Apple has tens of billions of dollars of cash. So why is it considering a $10 billion bond issue?
Despite its huge cash stockpile, Apple plans to issue debt to help fund dividend payments and stock buybacks in part because much of its cash is overseas. Raising money in the debt market would help Apple avoid the big tax bill that would come from bringing the cash back to the U.S
The US is the only major company I know of that double taxes foreign income of its corporations. Outside the US, the general principle is that a company pays taxes locally in the country in which income is earned, and then can repatriate that money freely. Apple has already paid taxes on this money locally (granted, at relatively low rates, but country's corporate tax rates are lower than ours). But it must pay something like 35% to repatriate that money to the US. This is sort of a negative stimulus, a multi-billion dollar incentive for Apple to find some way to spend this money overseas rather than in the US.
I will reiterate my tax plan. Eliminate the hugely distortive corporate income tax altogether. Instead, tax all individual capital gains and dividends at regular income rates - no special low rates. Corporate earnings are thus taxed when they flow through to individuals either as higher equity prices or as dividends.
The savings and benefits would be huge --
- an order of magnitude less room for special interst lobbying
- the elimination of crony tax breaks for favored industries
- the elimination of the tax preference for debt (this is the other game Apple is playing - take on tax-favored debt to boost your stock price)
- the elimination of all sorts of bizarre and unnatural corporate tax schemes and vehicles
- the elimination of all that corporate legal tax expense
- the elimination of two sets of books for every company (every major corporation has two sets of books, one for investors and one for the IRS, differing in many ways including depreciation methodology)