Tuesday , October 17 2017
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Some Links

Summary:
John Cochrane reveals the fundamental flaw at the heart of the “stranded profits” argument.  A slice: (The following is a story, not a fact about Apple accounting.) Apple sells an Iphone in Spain. Apple Spain pays a huge licensing fee on software, owned by Apple Ireland, so it’s not a profit in Spain. Apple Ireland thus collects huge amounts of cash from all over the world, taxed at the low Irish corporate tax rate. Apple Ireland deposits this cash in an Irish bank. (I presume they do fancier things with the money, but I’m telling a story here). The cash is “stranded” overseas, right? No. The Irish bank can lend the money anywhere. It can buy US mortgage backed securities, it can lend the money wholesale to US banks who lend it out to US businesses. It can even lend the money to Apple

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John Cochrane reveals the fundamental flaw at the heart of the “stranded profits” argument.  A slice:

(The following is a story, not a fact about Apple accounting.) Apple sells an Iphone in Spain. Apple Spain pays a huge licensing fee on software, owned by Apple Ireland, so it’s not a profit in Spain. Apple Ireland thus collects huge amounts of cash from all over the world, taxed at the low Irish corporate tax rate. Apple Ireland deposits this cash in an Irish bank. (I presume they do fancier things with the money, but I’m telling a story here). The cash is “stranded” overseas, right?

No. The Irish bank can lend the money anywhere. It can buy US mortgage backed securities, it can lend the money wholesale to US banks who lend it out to US businesses. It can even lend the money to Apple US. If Apple or any other US company wants to invest, they can borrow from the Irish bank. Conversely, if profits are repatriated to US banks, those banks can lend the money overseas.

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Don Boudreaux
He is a professor of economics at George Mason University in Fairfax, Virginia. Previously, he was president of the Foundation for Economic Education.

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