Apple to Congress: It’s the Tax Code, Stupid

“I’m shocked, shocked to find that gambling is going on in here!”

To say it’s annoying when Congressional leaders get all sanctimonious over the unintended consequences of the laws they create doesn’t even begin to cover the hypocrisy of the recent inquisition into Apple’s (NASDAQ:AAPL) income-tax practices.

It’s funny how Congress is always defending its dysfunctional legislative process with quotes like, “If you like laws and sausages, you should never watch either one being made.” I guess what’s good for the goose isn’t necessarily good for the gander.

If you’ve ever spent any time in the boardrooms of some of Silicon Valley’s iconic companies, you’d probably say the same thing about how they develop innovative products, how they generate record profits, and yes, how they minimize income-tax expense.

In reality, every major technology company pays an effective income tax rate in the 20-25% range. Apple, Google (NASDAQ:GOOG), Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Intel (NASDAQ:INTC), IBM (NYSE:IBM), Qualcomm (NASDAQ:QCOM), every single company I looked at. I’m sure Hewlett-Packard (NYSE:HPQ) would too … if it had any profits.

Like it or not, if any executive officer of any one of those companies held a board meeting and suggested they simply adopt the 35% statutory corporate tax rate and forgo billions in profits, they would be fired on the spot, sent to a doctor, or both.

Like Congress, companies are supposed to serve their stakeholders. And like Congressional leaders, corporate executives have a job to do. That job includes a fiduciary duty to act in the best interests of the company and its stakeholders.

That’s why just about every large, well-managed multinational company in America runs its international business from nations like Ireland and Singapore, nations with favorable tax laws and incentives specifically designed to draw multinational companies there.

The truth is that Apple CEO Tim Cook and his executive team did nothing illegal, nothing nefarious, nothing unethical, nothing wrong. And every member of Congress, the media, and the public feigning self-righteous outrage would probably do the same thing in their shoes.

The problem isn’t with Apple or any other technology company. The problem is with the U.S. tax code, a 70,000-page mess that’s so complex and full of holes it’s easier to exploit than Microsoft’s Windows operating system. If companies don’t exploit those so-called loopholes, they’re at a competitive disadvantage. And, if you think our Congressional leaders don’t do the same on their individual income tax returns, then I’m guessing you probably bought into Facebook’s IPO and think Al Gore is a saint.

Now, if I was cynical about this ludicrous iTax inquisition, I might quote another politician who recently said, “What difference, at this point, does it make?” After all, this isn’t Watergate. If no laws were broken then what’s the point?

Not that I’m not cynical, but at this point, I think this investigation can and should make a big difference. Not to Apple or any of those other companies and their tax strategies, but on Capital Hill.

Maybe it’s finally time for our political leaders to wake up and do something about what is arguably the most broken thing in Washington, and that’s saying a lot: the IRS and the U.S. tax code.

They should listen carefully to what Tim Cook had to say. That there needs to be a sweeping overhaul and simplification of the United States corporate tax code that will be revenue neutral, close loopholes, effectively lower the corporate tax rate, and favor bringing overseas earnings back to the U.S.

One more thing. While they’re at it, I make a case for that overhaul to include going to a simple flat income tax system and more or less gutting the Internal Revenue Service. If you’re interested, and you should be, you can read about it here.