Why Google may not be as heinous as Drudge implies

Summary:Drudge made Google out as the company ripping off taxpayers to the tune of $60 billion. Not true.

Misleading Drudge Report headline with Google CEO Eric Schmidt going for the "Looking as Crazy as Ballmer Onstage Award".

Before we get started, two confessions. The first is that I'm writing this on one cup of coffee. I usually can't find my pants on one cup of coffee, so you've been warned.

I normally write these things at night, but this is a morning post. I know myself well enough to know that if I get up from my desk to get a second cup of coffee, I'll find muffins, and then this article will never get written, because when you have muffins and you have coffee, and you have a TiVo with 81 Top Gear episodes stored up on it, at least one episode will have to be watched first while eating the muffin, and the column will never get finished.

The second confession is that I'm not a tax geek. When I read about taxes, I get the basic concept, but the idea of gaming the system, not only domestically but internationally, tends to make my eyes glaze over as if I've only had one cup of coffee.

I've made the first confession because if I've only had one cup of coffee, you need to know. At this stage of the day, coffee is the only thing that excites me, so starting this little commentary on the topic of coffee is pretty much greasing the skids so you have something else to read.

I know I'm burying the lede, but if you're a coffee drinker, you'll understand. If you don't drink coffee, what's wrong with you? Are you some sort of namby-pamby Communist anti-caffeine pinko lib-con sympathizer?

But I digress. Fine, I really digress. This is why I normally write at night.

So, the topic of conversation is Google and a headline that Drudge ran that seems to imply that Google has ripped off taxpayers and the government to the tune of $60 billion.

I showed the headline above, but here it is again: "Google pays only 2.4% tax rate; 'Income shifting' robs govt of $60B'".

That Matt Drudge can certainly write a headline.

It's not accurate, but it's definitely attention grabbing. Those of you who read my column know I would never do such a thing. Nev-er.

Let's start with a basic data point. Google makes about $14 billion a year, so it's a little hard to rip the government off to the tune of $60 billion.

What Drudge is effectively doing is conflating two topics: that Google manages to pay an international tax rate of 2.4%, and that companies across the U.S. use a technique called "income shifting" to keep about $60 billion out of the federal tax coffers.

Of course, if you read Matt's headline, you'd think Google was stealing $60 billion from the U.S. government.

So, what is happening and how heinous is Google?

Apparently, like most large American firms, Google not only pays U.S. taxes for its American operations, it pays taxes in each host country for its operations in that country.

By finagling what happens in what country, what subsidiary of Google licenses what tech to what other subsidiary of Google, and otherwise somehow legally bending the international space/time continuum in its favor, Google, overall, managed to pay an average of 2.4% internationally, in taxes.

According to every report I've read, what Google is doing is completely legal. This is important to understand, because while every citizen (and by citizen, I include corporations) is required to pay its fair share of taxes, every one of us is entitled to also do our best to pay as little tax as possible, within the bounds of the tax law.

If the tax law is granting loopholes where it shouldn't, then it's not up to the citizens to pay where they're not being asked, but it might be up to lawmakers to plug the loopholes.

Google, apparently, has found some . Does this surprise you? The company that everyone on the planet uses to search for stuff managed to, uh, find, some loopholes in the tax code. I'd probably be disappointed in them if they didn't.

So, what about the $60 billion bit? That is the result of something called "transfer pricing," which, if I understand it, essentially means fiddling with your inter-subsidiary pricing so when the unit that eventually pays taxes, does, it's paying the least taxes possible.

This practice, as well as something called the "Double Irish" (who knew tax people could be so creative?) is apparently legal. It's a bit sneaky, but it's legal.

So there you go. Drudge made Google out as the company ripping off taxpayers to the tune of $60 billion. Not true.

Interestingly enough, the Mattmeister also lays out his headlines in somewhat misleading ways. Take a look at the following snippet from his Drudge Report home page for today:

If you read it quickly, it looks like Google's (a) paying no taxes, (b) ripping off $60 billion, (c) supporting Democrats so it can keep ripping us off, and (d) hosting a visit by President Obama, so -- by extension -- Obama supports paying no taxes and ripping off taxpayers.

Dang, all that in just a few lines and most of it twisted to imply, but not necessarily state anything. Without a doubt, that Drudge guy is a master.

I check Drudge more often than any other Web site. I've admitted this before. The site is very valuable.

But if you're going to be a regular Drudge reader, you're going to have to develop a certain ability to filter out the B.S. This latest round positioning Google as a tax cheat is pretty much an untruth.

So, there you have it. One more amazing David Gewirtz column, fueled by just one cup of coffee. As soon as I hit publish, there's another cuppa waiting for me, and I'm definitely snagging that last muffin. Yum!

See ya'll on Monday! Have a great weekend!

Update: I don't normally do requests, but this guy asked very nicely, so what the heck. Robert Jay March is a disabled, home-bound journalist who says he spends 120 hours a week working on the March Report, which he says is a substitute for the Drudge Report. Be forewarned, it's a little (okay, a lot) politically biased, but kudos to Robert for working so hard on creating such an interesting online resource.

Topics: Banking, Google, Government, Government : US

About

In addition to hosting the ZDNet Government and ZDNet DIY-IT blogs, CBS Interactive's Distinguished Lecturer David Gewirtz is an author, U.S. policy advisor and computer scientist. He is featured in The History Channel special The President's Book of Secrets, is one of America's foremost cyber-security experts, and is a top expert on savi... Full Bio

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