Apple Would Rather Go Into Debt Than Bring Home $100 Billion In Offshore Cash

Pay attention, Simpson and Bowles: There are some things in life worse than going into debt.

For Apple Inc., that worse thing is paying taxes: The company announced plans Tuesday evening to borrow money for the first time ever, despite having nearly $145 billion in cash. The problem is that $102 billion of that cash is parked overseas and would be taxed if Apple tried to use it in its plan to give money back to shareholders.

"We are continuing to generate significant cash offshore, and repatriating this cash would result in significant tax consequences under current U.S. tax law," Apple Chief Financial Officer Peter Oppenheimer said on a conference call discussing Apple's earnings for the quarter that ended in March.

Apple's earnings haven't exactly been setting the world on fire quite enough lately to satisfy finicky shareholders. So the company is under increasing pressure to give its shareholders a taste of its cash. It finally succumbed on Tuesday, saying it plans to pay out $100 billion by the end of 2015, in the form of stock buybacks and a higher dividend. That will amount to about $30 billion per year, according to Oppenheimer, which would just about take up all of Apple's "tax-free" cash flow, as he put it.

If Apple didn't borrow money, then it would have to, gasp, bring cash back home to help pay for its shareholder-greasing. And bringing Apple's offshore cash back home could result in a tax hit of up to $35 billion, assuming it pays the full statutory corporate tax rate (which doesn't happen very often). Analysts for months have been prodding Apple to borrow money to avoid the hit, and Apple has been listening, apparently.

In preparation for Apple's borrowing, credit-rating agencies have given Apple a credit rating for the first time. Ironically, Apple has the exact same credit rating from Standard & Poor's that the United States of America has: AA+. The U.S. government got its credit-rating cut from AAA because of its fiscal problems and could sort of use that $35 billion in cash Apple is potentially avoiding paying.

But instead of grumbling about Apple, maybe the government could learn something from it: Namely, that it's not always a bad idea to borrow money. And when interest rates are being held near record lows by the Federal Reserve, there may never be a better time to borrow.

"With interest rates at rock-bottom, it's a good time to borrow for any company," said Darren Hayes, a professor at Pace University’s Seidenberg School. "It's wise for companies to borrow when interest rates are low."

The U.S. government has even better use for the borrowed cash than Apple's tax-avoidance: It could spend money to help stimulate the economy and bring down unemployment.

Instead, policy makers in Washington tend to listen too much to people like Erskine Bowles, who along with Alan Simpson continues to push his plan to slash government debt, on the principal that debt is evil. As a result, the government has spent much of the past two years squeezing spending, at a time when borrowing has never been cheaper.

At least Apple is giving some cash away.



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