Pun Salad

I mentioned a few days back that I was a Wired subscriber, and I appreciated that it wasn't a hotbed of knee-jerk soft-leftism like many of the other mags published by its parent organization, Condé Nast.

Doesn't mean it's perfect, though. Let me take it to task for a one-page "Infoporn" article from its April 2014 issue (page 19). It is entitled "The Money-Go-Round", with the subtitle "How Silicon Valley shuffles patents and code around the world to avoid taxes."

First the good news: The UK version of the article is online here; please check out the beautiful graphic (that's the "Infoporn" bit) with multicolored arcs showing how Google, Amazon, Apple, Microsoft, and Facebook transact cash, intellectual property, and physical products across the globe between their businesses and subsidiaries. (My magazine has the numbers in $ instead of £ of course.) It's a fine example of efficiently conveying information that would be utterly dry and boring as a block of text. You can get similar graphics by Googling "double irish" "dutch sandwich" (really) because those are common names for the tax-avoidance schemes used by the big boys.

With all that information crammed into the graphic, you don't need a lot of text, and my dead-trees Wired has but a single paragraph:

For sheer ingenuity, you can't beat Silicon Valley—especially at outsmarting the tax man. By selling intellectual property rights to sock-puppet subsidiaries, tech giants shift profits to low-tax nations like Ireland. But that's just a start. Sublicense the IP to a second Irish unit that books global sales, have entity B pay onerous royalties back to A (wiping out its earnings), then show that A is headquartered in the Caribbean, making its royalty income untaxable in Ireland. Slick! Only problem: Until the IRS gets its cut, the companies can't bring the cash back home to use it. Hmm … not so genius after all.

Three points:

1. The snarky bit at the end of the article is just, well, stupid. I am totally innocent of any knowledge of international finance, corporate tax law, or business organization. Still, who do you want to bet is smarter about this kind of thing?:
   1. a crack team of experienced accountants and lawyers, undoubtedly well-paid to come up with sophisticated strategies to optimize a company's profitability, shareholder value, and tax exposure;
   2. a Wired journalist coming up with one paragraph for this month's issue.

   I know which way I'd bet, how about you?

2. But the real problem here is that, instead of going for the snark, Wired could have pointed out the actual underlying issue: that the USA has (as even the left-leaning Politifact grudgingly admits) the highest corporate tax rates in the world (among the large industrialized democracies). Google, Apple, et. al. are not engaging in these international shenanigans simply for the fun of it. Clearly, if the USA had a more competitive tax policy, they would do less of it, and maybe none.

   That would be better for them, and also for the domestic economy. Wired could have made this simple and obvious point, but didn't.

3. Of course, these sophisticated gimmicks can only be carried out by corporations large enough to hire the previously-mentioned strategic teams and have far-flung business operations. Speaking of infoporn, this Dilbert cartoon makes the point well. Just reproducing the dialog between Dogbert and the Pointy-haired Boss:
   Dogbert: I can lower your corporate taxes by using a strategy that tax attorneys call the "Dutch Sandwich." And I'm not even making that up.

   PHB: So... that would transfer our tax burden to people who can't afford tax attorneys.

   Dogbert: Yeah... Their sandwich has a less appealing name.

   Yes, smaller companies are (relatively) penalized for being too small to take advantage of these (legal) tax ploys. Another pithy argument for lowering corporate tax rates.