Apple's Stock Price Manipulation and Tax Havens

Imagine for a moment you are making an annual salary of $100,000. If you live in New York City, after deductions for Federal, State, Local, Social Security, Medicare and various other fees you may very well end up with annual net income of $50,000. Now imagine instead of having your net paycheck being deposited in America and losing 50% to tax, you can have the full 100,000 deposited in the Cayman Islands. Now imagine even further, that to pay any of your bills at any time you can take out a near zero percent interest loan. That would be nice wouldn’t? Think of the savings! These are the mechanisms that are legally available to giant corporations, but not to someone like you making $100,000 a year. 

Since 2012, in order to satisfy its Wall Street investors, Apple has engaged in one of the largest stock buyback programs in history, spending over $200 billion to reclaim shares. The stock buyback program is a form of market manipulation designed to increase earnings per share and drive up stock price. It is frequently used as a tool for companies that lack growth, but still want to show upward momentum. For example, in early 2008 Lehman Brothers engaged in a share repurchasing program to drive up their fluttering stock price in order to present an illusion that the company was moving in the right direction. Months later, as everyone knows, the company went bankrupt. These buybacks are frequently a waste of resources as it is money (lots of money) spent to manipulate the pricing of shares at the cost of further reinvestment in R&D, new factories and innovation.  It should also be noted that the Apple stock buyback began, non-coincidentally, in 2012, the year after the death of founder and innovator Steve Jobs.

The other fascinating aspect of Apple’s share repurchasing program is how they financed it. Apple is one of the largest and most profitable companies in the history of the world. They are frequently sitting on cash in excess of $200 billion with another $3 billion in profits coming in monthly. Yet instead of using their own stockpiles to repurchase shares, they borrowed billions of dollars to execute these buybacks.

Why would they do that?

Apple’s stockpiles of cash are scattered across the globe in a variety of off shore bank accounts. This is done (legally) to avoid paying their fair share of taxes, not only in America, but in other countries as well. Additionally, Apple is able to acquire near 0% interest rates. There is virtually no cost to using borrowed money for their share repurchasing program, which is a tremendous savings compared to the 35% corporate tax rate they might have to pay to bring billions of dollars back from their off shore bank accounts.

Is Apple an evil corporation, because they take advantage of these mechanisms? No. As conceptualized in the first paragraph, anyone would take advantage of these legal means to avoid paying their fair share of taxes. What is immoral and unjust is that these mechanisms exist. We need to end foreign tax havens and make stock buyback programs illegal again, as they were prior to 1982.


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