Apple Inc. Chief Executive Officer Tim Cook
appeared before the Senate Permanent Subcommittee on Investigations this week to defend his company's tax record. The media has focused on how much of Apple's income is earned by subsidiaries that do not claim tax residence anywhere and therefore do not pay tax. That's a problem -- but not the big problem.
The big problem is that the process of determining the taxable U.S. income of a multinational corporation is necessarily complicated and arbitrary. Companies, including Apple, will exploit that arbitrariness to reduce their tax bills, and while we can diminish their flexibility to do so at the margins, we'll never fix the problem entirely. Instead, we should sharply reduce the corporate tax and replace it with higher taxes that are more progressive and easier to collect: taxes on shareholders in corporations.