Silicon Valley: Land of the 21st-century robber barons

When it comes to paying taxes, Apple doesn’t “think different.” Like every other global corporation, it does its best to pay as little as is legally permissible. The difference, though, is that Apple does it better than most and tries to convince the people who are stuck with the bills that this is a perfectly normal state of affairs.

In just three years, Apple’s tax avoidance (“evasion” is such a tacky word) efforts shifted at least $74 billion from the reach of the Internal Revenue Service, according to an explosive report by a Senate subcommittee.

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I’m no Apple hater; it makes great products I’m happy to use, and it employs tens of thousands of people directly and in its supply chain. But the more I think about its role in public life, the angrier I get. Apple, in its own way, is un-American. Sadly, it has plenty of company in Silicon Valley.

The new aristocracy lives in Silicon Valley The princelings of technocracy aren’t bad people, but their wealth insulates them from the shared experiences that create community. They are a class apart — maybe even a nation apart. They’re the 21st-century successors to the rail and banking tycoons that ruled in the late 19th and early 20th century: the robber barons.

Consider this anecdote told by George Packer in his thoughtful piece in the May 27 issue of the New Yorker: When state budget cuts threatened the quality of their local school, parents in Woodside, Calif. — one of the wealthiest enclaves in Silicon Valley — stepped up their fund-raising efforts. The Woodside School Foundation now brings in about $2 million a year for a school with fewer than 500 children. In a fund-raising auction, one parent bid $20,000 for a tour of the Japanese gardens of Oracle CEO Larry Ellison, while others paid twice that much for seats at a Mad Men Supper Club dinner for 16 guests.

I’m sure that many of those people would be appalled and upset by the terrible conditions of the underfunded schools in nearby East Palo Alto, and they might even make donations to help out. But I doubt many of them connect the very obvious dots: When big companies and wealthy individuals fail to pay taxes, legally or not, the community suffers.

What makes this so galling in my mind is the hypocritical and egotistical belief in Silicon Valley itself that it is the most enlightened patch of real estate on the planet.

Silicon Valley won’t pay fair share, then decries poor public results As Alec MacGillis of the New Republic points out, it’s a bit rich for Apple to argue — as Steve Jobs did for years, and Tim Cook does now — that the company needs more visas and green cards for foreign engineers because there aren’t enough qualified Americans to fill tech jobs (patently false, by the way), while Apple does its damnedest to keep its contribution toward federal education aid as paltry as possible.

Comments Packer:

This is an example so blatant I couldn’t have dreamt it up, of the self-deception that exists alongside the hard work, idealism, and engineering brilliance of Silicon Valley. It’s the kind of blind spot to which young, self-confident, super-successful industries are especially prone.

One of the subsidiaries set up by Apple in Ireland has paid no corporate income tax to any nation for the past five years, although it reported $30 billion in net income from 2009 to 2012. Another subsidiary has paid a tax rate to Ireland of 0.1 percent or less in 2009, 2010, and 2011, far below the normal Irish corporate income tax rate of 12 percent, according to the Senate subcommittee’s report.

Apple, which is headquartered in Cupertino, Calif., not only avoids federal taxes, it avoids state taxes, too. As the New Republic reports:

With a handful of employees in a small office here in Reno, Nev., Apple has done something central to its corporate strategy: It has avoided millions of dollars in taxes in California and 20 other states. Apple’s headquarters are in Cupertino, Calif. By putting an office in Reno, just 200 miles away, to collect and invest the company’s profits, Apple sidesteps California state income taxes on some of those gains. California’s corporate tax rate is 8.84 percent. Nevada’s? Zero.

Long before he was insanely wealthy, Steve Jobs attended DeAnza College in Cupertino. In those days, local kids could get a good education for a relatively modest amount of money. Not any more — California’s junior and community colleges are in terrible shape.

If they were truly part of the community, leaders of Silicon Valley would declare an emergency and find ways to help, maybe by even paying their fair (as opposed to merely legal) share of their corporate taxes. Instead, they lobby for more and more low-paid foreign workers on H-1B visas, and they disparage the U.S. educational system and the merits of American workers.

When I say “disparage,” I’m not exaggerating. Here’s what Google’s Eric Schmidt had to say in a recent appearance on CNN: “There are simply more smart Indians and Chinese than there are Americans.” I guess that statement is literally true, as MacGillis points out, because those countries are so much larger than ours. But I don’t think volume was what Schmidt meant.

Facebook’s Mark Zuckerberg was pretty candid in a Washington Post op-ed, throwing his weight behind immigration reform: “To lead the world in this new economy, we need the most talented and hardest-working people.”

Really? More talented and harder working than U.S workers?

You’d think that comments like that would infuriate the Senate, but despite the damning report, Republicans and Democrats alike fell over themselves to tell Tim Cook what a great company he runs. “I love Apple. I love Apple,” enthused Sen. Claire McCaskill.

To be clear: Tax avoidance is not just an issue for Apple. U.K. leaders have berated Google’s leadership publicly for avoiding British taxes through Irish tax shelters, and Starbucks has been excoriated by Parliament for claiming it makes no profits in the United Kingdom in another example of shell companies used to (legally) avoid taxes. In the U.S., it has quite literally taking an act of Congress to force Amazon.com and other Web retailers to do right and help starved state governments furnish services by collecting billion in taxes on online sales. Until recently, multi-billion-dollar operations like Amazon and eBay argued that e-commerce and the Internet were too new and too fragile to follow the rules same rules as brick-and-mortar businesses. Amazon has accepted the taxes, but eBay continues to email its members asking them to lobby Congress to kill the tax bill.

All those people are entitled to their opinions, however obnoxious or self-serving. But if we’re smart, we’ll stop drinking the Silicon Valley Kool-Aid and realize that, yes, the rich are different than you and me. They don’t believe they have to pay taxes.

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This article, “Silicon Valley: Land of the 21st-century robber barons,” was originally published by InfoWorld.com. Read more of Bill Snyder’s Tech’s Bottom Line blog and follow the latest technology business developments at InfoWorld.com. For the latest business technology news, follow InfoWorld.com on Twitter.