Taxpayers help banks, Apple, stock investors, again

Apple just borrowed $17,000,000,000 (seventeen billion dollars) even though it has $145,000,000,000 (one hundred forty five billion) in cash.  Why borrow when you have so much cash sitting around? Apple, Apple Stockholders, bond investors, Goldman-Sachs and Deutsche bank all benefit from this strange deal because - yes you guessed it, the American taxpayers love to give away money for corporate welfare.

Apple is borrowing the money to give it to Apple stockholders in an attempt to encourage people to bid up the price of Apple stock. Let’s look at how the numbers would work out if we didn’t have corporate welfare. Most of Apple’s cash is in offshore banks because Apple doesn’t want to pay corporate tax on profits it earns overseas (or can pretend to have earned overseas by clever book-keeping).

Suppose Apple used its cash to pay the dividend instead of borrowing.  If Apple paid 20% tax on its corporate profits (actually it pays a lot less)  it would bring $21 billion back into the USA and pay $4 billion in tax leaving $17 billion for the dividend.

What would $4billion in taxes pay for? Maybe these three things.

  1. 14,000 college scholarships of $150,000 each would come to $2.1 billion only. Apple complains a lot about how it can’t find engineers.
  2. 100,000 poor children could get $20,000 a year food and shelter, maybe even a tutor, for another $2 billion.
  3. 10000 wounded Veterans could be given $10,000 each for another 1/10th of a billion dollars

Ok, enough with the fantasy world in which corporations paid taxes on profits. Let’s go to America where debt and underwriting expenses are tax deductible. Apple’s sold ten year bonds at 2.4% so for $17billion that comes to just over $4billion in interest over ten years - almost exactly the same as the taxes it might have paid. And it paid the underwriters: $38.3 million to Goldman and $9.3 million to Deutche bank. But here’s why it’s so much fun to be operating in the Romney Zone, those costs are tax deductible for Apple. Supposing that same 20% tax rate, the Feds give Apple $800,000,000 (eight hundred million) or so back.  Let’s suppose Apple is making 1% interest on its overseas cash, then over 10 years it will earn over $2billion from the $21billion it left in cash. Sum it up and there is $2.8billion to subtract from the $4billion or so in interest and the total cost to Apple of borrowing the money is nearly $3billion less than spending its own cash.

Of course we don’t get to send people to school or feed poor children or bonus veterans, but Goldman-Sachs makes some money, Apple executives and other people who have Apple shares make money (which  they get low cap gains rates on), Apple investors get the dividends, Apple bond buyers get 2.4% on a very low risk investment. Everyone is happy! Everyone who counts. Thanks taxpayers: without the interest deduction and the sheltering of overseas profits, none of the high priced tax lawyers who structured this deal would have made any money at all. And think of the benefits of increasing the liquidity in tax shelter overseas banks! Wouldn’t want the Zetas to have to wait on a withdrawal to process.

When the Simpson-Bowles commission estimated that tax treats to the wealthy cost the taxpayrs over $1,000,000,000,000 (one trillion dollars) a year, this is the kind of thing they had in mind.