The EU’s taxing problem

Economics was never a favorite subject in college, so I took no courses. But I do know a few things about human nature. If you tax income at too high a rate, corporations will look elsewhere for relief.

Take Ireland.

In 1991, Apple Corporation cut a deal with the Irish government. Apple would open corporate offices in the country if Dublin would grant the company a very low tax rate. In return, Apple promised jobs, lots of jobs, if the Irish government agreed. It did, and the result has been 4,000 jobs created at its Cork headquarters, with 18,000 jobs in support nationwide, according to Apple and various news reports.

The European Union has rejected Apple’s tax deal with Ireland and says the company owes $14.5 billion in back taxes. This brought an ominous response from Apple CEO Tim Cook, who basically told the EU that they can have taxes, or they can have jobs, but they can’t have both.

The Irish government announced on Friday that it would appeal the tax bill imposed on Apple by the European Union.

The United States is one of two countries that taxes corporations at the highest rate. Japan is the other. Companies are in business to make money and when they do, most expand, seeking to make more money and hire more people to help. Those additional employees pay taxes to the government. More jobs create a more stable economy and purpose for the employee. Even someone without a degree in economics can understand this.

The EU’s attitude is that it is unfair and illegal in the minds of Brussels bureaucrats for Ireland to cut a tax deal with a corporation, even though the deal benefits that country and presumably lessens the need for more aid from the EU. No wonder a majority of British voters, tired of being dictated to by Brussels, decided to exit the EU. If legal appeals fail, Ireland could find itself in a similar position.

This is a rare instance in which the U.S. Treasury, which has been trying to crack down on tax avoidance schemes, has found itself on the same side of U.S. corporations. As The Wall Street Journal noted, “That is partly because the U.S., unlike most other industrialized nations, imposes a tax upon repatriation of foreign profits. Any tax that Apple pays to Ireland as a result of the EU’s ruling could generate foreign tax credits that ultimately would reduce the U.S. tax the Treasury could collect.” The Journal adds, “This could matter even if Apple never brings its profits home.”

The way to fix this so that governments can still get tax revenue from corporations and create jobs is to reduce the corporate tax rate. Problem solved.

The trouble is, asking government to accept less money from people who earn it is like asking Dracula to settle for less blood. Private businesses produce jobs and capital. Government does not create capital, but it can harm its accumulation and in so doing, harm itself.

Ireland has struggled more than most European nations to come back from the recession. It would be worse than shameful if Apple pulled out and thousands of jobs were lost. What would EU bureaucrats say to those who lost their jobs and to their families? Or do they care?

© 2016 Tribune Content Agency LLC.