Apple: made in China, untaxed profits kept offshore

Apple: made in China, untaxed profits kept offshore

Summary: About two-thirds of Apple's $97.6 billion cash pile is offshore. That’s a lot of money for an American company to keep outside of America.

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It's been a banner week for Apple. With Apple's announcement of Q1 2012 results, the company is now apparently worth more than Greece.

In the same week, the President of the United States invoked the late Steve Jobs and Apple in his Congressionally-mandated State of the Union address.

Just a few hours later, in the GOP response to the President's speech, Governor Mitch Daniels also played the Steve Jobs card, saying "The late Steve Jobs -- what a fitting name he had -- created more of them than all those stimulus dollars the President borrowed and blew."

Partisanship aside, certainly Apple has created a lot of jobs over the years. But today, most of the jobs created by Apple are not American jobs, they're sweatshop-style jobs for miserable, overworked workers in China.

According to the New York Times, Apple employs 43,000 people in the United States. That's not an inconsiderable number of people. However, Apple no longer builds its own devices. There was a time when Apple computers were actually manufactured in the United States. Today, Apple products are built in China. Foxconn City has 230,000 people working to make iPhones and iPads -- and Presidential candidate Rick Santorum claims more than 500,000 people build Apple products in China.

In other words, Apple provides jobs to more than 10 times more employees outside the United States than in the United States.

But Apple is a U.S. company. We know it is because both the President and the loyal opposition just pointed to it (or to the Dearly Departed, in any case) as a model for American business.

Let's look at that model, shall we? According to the Apple earnings call, the company had a whopping $97.6 billion (yes, billion) dollars in cash at the end of December. Unfortunately, about two-thirds of that money, "about $64 billion," was "offshore" at the end of December, according to Apple CFO Peter Oppenheimer.

That's a lot of money for an American company to keep outside of America.

In fact, MG Siegler of TechCrunch raises a rather disturbing allegation. He says, "$64 billion of that is offshore, Apple CFO Peter Oppenheimer stated during the call -- meaning, it would cost money (taxes) to bring it back into the U.S."

Despite TechCrunch's reputation for inflammatory posts, Siegler's allegation is troubling. I'm not an international finance expert, but the idea -- the mere idea -- that a company like Apple would store its big wad of loot offshore to avoid paying its fair share to America makes me ill.

I floated this troubling thought to ZDNet's editors before running this story and to ask for some of their advice about how to approach telling you about it. Ed Bott reminded me that there was a great deal of discussion of the same issue when Microsoft was purchasing Skype. Microsoft has $42 billion overseas.

Ed told me, "Both companies (and others their size) are huge multinationals that do lots of sales overseas. Although they may be American companies, there are incentives for them to do business this way."

James Kendrick pointed out another logistical challenge that makes it hard to bring cash home, "Don't forget that multinational companies have a big cost in currency exchange when they move big funds around. This alone is cause for leaving funds where they live for as long as possible, too."

ZDNet Editor-in-Chief Larry Dignan advised, "Note that it's not necessarily avoiding taxes as much as the money is made in international markets. There's no incentive or common sense reason to repatriate it." He also said Cisco and many others also have gobs of cash offshore.

Larry suggested the importance of keeping this story in context, saying "This isn't an Apple issue. It's a govt-corporate issue. Apple is just the company du jour being pointed out."

That's true, not only of the massive cash hoard stashed offshore, but the giant job suck as well. The New York Times story (a must-read, by the way) discusses that it's not just the cost of labor, it's the infrastructure, supply chain, attitude, and responsiveness that encouraged Apple to move its manufacturing to China.

As someone who has researched America's job situation in extreme depth, and as the author of How To Save Jobs, I am well aware of the complexity of the manufacturing process and how important supply chain, cost, and responsiveness can be.

I am also painfully aware of how many jobs America needs to create simply to keep up with our birthrate, not to mention all the jobs lost over the last decade.

While there isn't room in this article for policy suggestions, go read my book (free PDF download) for 476 pages of them. My point today, though, isn't policy suggestions.

My point today is that both the President and the GOP pointed to Apple, pointed to Steve Jobs, and effectively held the company up as the shining example of American innovation. It is an innovative company. Sadly, the jobs it creates as a result of that innovation don't seem to wind up back here in America and neither does the money it rakes in.

I'd recommend to our politicians two courses of action: (1) don't use companies that outsource nine-tenths of their workers as examples of American innovation. It's just poor taste. And (2) consider looking -- for real -- at what we need to do to get those jobs (and that cash) back here to the U.S., so it'll be put to good work for the American people.

After all, by my estimate, the citizens of the United States gave Apple at least a few million dollars worth of free publicity from the State of the Union events, alone.

Update: I'm seeing where the comments are going already, and I want to nip some misconceptions in the bud. I'm not demanding that Apple be taxed extra or forced to bring jobs or money back home. I'm demanding that our politicians create the situation where companies like Apple want to bring that money and those jobs back home. Second, I'm demanding that our politicians stop glorifying companies that are not operating according to America's active needs and goals. This week, the President and the GOP did just that, and it wasn't right.

See also:

What do you think? Should Apple and all the other massive American corporations be forced to bring to bring their cash home and pay taxes on it, like the rest of us do?

Topics: Enterprise Software, Apple, CXO, Outsourcing, IT Employment

About

David Gewirtz, Distinguished Lecturer at CBS Interactive, is an author, U.S. policy advisor, and computer scientist. He is featured in the History Channel special The President's Book of Secrets and is a member of the National Press Club.

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  • You could suck apple dry

    And it would only cover Obamas deficit spending for 18.75 days, so stop with the class warfare bull**** and quit demanding other people give you their money.
    baggins_z
    • RE: Apple: made in China, untaxed profits kept offshore

      Rock on!
      cmosentine
      • The longer the Marxist in charge the more jobs we lose to overseas

        No one in their mind will run a factory where they will be taxed to death by a business-loathing regime.

        Btw, the so called "Clinton surplus" is completely rubbish. NASDAQ plunged from 5100 pts to 1200 under his watch started from March 2000 when Clinton was still in office. In other words 80% of Nasdaq was wiped out and destroyed with Clinton too busy having an affair in WH to care, which was a depression style collapse so don't tell me Clinton managed economy well. He did not.
        LBiege
      • RE: Apple: made in China, untaxed profits kept offshore

        January 7, 2009
        The U.S. budget deficit in 2009 is projected to spike to a record $1.2 trillion, or 8.3% of gross domestic product, the Congressional Budget Office said Wednesday. The fiscal started Oct 1 2008 Bush is still in office on Jan 7 2009.
        According to the U.S. Bureau of Labor Statistics seasonally adjusted figures, the U.S. lost 779,000 jobs in January 2009, which was Bush???s last month in office. Tax cuts and deregulation created this dripping bag. Turn off fox. Pull your head from the darkness, come to the light.
        radicalcenter
      • RE: Apple: made in China, untaxed profits kept offshore

        January 7, 2009
        The U.S. budget deficit in 2009 is projected to spike to a record $1.2 trillion, or 8.3% of gross domestic product, the Congressional Budget Office said Wednesday. The fiscal started Oct 1 2008 Bush is still in office on Jan 7 2009.
        According to the U.S. Bureau of Labor Statistics seasonally adjusted figures, the U.S. lost 779,000 jobs in January 2009, which was Bush???s last month in office. Tax cuts and deregulation created this dripping bag. Turn off fox. Pull your head from the darkness, come to the light.
        radicalcenter
      • robert.j.park: That's pure nonsense!

        The crash, which did begin while Bush was in office, was none of his doing. It happened as a result of a chain of events started during the Clinton years, and which culminated during the Bush years. You're doing the same kind of blaming that occurred after 9/11, with people blaming Bush for the event, but the event was years in the making, and Bush just happened to be the one in office when the results of Clinton's negligence finally produced the inevitable results; same with the housing crash which brought down the economy; all of the pieces were already in place before Bush came into office, and it was just a matter of time before the damaging results of the stupidity of Clinton and the democrats finally took hold.

        Perhaps you do need to tune in to FOX to get a clear idea about the issues, because, from what you just commented, you are quite ignorant of the truth.
        adornoe
      • both parties' pols to blame

        And so the GHW-Clintoon-Shrub-Obummer economic depression continues, with both Dems and Reps over-spending on unconstitutional activities, actively encouraging bodyshopping both domestic and across borders, encouraging illegal immigration (both illegal entry and visa over-stays) and fighting tooth and nail against the citizenry.
        Professor8
      • RE: Apple: made in China, untaxed profits kept offshore

        adornoe@.. Facts are the sticks that poke you in the cage you have constructed with fallacies.
        radicalcenter
      • RE: Apple: made in China, untaxed profits kept offshore

        robert.j.park@..
        Robert, please do some proper research. I received TWO of those tax cuts for which I put them back in to the economy. Your comments are extremely subjective - not to mention unfounded.
        mikovich
      • robert.j.park: You can't support your nonsense with more nonsense,

        and everything I stated in my prior post can be easily verified, whereas, your nonsense will remain nonsense.
        adornoe
      • RE: Apple: made in China, untaxed profits kept offshore

        mikovich@...<br>The nonpartisan Joint Committee on Taxation US Congress has gone back and re-scored the cost of the 2001 and 2003 tax cuts to $1.285 trillion with new data about the period of 2001-2011. The cost of the Iraq and Afghanistan wars was $1.26 trillion through 2011 and the Medicare prescription drug program totaled $272 billion. The US Dept of Commerce quarterly figures show from 2000 to 2008, under President Bush, Federal spending rose by $1.3 trillion, from $1.9 trillion a year to $3.2 trillion a year. The combination of weak government revenues (tax receipts) and a vast increase in government spending lay the blame squarely at the feet of President Bush. His combination of reduced taxes and increased spending took the US from a surplus to a deficit and enormous borrowing. So it's very hard to escape the conclusion that President Bush bears a lot of the responsibility for our current mess. Do the Joint Committee on Taxation and US Dept of Commerce "do some proper research" ?
        radicalcenter
      • robert.j.park: You're still not arguing with the total picture taken into

        consideration, and mostly in the area of costs of the wars.

        Look, the "total cost" of those wars is not the same as "additional costs" incurred as a result of people and arms being deployed. The true cost of going to war, is a lot less than the costs which many Bush detractors continue to use to bash him. If one takes into consideration the costs of maintaining those troops at home and not deployed, then that cost has to be subtracted from the "total costs" being bandied about as the costs of those wars. So, if one were to use $1.3 trillion as the cost of those wars, and one were to subtract the cost associated with the regular maintenance/upkeep of those forces, then the true cost of going to war would be tremendously less than the figures you and others use. Neither I nor you know the exact additional amounts that went into deploying, but, it's certainly way less than the figures you and others put out.

        So, why not try to be honest for a change.
        adornoe
      • RE: Apple: made in China, untaxed profits kept offshore

        adornoe@... By your own admission you do not know the exact additional amounts that went into deploying, but, it's certainly way less than the figures others put out. What a revealing reflection of faith based fact free reasoning.
        Supplemental appropriation figures above and beyond the normal defense budget. Interest on the borrowed money, medical costs , equipment losses just do not seem to count in a faith based Fox/hate radio world.
        radicalcenter
      • robert.j.park: You're still talking nonsense, and just because I don't have

        the exact figures, doesn't mean that, my statements are incorrect. You, yourself, don't know the figures, and all that you can put out is the numbers spun out by the left-wing media in order to demonize the Bush administration. In effect, you're helping to spread the lies of the democrats and the left-wing media. <br><br>The fact remains, and nobody can disagree with it, that, the total amount that the democrats and the media like to quote as the total costs of the wars, is incorrect and way off. Like even you would have to admit, the troops and maintenance of equipment and purchase of new equipment, are expenses that would occur anyway, deployed or not. Deployed troops and equipment will, of course, cost more, but, the cost of going to war is the additional costs associated with said deployment, and not the total costs which democrats and the media and even you, like to lie about. That I don't have the exact figures is immaterial, because, it's doubtful that, even the military officials, or the government, has those exact figures. The best that we on the outside can come up with, is guesstimates, and the figures put out by democrats and the liberal media, are outright lies.<br><br>BTW, a lot of those other expenses associated with deployment of troops, such as medical expenses, are not that much higher than if those troops hadn't been deployed. For example, military personnel still die in times of peace, or non-deployment, and many of them still suffer injuries, and in fact, the number of troops killed in those 2 wars, is not that much higher than the number of people that still die while serving away from war, and the statistics also point to injuries and accidents still not being that much higher than when the troops are in "non-deployed" status. So, even there, the statistics put out by the democrats and the liberal media, are exaggerations. Did you know that, a person who dies as a result of an accident while deployed, is listed as a casualty of war, but, if the same accident occurred while on a military exercise, it wouldn't be a casualty of war? There are many such cases listed as casualties of the wars, but the fact is that, they weren't as a result of combat. The point being that, accidents at home are still part of the expenses, and they are the same expenses while troops are deployed.
        adornoe
    • RE: Apple: made in China, untaxed profits kept offshore

      @baggins_z

      LOL, we were running a surplus until G.W. Bush slashed taxes and raised spending. It's been deficits ever since. Barack Obama, meanwhile is trying to bring the country out of the biggest economic downturn since the Great Depression of the 1930's. You can't do that and run a suprlus. Just ask Herbert Hoover.
      dsf3g
      • He owns it

        How long do you think people are going to let Obama ride that horse? Four years ago, maybe it made sense. These days not so much.
        Robert Hahn
      • Right. It's all Bush's fault

        @dsf3g
        and Pres. Obama is 100% blameless.

        Right.
        William Farrel
      • Right. It's all Bush's fault

        @dsf3g
        and Pres. Obama is 100% blameless.

        Right.
        William Farrel
      • Right. It's all Bush's fault

        @dsf3g
        and Pres. Obama is 100% blameless.

        Right.
        William Farrel
      • RE: Apple: made in China, untaxed profits kept offshore

        @dsf3g - Bush was wrong as well, pointing out another???s guilt does not prove ones innocence.
        themp