash. And we should be grateful, since the law’s purpose was not to stimulate short-term window dressing but to improve incentives permanently.

What about other taxpayers? Shouldn’t big business be grateful to them? Won’t other taxpayers have to pick up the slack for a corporate tax rate cut? In fact, almost nobody’s tax rate will go up under the plan. If higher investment means higher growth, however, lots of Americans can expect to pay more taxes on their now-higher incomes, for which they will be grateful.

Indeed, on the redistribution metrics that Democrats claim to care about, our tax code remains heavily tilted toward trying to make the top 1% pay for middle-class entitlements that only the middle class realistically can pay for. 

For whatever reason, unlike the middle class in Denmark or Sweden, the U.S. middle class just doesn’t seem to value or trust its government benefits enough to pay for them. The result is a persistent deficit. Happily, the U.S. is unlikely to tip itself into a debt collapse for this reason. Undertaxation is never the cause of any country’s debt meltdown. Always and everywhere the cause tends to be a production collapse driven by government actions that stifle initiative and drive away capital.

Mr. Trump is warmly disapproved of by 56.2% of Americans, who are clearly not grateful for his presidency. Yet he arguably just did the best available thing to make sure our entitlement state remains viable in the long run. Mr. Trump is the vehicle for achieving a policy goal long championed by both parties, for which believers in the two-party system should be both grateful and puzzled.

Appeared in the January 3, 2018, print edition.

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