Champions of the new Republican tax law have found a favorite talking point in Apple’s decision to pay taxes on hundreds of billions of dollars that it has been stashing in overseas subsidiaries, with the company saying it will invest at least some of this money domestically.
“Great to see Apple follow through as a result of TAX CUTS. Huge win for American workers and the USA!” President Donald Trump tweeted triumphantly in response to the news.
For Republicans eager for confirmation that the law would deliver on their promises of increased investment and economic growth, the spin practically wrote itself. But in reality, the announcement is a reflection of how the new tax law puts another yoke around those not born into wealth. While the rich will see larger paychecks and investment returns, the rest will struggle to find the quality education and stable employment that had been a hallmark of the late 20th century.
When companies make money abroad, they must pay taxes on those profits to the U.S. government if they want to spend the funds in the United States. Previously, that tax rate was 39 percent less any taxes already paid abroad, enough of a disincentive for companies like Apple to horde massive amounts of cash ― an estimated $2.6 trillion in all ― overseas. Tax hawks argue that by lowering this tax to 15.5 percent, that cash will make its way home in the form of jobs and investments. And Apple, they say, is showing that they are right.
For Apple, which holds the most overseas cash of any individual company (an estimated $252 billion), the move is an enormous windfall. The reported $38 billion in taxes ― what Apple in a press release has dubbed in Trumpian fashion the largest payment “of its kind ever made”― would represent less than half of the record first-quarter $88.3 billion in revenue that Apple recently reported, and the leftover cash would be enough to buy Coca-Cola, the 20th largest public company in the U.S.
Instead of an outlandish acquisition, though, Apple has suggested that it will use some of this money to expand U.S. operations. This is what conservatives are trumpeting most, but the plans the company lays out actually show how this tax law has been masterfully crafted to gut the middle class for generations.
Before discussing Apple’s proposed investment plans, it is important to look at any promises with skepticism. The last time the U.S. government lowered the taxes on foreign profits to entice companies to return cash to the United States in 2004, much of that money went to shareholders in the form of dividends and share buybacks. A press release is in no way a binding commitment.
But assuming that Apple stays true to its word, the likely outcome is still even greater wealth inequality, thanks to the inevitable downstream effects of corporate-friendly policies.
To start, Apple has promised to create 20,000 U.S. jobs and build a new corporate campus in the next five years, adding more than $350 billion to the U.S. economy.
Apple does tend to pay more than its competitors, but most of these new employees should not expect the lavish free food and six-figure salaries that are heaped upon its engineers and designers. Instead, the company has said the new center will focus on technical support, likely meaning handling phone calls from people who need to figure out how to replace their iPhone batteries. Still more of the money will end up being invested in windowless, stadium-sized data centers in the middle of nowhere that will contain countless bytes of information but few actual employees.
The lucky, talented few who are hired to build Apple’s products will be increasingly more lucky and less talented as well.
If the paupers’ parade that is the fight for Amazon’s new headquarters is any indication, cities and states will be throwing every penny they have at Apple to nab that new campus. This money will come in the form of tax breaks, meaning less tax revenue to spend on the public schools that the less lucky rely on to get the training needed to become engineers, not support staff.
Those who do excel in those underfunded public schools will then have more trouble paying tuition at the elite colleges from which Apple recruits its top talent, since the new bill will tax endowments at schools with at least $500,000 of investment per student. These endowments are frequently sources of need-based financial aid, so this charge likely means higher tuition and fewer scholarships for the truly deserving.
The engineers and designers who do get those high-paying jobs will pay more for their homes in desirable neighborhoods near the new headquarters, driving up property values and pushing out middle class families. The desire for on-demand drivers and personal shoppers created by these new residents will continue to create a robust low-wage freelance service economy, and with less tax revenue, the social safety net that is supposed to ensure that these people are protected from unexpected catastrophe will develop greater and greater holes.
It is easy to pick on Apple because of its size and visibility, and because it moved so quickly and publicly to take advantage of the tax bill. But Apple is not a lone actor.
This tax law is a short-sighted invitation to boost earnings when the corporate economy is teetering on the peak of a decade-long expansion. These additional pennies per share that will go to shareholders come out of the pockets of the schools and social institutions that have molded and protected the people who built many of the companies that are benefiting from the law.
This shift in the distribution of corporate profits may extend the stock market’s rise for a few months or years, but it will inevitably make us all poorer, both financially and intellectually.
Ethan Rouen is an assistant professor at Harvard Business School.