FacebookTwitterRedditEmail

How Google Became One of America’s Biggest Tax Dodgers

Yesterday San Francisco’s politicians announced that Google, Apple, and other Silicon Valley companies will be charged for the use of the city’s bus stops. Until yesterday the private buses, untold numbers of them, enter the city each morning to pick up thousands workers headed for corporate campuses in San Mateo and Santa Clara counties to the south. Each evening they return to drop employees off, and while they clog city streets and impede the movement of the city’s public buses, the companies haven’t been made to pay a dime for using taxpayer infrastructure.

Private tech company buses are arguably the most conspicuous symbol of inequality and displacement that is tearing California’s Bay Area apart. The hyper-mobility they provide for tech company employees translates into rising rents in the Bay Area’s urban cores of San Francisco and Oakland and displaces those whose incomes aren’t keeping pace with real estate prices. The tech company buses are also a lesson in how many Silicon Valley giants have become incredibly valuable. The biggest tech companies thrive off taxpayer supports, be they bus stops, public universities, or telecommunications infrastructure. At the same time they aggressively avoid taxes themselves. They’re the archetype of the free rider, the shameless citizen who takes from the collective to amass private wealth and doesn’t give back to community without a fight.

Google, for example, will now pay San Francisco about $100,000 a year to run its buses into into the city, according to the Metropolitan Transportation Agency’s director Ed Reiskin. Google, however, is one of the most aggressive tax avoiders. $100,000 is insignificant to Google’s bottom line. It’s 0.000002 percent of Google’s 2012 revenue. It’s one one-hundredth of one percent of Google CEO Eric Schmidt’s 2011 compensation. It’s hardly a rounding error in the company’s quarterly accounting reports.

The statutory U.S. corporate income tax rate is 35%, meaning that a corporation should be expected to pay 35 cents of every dollar in earnings to the feds. Depending on who you ask, Google pays much less than this, mainly by employing a strategy known as transfer pricing.

Through transfer pricing Google assigns ownership of valuable intellectual property to foreign subsidiaries, and claims that certain economic activities take place in a specific jurisdiction that are outside of the Internal Revenue Service’s reach, and inside a low tax jurisdiction. This jurisdiction is Ireland, where many of the tech companies have established offices in order to take advantage of virtually non-existent tax rates. Google and its tech industry peers state ritualistically in their securities filings that all revenues assigned to these low-tax, offshore jurisdictions will be indefinitely reinvested abroad. Here’s what Google actually wrote in their 2012 annual report:

“As of December 31, 2012, $31.4 billion of the $48.1 billion of cash, cash equivalents, and marketable securities was held by our foreign subsidiaries. If these funds are needed for our operations in the U.S., we would be required to accrue and pay U.S. taxes to repatriate these funds. However, our intent is to permanently reinvest these funds outside of the U.S. and our current plans do not demonstrate a need to repatriate them to fund our U.S. operations.”

According to a Thompson-Reuters report from last year, Google’s 2012 effective tax rate on overseas earnings was 2.6% on 5.8 billion in profits. That’s more cash for the pile of offshore ocean money. Microsoft paid a rate of approximately 9.4% on a much larger $20.6 billion in profits. Apple dodged and weaved the best, paying a mere 1.9% on 36.8 billion.

So what’s wrong with setting up shop in the lowest tax jurisdiction? If it’s legal we can hardly blame the tech companies, right?

The problem is that transfer pricing is an illusion that is dishonest about what makes these companies valuable, and how they generate these profits. The value of these companies’ brands, their technologies, their most productive workforces, and the physical and regulatory infrastructure they use to build their markets exists in the United States, and in other nation’s with higher tax rates. These high tax rates support these complex institutions that create value. What the tech companies are doing, in essence, is using the public sector’s store of goods to obtain valuable services—from eduction for skilled labor, to transportation infrastructure, to federally funded research for new product ideas and fields—but they’re not paying back into the tills that support these goods.

In Google’s case there are clear examples of this one way flow of value. Google Maps is an amazingly useful product that brings a lot of traffic through Google’s servers, helping the company cache valuable data related to user queries, user-created maps, and to place millions of ads. Google, however, didn’t invent these maps from scratch. Instead, beginning in the 1980s, long before Google existed, the federal government funded an effort to gather and organize a huge trove of geographic data through the US Census Bureau. That project evolved into TIGER, the Census Bureau’s mapping project, and eventually Google, Microsoft, Apple and other tech companies came along and asked for the raw data. The Census Bureau handed it over at virtually no cost.

“I’m not aware of any pressure to try to recoup the cost,” Michael Ratcliff of the US Census Bureau told me last year in an interview. “Everybody realizes there’s been an enormous benefit to companies that use it. The American public has already paid for it. This is public data.” The Census gave it away to Google and other tech companies just as it would give the product away to anyone who wanted to use it.

Google has now made enormous money from its maps product, even though the heaviest lifting on this technology was done by federal employees using federal funds. Google certainly added value to the maps with new features, and by making the tool accessible. The company’s aggressive tax avoidance means, however, that a share of this value isn’t being returned to one of the major sources of its creation: the federal government. Therefore the burden to fund programs like the Census Bureau’s geography program is shifted onto those who aren’t poised to game the tax code with offshore strategies.

This is basically the tech sector’s model today. It’s why protesters have been blocking Google and Apple buses in San Francisco and demanding that the companies be made to pay back into the budgets of the cities and states that they’re siphoning value from.

Darwin Bond-Graham, a contributing editor to CounterPunch, is a sociologist and author who lives and works in Oakland, CA. His essay on economic inequality in the “new” California economy appears in theJuly issue of CounterPunch magazine. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion

 
More articles by:

Darwin Bond-Graham is a sociologist and investigative journalist. He is a contributing editor to Counterpunch. His writing appears in the East Bay Express, Village Voice, LA Weekly and other newspapers. He blogs about the political economy of California at http://darwinbondgraham.wordpress.com/

bernie-the-sandernistas-cover-344x550

April 22, 2019
Melvin Goodman
The NYTs Tries to Rehabilitate Bloody Gina Haspel
Robert Fisk
After ISIS, a Divided Iraq, Wounded and Grief-Stricken
Binoy Kampmark
Julian Assange as Neuroses
John Laforge
Chernobyl’s Deadly Effects Estimates Vary
Kenneth Surin
Mueller Time? Not for Now
Cesar Chelala
Yemen: The Triumph of Barbarism
Kerron Ó Luain
What the “White Irish Slaves” Meme Tells Us About Identity Politics
Andy Piascik
Grocery Store Workers Take on Billion Dollar Multinational
Seiji Yamada – Gregory G. Maskarinec
Health as a Human Right: No Migrants Need Apply
Howard Lisnoff
Loose Bullets and Loose Cannons
Ricardo Alarcón de Quesada
Dreaming in Miami
Graham Peebles
Consuming Stuff: The Polluting World of Fashion
Robert Dodge
Earth Day: Our Planet in Peril
Weekend Edition
April 19, 2019
Friday - Sunday
Andrew Levine
What Will It Take For Trump to Get His Due?
Roy Eidelson
Is the American Psychological Association Addicted to Militarism and War?
Jeffrey St. Clair
Roaming Charges: Time is Blind, Man is Stupid
Joshua Frank
Top 20 Mueller Report “Findings”
Rob Urie
Why Russiagate Will Never Go Away
Paul Street
Stephen Moore Gets Something Right: It’s Capitalism vs. Democracy
Russell Mokhiber
Why Boeing and Its Executives Should be Prosecuted for Manslaughter
T.J. Coles
The Battle for Latin America: How the U.S. Helped Destroy the “Pink Tide”
Ron Jacobs
Ho Chi Minh City: Nguyen Thai Binh Street
Dean Baker
Fun Fictions in Economics
David Rosen
Trump’s One-Dimensional Gender Identity
Kenn Orphan
Notre Dame: We Have Always Belonged to Her
Robert Hunziker
The Blue Ocean Event and Collapsing Ecosystems
Theodore C. Van Alst, Jr.
Paddy Wagon
Brett Wilkins
Jimmy Carter: US ‘Most Warlike Nation in History of the World’
John W. Whitehead
From Jesus Christ to Julian Assange: When Dissidents Become Enemies of the State
Nick Pemberton
To Never Forget or Never Remember
Stephen Cooper
My Unforgettable College Stabbings
Louis Proyect
A Leftist Rejoinder to the “Capitalist Miracle”
Louisa Willcox
Aldo Leopold’s Land Ethic and the Need for a New Approach to Managing Wildlife
Brian Cloughley
Britain Shakes a Futile Fist and Germany Behaves Sensibly
Jessicah Pierre
A Revolutionary Idea to Close the Racial Wealth Divide
George Burchett
Revolutionary Journalism
Dan Bacher
U.S. Senate Confirms Oil Lobbyist David Bernhardt as Interior Secretary
Nicky Reid
The Strange Success of Russiagate
Chris Gilbert
Defending Venezuela: Two Approaches
Todd Larsen
The Planetary Cost of Amazon’s Convenience
Kelly Martin
How the White House is Spinning Earth Day
Nino Pagliccia
Cuba and Venezuela: Killing Two Birds With a Stone
Matthew Stevenson
Pacific Odyssey: Guadalcanal and Bloody Ridge, Solomon Islands
David Kattenburg
Trudeau’s Long Winter
Gary Olson
A Few Comments on the recent PBS Series: Reconstruction: America After the Civil War
FacebookTwitterRedditEmail