Why Google may not be as heinous as Drudge implies

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.

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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

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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Talkback

11 comments
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  • "The site is very valuable"

    based on what? lack of critical reasoning? willing to be led? enlighten us.
    sportmac
    • RE: Why Google may not be as heinous as Drudge implies

      @sportmac Misleading headlines notwithstanding, Drudge often reports (or links to, if you prefer) stories before anyone else. As a politics junky, it's also helpful to find kind of what's going to be the political zeitgeist of the day.<br><br>Drudge is definitely a resource. It's just that sometimes he goes a little over the top. Don't discount the value of the site as an informational and trend-watching resource just because he occasionally seems to slant the headlines. Slanted headlines or not, the articles he links to are often the articles you should be reading.
      David Gewirtz
      • a little over the top?

        @David Gewirtz you can't wrap a bit of truth around a lot of bull and consider it valid. did ya miss the part about critical reasoning?
        i should be reading? i'll get both sides of the issues from reputable sources. you can do what you want but if you expect to post something like this you're going to be called on it.
        lies, misrepresentation, to hell with the facts... no thanks. i know demagoguery when i see it.
        sportmac
    • How to tell of someone is speaking the truth

      @sportmac <br><br>It's easy to find a political pundit who's speaking the truth: What he says matches your biases and bigotries. Conversely, locating pundits who are full of bull is just as easy: what they say doesn't match up with your prejudices.<br><br>"I met a man who spoke truth to me; I knew it was so, for he flattered my bigotries and sanctioned my prejudices."<br><br><img border="0" src="http://www.cnet.com/i/mb/emoticons/wink.gif" alt="wink">
      aureolin
      • thus

        @aureolin the critical reasoning part.
        there are actually writers out there who remain objective, who simply give you the facts. they are the ones worth seeking out. they're called journalists.
        sportmac
  • Google has been caught doing many heinous acts (and worst)

    The Drudge Reports hasn't been wrong yet, so...
    iPad-awan
    • seriously?

      @iPad-awan if that's what you believe, because, ya know, it is belief, it has no basis in reality, then good on ya.
      sportmac
  • RE: Why Google may not be as heinous as Drudge implies

    Doesn't really seem all that different than the long-existing practice of U.S. companies choosing a particular state to incorporate in for tax purposes. Isn't Delaware the current preference?
    aep528
  • Drudge is a POS...

    'nuff said.
    BFD
  • It's standard practice.

    For Google not to take the work around deduction would be the same as you not taking your personal deduction on your income taxes. Yes, the deduction, by having every single person viable for it, makes it intrinsically stupid and wrong, much as the ENTIRE deduction system is stupid and wrong. However, if you on principle opt-out, all you do is penalize yourself. All large, multinational companies have this well known and publicized option. Not partaking simply puts one at a competitive disadvantage. As much as I regularly disagree with Mr. Gewirtz, the principled approach IS to change the law and is NOT to stand on a soap box in order to pointedly shoot oneself in the foot.
    tkejlboom
  • RE: Why Google may not be as heinous as Drudge implies

    Another thing to consider here is that this entire article is based on a few headlines. I think that David's main point, although not explicitly stated, is that you can't use just one source (especially on the internet) as your news. And you had sure as heck better read more than just the headlines no matter what the source.
    We as a nation of people have become awfully polarized and one of the reasons is that we don't spend the time to read news in any depth anymore. Many of us think that we are too busy to spend time keeping up with a broad reporting of what's going on. If we do look at anything in-depth, it's usually a specific issue that we are concerned with today and we can't be bothered to look at how it relates to everything else. This is why we are so easily manipulated by a few headlines at a few websites.
    guywayne