Last updated: August 25. 2013 1:59AM - 80 Views

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By the end of a recent Senate hearing, committee members had hurled plenty of praise at Apple, sharing testimonials about their favorite i-products. They almost seemed to forget why the witness, Timothy Cook, the company’s chief executive, was sitting before them. Apple rates, as Sen. John McCain put it in anticipation of the hearing, “among America’s largest tax avoiders.”



The Arizona Republican had in mind the committee report showing how Apple avoided billions of dollars in taxes via a complex and aggressive set of schemes, including a negotiated, special tax rate of 2 percent for operations established in Ireland. The contention isn’t that Apple has done something illegal. It played by the rules — and that is the problem.



Its story reveals the deep flaws in the country’s corporate tax system. Apple is not alone. Other companies have taken such advantage, among them, Google, Amazon, Boeing, Pepsi and Coca-Cola. General Electric highlighted the trouble one year by reducing its tax liability to zero. One glaring flaw is the inequity at work, some companies paying an effective rate above 30 percent with others maneuvering into the single digits.



The point often has been made that at 35 percent, the country has a high corporate tax rate compared to other nations. That is true. Yet the corporate tax code is so riddled with loopholes that the overall effective rate paid by companies here falls below the average for advanced economies.



Ideally, Congress would lower the rate on the books from 35 percent to, say, 25 percent and close assorted exemptions and loopholes, the result even adding to the total revenue paid by corporations. Know that companies today pay far less of their profits in taxes, the share declining from half in the 1950s to roughly one-fifth.



Know, too, the complication brought by globalization. Many companies, like Apple, are global in scope. Accompanying this trend has been the practice of other countries lowering their corporate tax rates. It makes sense for the United States to do the same as part of competitiveness. More, other countries tend to be content to see their companies pay taxes just once, or where the profits are earned.



American companies are required to pay twice, the profits hit again when they return to this country. No surprise, that has encouraged tax avoidance, as much as $2 trillion held overseas by American firms. Apple and others now want to repeat the tax holiday of eight years ago, the repatriated profits taxed at a much lower rate.



Better to get serious about corporate tax reform, achieving a lower overall rate yet companies doing their part to help with reducing the budget deficit for the long term. The corporate tax code must be tuned to global trends, yet not so much that companies race to locate operations elsewhere. All of this will test the skills of lawmakers. There is no more important priority in the category of tax reform.



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