Apple's Tax Avoidance: 'Not Illegal' Does Not Mean Moral, Right or Acceptable

Our government is not always going to protect us from everything that may be harmful or close loopholes to make our tax system more equitable and fair. That is just the way our system works. But, that is where all of us come in
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Last week, I wrote a "Letter to Apple CEO Tim Cook from a Disgruntled Shareholder," expressing my grievances about Apple's tax avoidance. I wrote because I find it immoral that Apple, the wealthiest company in America, has not paid U.S. taxes on at least $74 billion over the past four years. Apple's practices, like those of Amazon, Google, GE and others, are not victimless. In fact, they contribute directly to our inability to close the budget deficit and help cause the painful sequester cuts that have stemmed from the government's inability to fund its operations. Furthermore, the rest of us--the American people and most companies--end up having a higher tax burden because the government has to collect more from us when the wealthiest companies do not pay their due.

I received many reactions to my letter, from people who agreed and disagreed with my message. The criticisms were overwhelmingly some variant of the following tweet:

But, the thing is, I never said Apple's behavior was illegal. This is where there is an important distinction to be made. Just because something is not explicitly illegal does not make it moral, right or socially acceptable. It is perfectly legal for companies to emit any number of toxic and carcinogenic chemicals into the air. It many states, there are no laws against extramarital affairs. Certainly, the penal code does not prohibit feeding children McDonald's for every meal. You get the point: the confines of what is permitted under the law are very, very large and encompass no shortage of unsavory and objectionable things.

Some have said it would be "stupid" or even a "breach of fiduciary responsibility" for Apple not to exploit every possible loophole to minimize its taxes. However, would any reasonable person say it would be stupid for an individual not to cheat on a spouse or not to feed their children the cheapest food in the fastest way possible just because they can and doing so would not be illegal? Is it not appropriate to be disappointed at someone engaged in ethically dubious, albeit legal, activities?

To that point, I have been told that I am misappropriating blame to Apple that instead lies with our lawmakers. But given the gridlock in Washington, substantive changes to the 78,000 page tax code seem like a pipedream, considering Congress can't even pass a budget or agree to uncontroversial policies like extending criminal background checks on all gun purchases. Closing tax loopholes becomes all the more improbable considering the extensive lobbying activities and campaign contributions made by the very companies benefiting from the status quo and their executives. It comes as no surprise that Apple is reportedly doubling its lobbying expenditures. And, past experience has shown that rallying cries for companies to change their behavior can work.

For example, Hewlett-Packard once used polyvinyl chloride (PVC) plastics and brominated flame retardants (BFRs) in its computers and other electronics. These materials, while entirely legal, contained toxic chemicals that could come into contact with people during use and release carcinogens into the air when incinerated. Concerned parties called attention to HP's use of these materials, with Greenpeace activists even scaling the company's headquarters and writing "Hazardous Products" on the roof. Even though it may have been cheaper to use PVC and BFRs, and changing production methods was probably an expensive undertaking, HP ultimately removed these materials from its products. Not only that, HP has taken great strides to be environmentally friendly and sustainable, and now regularly tops such lists as Newsweek's "America's Greenest Companies" rankings.

The above example illustrates how companies can be pressured into doing the right thing, even though the wrong thing might be legal and cheap. Was it wrong for people to badger HP rather than blaming the government for permitting hazardous products in our homes and workplaces? I don't think so. Was HP remiss in changing its ways even if that increased its costs? Of course not.

Our government is not always going to protect us from everything that may be harmful or close loopholes to make our tax system more equitable and fair. That is just the way our system works. But, that is where all of us come in. As shareholders, consumers and citizens, we can call on companies to do what's right and act more justly--even when the law is silent.

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