Quasi-Experimental Results

Some results are in on the quasi-experiment designed by the GOP.  The recently passed tax reform bill coincides with an Apple announcement in the WSJ that it:

would make a one-time tax payment of $38 billion on profits accumulated overseas and ramp up its spending in the U.S., as it seeks to emphasize its contributions to the American economy after years of taking criticism for outsourcing manufacturing to China.

An interesting part of the coverage is the difference between the WSJ reporting and the WSJ editorial page.  Here is more of the WSJ reporting cited above:

Apple said its one-time tax payment was the result of recent changes to U.S. tax law, under which companies must pay a one-time tax of 15.5% on overseas profits held in cash and other liquid assets. Profits held in other forms will be taxed at 8%. The company said in November that it had earmarked $36 billion to cover deferred taxes on its $252.3 billion in overseas cash holdings, assuming that it would eventually pay U.S. taxes on a portion of it by bringing it home.  [Emphasis added]

The news gives the new tax rate rather than the reduction, which would seem to be the interesting part, and suggests that the profits would have come home eventually anyway.  The details are not complete here but it looks like the news folks are confusing financial accounting and tax accounting.  The WSJ editorial page has a different take:

Apple said Wednesday that it will pay $38 billion in taxes on the $250 billion or so in cash the company holds overseas; that’s a lot of money for Social Security checks and food stamps. Apple also said it would invest or spend on purchases some $350 billion in the U.S. over five years and add 20,000 jobs.

Apple’s windfall for the U.S. Treasury is the result of the reform bill’s 15.5% “deemed” tax rate on profits previously earned overseas whether or not they are returned to the U.S. The old system featured a one-two punch of taxation abroad and than again at home at a punishing 35% rate if the money was repatriated.

Apple had no plans to return the money to the U.S. under that regime, and ditto for many other companies that together have some $2.5 trillion abroad. Republicans broke this logjam by lowering the top rate and creating a permanent system that taxes income where it’s earned. Now Apple can put this cash to whatever the company deems the highest use, without arbitrage from tax policy.

We can’t live out the other option of high corporate taxes and there is only one Apple so we can’t randomly assign anything.  We can’t make any statistical statements and there is some possibility of arguing cause and effect because it is only a quasi-experiment.  The results, however, seem robust to us because of the previous statements of corporate officials and the proximity of the tax change and the results.

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