Shadow Government

Apple's Tim Cook confronts job-destroying deception

Apple has traditionally been known as an apolitical company. Americans should be thankful that CEO Tim Cook is abandoning that approach to come to the U.S. Senate today to push for a change to one of the most ill-advised aspects of America's gargantuan tax code: its global corporate tax structure.

It is true that Apple holds $100 billion offshore, but rather than breaking out the pitchforks, Americans should ask why one of the world's savviest tech companies is behaving this way.

The United States, unlike nearly every other advanced economy, taxes foreign earnings brought back to its shores. That approach has forced American companies to fight global competitors with one hand behind their backs.

When Apple is competing with Samsung in the cell-phone market or Caterpillar is competing with Komatsu to determine who helps build the skyscrapers in tax-free Dubai, Apple's California-based and Caterpillar's Illinois-based workers are at a cost disadvantage because their employer must pay tax on its earnings in Dubai while Samsung and Komatsu do not.

To mitigate this disadvantage, companies have been allowed to defer paying this tax until they bring the money back to the United States. That creates an incentive to invest in international markets, not the United States. This is like America shooting itself in the foot. It's extremely difficult for a one-armed, one-footed company to compete against multinational corporations whose governments don't impose additional burdens on their international business operations.

In addition to being a drag on American businesses, it's also one of the most misrepresented aspects of the tax code. President Barack Obama and others who oppose removing this provision demonize it by calling it a tax loophole that "encourages American companies to ship jobs overseas." It's a charge that political fact-checkers have disputed, but the line lives on. The true effect is that it simply makes it more difficult for American goods and services to compete in a global marketplace.

In 2004, Congress passed the American Jobs Creation Act that included an opportunity for companies with foreign earnings abroad to bring that cash home at a 5.25 percent tax rate rather than the usual 35 percent. Companies brought over $300 billion back to the United States. Temporary reprieve is helpful, but for the sake of American workers the current system must be scrapped. Leveling the playing field for American companies permanently will pay dividends to shareholders, workers, and consumers alike.

Effectively confronting this job-destroying deception emanating from the Oval Office, the biggest megaphone the world affords, requires the voice of a master marketer with the credibility of leading the company that is perhaps most responsible for any residue of economic optimism remaining in the country.

As Cook recently stated, "I can tell you unequivocally Apple does not funnel its domestic profits overseas. We don't do that. We pay taxes on all the products we sell in the U.S., and we pay every dollar that we owe." Hopefully the Senate committee hearing from Cook will be as straightforward with the facts about how the U.S. tax system constrains American businesses overseas.

Apple has 50,000 employees nationwide and spurred the creation of nearly 600,000 jobs in manufacturing and software development. The company's iTunes app store birthed an entirely new industry: smartphone and tablet software design. The company has already paid out $9 billion in royalties to developers. If given the opportunity to bring back profits earned abroad under a fair tax system, imagine how those proceeds could transform the technology market and the American economy.

Haven't we suffered through self-imposed economic malaise long enough? We should view Tim Cook's stand as a call for all patriots to rise up and say enough playing politics -- let's help American companies invest in American jobs.

Mark R. Kennedy leads George Washington University's Graduate School of Political Management and is chairman of the Economic Club of Minnesota. He previously served three terms in the U.S. House of Representatives and was a presidential appointee to the Office of the U.S. Trade Representative's Advisory Committee on Trade Policy and Negotiations during George W. Bush's administration.


Shadow Government

Pakistan's third chance with Sharif

Nawaz Sharif's Pakistan Muslim League-Nawaz (PML-N) won just short of a majority in May 11's violence-plagued elections -- Pakistan's first successful democratic transition from one full term to another. But on May 19, he secured that majority when more than a sufficient number of independents joined his party. He needed 137 seats for a majority and he has 142. Soon to be prime minister for an unprecedented third time, he is now free to pursue his campaign agenda, governing a nation that chose to humiliate the incumbents (the Pakistan People's Party -- PPP -- of the late Benazir Bhutto) and return him to the highest office.

Pakistan is now led again by this most interesting politician. He has been on both sides of the democracy-dictatorship divide, getting his start in politics by joining Gen. Muhammad Zia ul-Haq's military government in the 1980s in order to get back his family's steel business, which had been nationalized by Bhutto's father, Zulfikar Ali Bhutto, in the 1970s. (Zia had overthrown the elder Bhutto in 1977.) When democracy returned after Zia's death in 1988, Sharif led his party to victory and was twice prime minister; always the blood feud continued between him and Benazir Bhutto (he even managed to co-opt Bhutto's younger brother into an alliance against her). The saying "live by the sword, die by the sword" applies to his life: When he tried to tame the military in his second term, he himself was overthrown by Gen. Pervez Musharraf in a 1999 coup and was almost executed but for the intervention of Bill Clinton's administration. He and the Clintons, especially the former secretary of state, maintain a close relationship. Always a conservative Muslim who has supported the Islamization of Pakistan, he has nevertheless been a staunch proponent of privatization and industrialization, his goal being to make Pakistan the "South Korea" of the subcontinent.

Throughout this history, of which I have provided only a cursory glance, Sharif has been a man the United States wanted to count on and work with. His economic outlook makes him relatively more attractive as a leader whose policies have the best chance of stabilizing Pakistan by solving the grinding poverty affecting most Pakistanis. The major alternative, the PPP, has never governed well in large part because its legacy is statism and corruption. And while Sharif's foreign policies have worried U.S. officials, such as his close relationships with the Taliban in both Afghanistan and Pakistan, as well as his sometimes reckless policies regarding his country's nuclear capabilities, he has nevertheless tried to improve relations with India because of his belief that, in addition to democracy, only through trade can Pakistan solve its economic problems.

Over the last several months, analysts offered varying views on Sharif's potential return to power, with many worried by his overtures to terrorists and the seemingly unsolvable problems Pakistan faces. After Sharif's victory, the ever insightful Walter Russell Mead offered a rather negative outlook. But I'm more hopeful.

During this last campaign, Sharif won over his critics who used to be frightened by his former talk of a "caliphate" and his past association with military government. He did this by showing himself to have learned patience (months in a military prison waiting to die can have that affect apparently) and by articulating an agenda that would transform Pakistan's economic and foreign policies. He advocates economic liberalization and promises a crackdown on corruption. He insists that a better relationship with India is paramount. And he has made clear that the military will submit to civilian control. It seems the military is listening as the country's top general called on him at his home after the election -- an unprecedented move. Importantly, he takes the helm again when Pakistan is more democratic, and this augurs well for his new administration to have the backing he needs. Turnout in this election was historic, with more young, female, and liberal voters supporting him in huge numbers. They have changed their view of him because apparently they believe he has changed; it helps that he resisted calls to ally with the military and oust the flailing PPP during its tenure. They certainly had other choices that represented change, but they opted for a man they have known for over a generation who said what they wanted to hear about governance and economic and foreign policies.

Of course the jury is still out, and this is Pakistan, after all; it is in a terrible neighborhood, and it's got a bad track record. And Sharif could have just succeeded in a massively cynical campaign to dupe voters and once in office will resume the project of Islamization and use a heavy hand against his opponents. But even if these were to be his goals -- and that doesn't seem likely -- this is not the Pakistan of 20, 10, or even five years ago. It is more democratic, and its youth, its women, and its voters in general are more demanding of government. In short, the country is progressing toward democratic maturity and apparently so is its new leader. Let us hope that Secretary of State John Kerry, who like Clinton has a good relationship with Sharif, can get a foreign-policy success with Pakistan.