This was first published on The Washington Monthly’s site on May 25, 2013.
I have three laws of politics. I don’t know if they explain everything, but they often explain something, and that’s enough for me.
Malanowski’s First Law of Politics is that the rich and powerful will always act in their own self interest.
Malanowski’s Second Law is that the rich and powerful will then get the rest of us to act in their interest as well, usually by making us believe that we hold this interest in common.
Malanowski’s Third Law is that when the rest of us figure out ways to act in our own self-interests, the rich and powerful are likely to outlaw whatever we’ve come up with.
These laws came to mind this week when reading about the appearance of Tim Cook, the CEO of Apple, before the Senate Permanent Subcommittee on Investigations. The Senators—a couple of them, anyway—wanted to hear about how Apple avoids paying so much tax. Cook, for his part, wanted to talk about how Apple actually pays so much tax.
As Floyd Norris explained in the Times, “What Apple did was transfer rights to its intellectual property to a subsidiary that was incorporated in Ireland — and therefore not subject to immediate United States taxation — but managed in California. Under Irish law, that freed the subsidiary from Irish taxation.”
In other word, Apple uses an artificial company to avoid taxes. Apple, in its defense, points out that this Irish subsidiary has rights to the company’s patents and trademarks in Asia, Africa and Europe, but not in North or South America. “Apple kept those rights in its United States operation,” says Norris, “It thus appears to pay more United States taxes than it could have.” So Apple uses sham company—and is a hero.
“Apple doesn’t use gimmicks,” Cook argued. He’s right, and that’s just the point. He doesn’t have to use gimmicks. The whole system has been gimmicked for him.
Were you or I ham-handed enough to invent something to avoid paying taxes—invent a child say, or identify a Irish business associate as a dependent—we would face prosecution. Apple sets up an Irish front, and it enjoys the support of legislators, judges, tax attorneys, accountants, and other high-minded people everywhere. Apple isn’t rigging the game; it’s playing a game that has been rigged for them—and against the broad middle class.