As It Lobbies For Tax Holiday, Apple Admits Hoarding Cash Overseas To Avoid Paying Taxes

Massive sales of the iPod, iPhone, iPad, and Mac computers have made Apple the largest retailer in America, so big, in fact, that it is larger than the rest of the country’s retail market. The company is currently sitting on nearly $100 billion in cash reserves, and it announced this morning that it will use some of that cash to pay dividends to shareholders and buy back some of its own stock.

During the conference call announcing its plans, Apple also announced that it was using only cash it holds in the United States to finance the dividend. It won’t touch the reserves it has overseas, mainly so it can avoid paying American taxes on that cash, CNN Money reports:

It’s significant that Apple is using its domestic cash, rather than the much heftier stockpiles it holds overseas, because foreign cash would be subject to a sizable “repatriation tax” if brought back into the United States. Cook said the company didn’t want to pay that tax.

Apple is among the companies that make up WinAmerica, a coalition of corporations lobbying Congress for a repatriation holiday. The companies have argued that the holiday would boost economic growth and job creation by allowing them to bring money back either without paying taxes or at a lower rate than the current 35%.

There’s little evidence, however, that the holiday would have that effect, even as it has gained favor with Republican lawmakers and presidential candidates. Congress approved a similar holiday in 2004, only to watch companies use it to pay dividends to shareholders before promptly cutting jobs. Kristen Forbes, a member of the Council of Economic Advisers when the 2004 holiday was approved, said it “didn’t accomplish the stated goals of bringing jobs and investment to the US,’’ and afterward, corporations stashed even more money overseas in anticipation of another future holiday.

Further, at a time when the country’s effective corporate tax rate is at a 40-year low (companies that make up WinAmerica are already paying low rates), such a holiday would cost the U.S. $80 billion over the next decade.