Apple, Top Beneficiary of Tax Cuts, Has No Plans to Create U.S. Jobs

In TYT Investigates by TYT Investigates1 Comment

Apple CEO Tim Cook talks to President Donald Trump on June 19, 2017, in Washington, D.C., during the first meeting of Trump’s American Technology Council. Photo by Chip Somodevilla/Getty Images.

By Alex Kane and Matt Cunningham

Despite Apple’s backing of President Trump’s proposal for corporate tax cuts, both the company’s current investment plans and its past record on job creation show no signs a tax cut would lead to new Apple hiring in the United States.

A $1 billion investment in U.S. manufacturing touted by the company seven months ago has yielded no indication of new jobs or domestic manufacturing. One company that Apple invested in announced shortly afterward that it would build a new factory in China.

Apple, the world’s most valuable company, has more to gain from tax cuts, a key component of the GOP’s Tax Cuts and Jobs Act, than any other company. The proposed tax cuts would reduce the corporate rate on domestic profits to 20 percent. Apple’s effective tax rate last fiscal year was 25.6 percent.

Even more significantly for Apple, massively reduced rates on repatriated earnings would allow Apple to bring its huge stash of overseas cash to the United States at a 12 percent tax rate—far lower than the current rate of 35 percent, and significantly lower than Trump’s proposed tax rate for domestic profits. Apple has $261.5 billion in cash, 94 percent of it overseas. No other corporation comes close.

All told, the massive tax break on repatriated foreign earnings would save Apple $60 billion.

Apple already appears to have enough money to hire more workers. Its global headcount has increased steadily under current U.S. tax rates. The company also has ready access to credit if it needs to invest in new workers. Apple pays out over $13 billion in dividends annually, and Apple CEO Tim Cook made $8.7 million in 2016.

Cook has never publicly said that his company will hire a single person due to a tax windfall, but he and his company are engaged in ongoing efforts to win tax cuts.

Cook is a member of the Business Roundtable, a lobbying group that consists of dozens of CEOs from some of the biggest U.S. corporations. The Business Roundtable has issued reports that say tax cuts will help create jobs. The group has spent about $6 million this year on lobbying, some of it on tax issues. Apple is also a member of the Consumer Technology Association, which said in July that “the tech industry supports 15 million U.S. jobs but could help create even more if Congress passed a one-time tax cut repatriating trillions of dollars sitting overseas.”

Federally mandated lobbying disclosure forms do not require companies to break out how much they spend lobbying on individual issues, but Apple has spent over $5 million lobbying Congress this year on issues including taxes—last year’s lobbying total was $4.67 million.

Cook himself met with then-President-elect Trump in December, in part to lobby him personally on tax cuts. Since then, Cook has pushed Trump’s economic agenda and appeared with him at the first meeting of Trump’s American Technology Council.

In June, Cook told Bloomberg Businessweek, “The issue is not that there’s a tax on international earnings. The issue is the existing tax has been crazy,” Cook said. “No one would bring it back at a 40 percent—I mean, 35 percent federal and then state taxes. That’s the problem. I think it’s smart for the United States to have some kind of tax revenue for international earnings—if that tax were reasonable.”

Trump frequently points to Apple as an example of a big company bringing manufacturing back to the U.S. due to his economic policies, including the promise of tax cuts. In July, Trump told the Wall Street Journal about a conversation he said he had with Cook:

“‘I spoke to [Mr. Cook], he’s promised me three big plants—big, big, big,’ Mr. Trump said as part of a discussion about business-tax reform and business investment. ‘I said you know, Tim, unless you start building your plants in this country, I won’t consider my administration an economic success. He called me, and he said they are going forward.’
Apple declined to comment.”

Last month, Trump said, “We need growth. . . . we’re starting to have that even on the prospect of tax cuts. . . . I think Apple is going to be building some very, very big plants.”

In September, he told a reporter, “I’m looking at your iPhone. It’s made by you know who—Foxconn. And Foxconn is moving into the country for the first time. Apple is going to be building massive plants. And there’s a big reason for that, and the reason happens to be Trump.”

Trump’s remarks have fueled speculation that his claims about new Apple factories are in reference to Foxconn’s recent decision to build a plant in Wisconsin. Although Apple is one of Foxconn’s largest customers, the Wisconsin factory will, in fact, make TVs for Sharp. (Foxconn is the majority shareholder in Sharp.)

Apple still has not confirmed or denied Trump’s account. Asked about Trump’s comments in an August earnings call, Cook did not answer directly. Instead, he said the company has created two million jobs in the U.S.—a figure that includes both Apple’s 80,000 employees and individuals who sell through Apple’s app store.

“We do view we have a responsibility in the U.S. to increase economic activity, including increasing jobs,” said Cook. As for how the company expects to do that, Cook referred to an initiative the company announced in April which promised to pump millions of dollars into Kentucky manufacturing.

Harrodsburg, Kentucky

At the time of the April announcement, Cook gave an interview to CNBC in which he said the company would invest $1 billion in “advanced manufacturing” in the United States. Cook said that through Apple’s investment, “We can be the ripple in the pond. Because if we can create many manufacturing jobs around—those manufacturing jobs create more jobs around them.”

The following month, Apple gave the first and so far only specifics of its plan—announcing a $200 million investment in Corning, the maker of Gorilla Glass, which is used for Apple iPhone displays. Apple said the money would go to Corning’s plant in Harrodsburg, Kentucky, to “support Corning’s R&D, capital equipment needs, and state-of-the-art glass processing.” The long-standing partnership between Apple and Corning has “created and sustained” as many as 1,000 jobs at Corning over the years, according to an Apple press release. Four hundred of those jobs are in Harrodsburg, according to Apple.

In August, Cook told Wall Street analysts during an earnings call that the Apple investment in Corning would “expand the plant to make very innovative glass.”

Six months after Cook’s announcement, however, interviews with officials reveal no sign of any such expansion in the works.

Shawn Moore, the Joint Planning & Zoning Commission executive director for Mercer County—where Harrodsburg is located—told TYT, “There have been no permits issued or site plans for expansion of the plant submitted to the Planning Commission since the Corning announcement.”

Corning itself would not confirm to TYT any plans to expand the factory, nor to add jobs there. When TYT contacted Corning spokesperson Daniel Collins, he said, “The investment will be focused on new advanced manufacturing technology driven by Apple’s ongoing innovation requirements for advanced glass.”

The investment, Collins said, will “sustain” its workforce at the factory. “It has the potential to grow employment in that facility as Corning’s new advanced manufacturing system comes on line.“

The United Steelworkers local, which represents some of the Harrodsburg workers, declined to comment. Over the summer, Mark Curtsinger, the president of the local, discussed the Apple investment, telling the United Steelworkers publication USW At Work, “There may be more jobs coming our way because of it.”

The same article reported that Apple’s investment, “will support ongoing state-of-the-art glass processing at the facility, which plays a dual role as a factory and a technology center.”

The article said, “Workers at Harrodsburg perfect new products and manufacturing procedures . . . Those processes are then typically exported to larger Corning sister plants where smartphones and other electronic gadgets are assembled. Besides Kentucky, Gorilla Glass is made in Korea, Taiwan, and Japan.”

In fact, while Apple is funneling money into Corning, Corning is pouring capital into its plants in Asia. According to its most recent annual 10-K filing with the SEC, “Corning has LCD glass manufacturing operations in South Korea, Japan, Taiwan and China. Following the acquisition of Samsung Corning Precision Materials, Corning services all specialty glass customers in all regions directly, utilizing its manufacturing facilities throughout Asia.”

Corning’s 10-K also says, “We expect our 2017 capital expenditures to be approximately $1.5 billion, driven by expansions related to the Gen 10.5 glass manufacturing facility in China, the addition of capacity to support the new gas-particulate filters business in the Environmental Technologies segment, and investment to support general business growth in the Optical Communications and Specialty Materials segments.”

Apple analysts have noted that the company has an integrated supply chain in China. Seamus Grimes, an Apple expert and emeritus professor at the National University of Ireland (the only country where Apple owns its own factory), told TYT he recently spoke with an Apple employee in China, and the employee told Grimes: “Apple don’t want to move out of China.”

“The whole set-up there suits them very well,” Grimes added.

One reason, Grimes said, is the cost of labor in China relative to the U.S. “The whole context in China is totally different than the rest of the world in terms of trade unions and working conditions,” said Grimes.

Another reason is how concentrated Apple’s supply chain is in China. “Apple is dealing with hundreds, maybe thousands, of key suppliers who bring various components to China. These components are then assembled by Foxconn, or Pegatron. All of this work is done in China,” said Grimes. “China has become the main assembly center.”

China has sweetened the deal for Apple with billions in subsidies for the building and maintenance of the biggest factory owned and operated by Apple supplier Foxconn in Zhengzhou.

At the end of 2015, Corning announced a $460 million investment in a new facility in China to produce TV screens. The investment was made in partnership with BOE Technologies, which has another factory that has been tipped by observers as a potential major supplier for the next generation of iPhones.

According to a construction-industry report obtained by TYT, the Corning/BOE project in Hefei, China, is due to complete construction in the second quarter of 2018 and includes “a manufacturing unit, a processing unit, a testing unit, a distribution unit, warehouse facilities, office space, and parking facilities.”

On May 19, 2017, seven days days after Apple’s Corning announcement, Corning announced it would invest an unspecified additional amount in another factory in Hefei. This additional facility was due to break ground in July and to complete construction next year. The new plant will make automobile filters, “critical components in helping local Chinese and global automakers” meet Chinese emissions standards.

Asked whether Apple’s investment made Corning’s investment in China more feasible, Collins told TYT in an email that Apple’s money, “has no bearing on any capital investments Corning would make in any of its business.”

“The Hefei announcement is that Corning is making a capital investment to build a new manufacturing facility to produce substrates and filters for emissions control products for automobile gasoline engines,” Collins wrote. “These substrates and filters are the critical elements in reducing harmful emissions from auto exhaust. We are doing this to support the rapidly growing automotive industry in China. China is both the world’s largest automotive consumer market and the largest automotive manufacturing market.”

Collins also said, “This capital investment by Corning is part of our five year strategy and capital allocation framework, in which we explain our commitment to invest up to $10 billion (during this five year plan) in growth initiatives. Again, there is no relationship between the two.”

Even if Apple’s investment in Corning does end up creating jobs in Harrodsburg, Apple’s track record with some previous U.S. suppliers suggests its investments in manufacturing can end up costing jobs in the long run.

Mesa, Arizona

In November 2013, Apple announced a $578 million deal with sapphire-glass furnace maker GT Advanced Technologies (GTAT) to provide harder sapphire glass for Apple’s phones. Seven hundred jobs at a new manufacturing plant in Mesa were announced by then-Gov. Jan Brewer (R-Ariz.) as part of the agreement. The deal had the potential to be a game-changer for Apple, GTAT, and, devastatingly so, for Corning.

For Apple, the deal held out hope of a phone with tougher displays, less prone to breaking. GTAT would get a massive new customer and vast expansion. Corning, meanwhile, stood to lose the largest customer for its vaunted Gorilla Glass brand.

But the deal fell apart quickly. Apple ended up saddling GTAT with hundreds of millions of dollars of debt, and was accused by the Arizona company of failing to construct a promised factory according to the specifications that GTAT needed.

The deal for Apple to use the firm as a supplier for the iPhone was off. On October 6, 2014, less than a year after Apple’s investment, GTAT filed for bankruptcy. GTAT COO Daniel Squiller told the bankruptcy court that GTAT had been “bearing all of the risk and all of the cost.”

While Apple accused the firm of numerous errors in attempting to create the sapphire furnaces, Apple emerged unscathed from the deal. GTAT barely survived. Nearly nine hundred GTAT employees lost their jobs.

But GTAT’s laid-off workers weren’t the only ones to lose their jobs in the fallout from an Apple manufacturing investment.

Austin, Texas

In December 2013, Apple announced that its high-end desktop model, the Mac Pro, would be made at a Flextronics factory in Austin, Texas. The $100 million deal would create 879 jobs.

At the time, Cook reportedly said, “The difference with us is that we’re taking a bottoms-up approach. We don’t want to just assemble the Mac Pro here, we want to make the whole thing here. This is a big deal.” He said Apple’s partners would use industrial molds and production processes developed in the U.S.

Four years later, however, Apple has introduced 4 new iPhones but the Mac Pro hasn’t been updated once—outside of a minor set of changes in April—to the consternation of the creative types that use Apple’s high-end hardware. And due to Apple’s notorious secrecy in its supply chains, it’s difficult to know how many of the 2,000 Flextronics workers in Austin are actually building the desktop computer.

As Apple has failed to update the Mac Pro, Flextronics has laid off employees. In July 2015, Flextronics laid off 168 people from its Texas workforce. Reviews posted anonymously on Glassdoor.com suggest that layoffs are common.

Cook promoted the Flextronics deal in 2013 as a way to bring manufacturing back to the U.S. but also said workers here lack needed manufacturing skills. More recently, some Apple engineers have proposed moving production of the Mac Pro back to Asia, according to Bloomberg.

In June, Apple announced the new iMac Pro, which at $4,999 is the new highest-end model in Apple’s lineup, surpassing the Mac Pro. The iMac Pro was rolled out without any publicity indicating where it is made, suggesting that the engineers cited by Bloomberg may have won their attempt to produce it in Asia.

In a January earnings call, the first since Trump’s election, Cook was not asked about using a tax windfall to hire more workers. Instead, he was asked about acquiring more companies. Cook said, “I am optimistic given what I’m hearing that there would likely be some sort of tax reform this year, and it does seem like there are people in both parties that would favor repatriation as a part of that. So I think that’s very good for the country and good for Apple. What we would do with it, let’s wait and see exactly what it is. But as I said before, we are always looking at acquisitions.”

Apple did not respond to requests from TYT for comment.

Click here for TYT Investigates’ series on Fed Ex & UPS’ push for tax cuts as job-creation tools.

Click here for TYT Investigates’ Series: Tax Cuts & Job Creation – Lockheed Martin.

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