Apple (AAPL, $4??) reported earnings after the market closed today, and they blew away just about every estimate on Wall Street. The company earned $13.87 per share vs. a consensus estimate of $10.08 for the fourth quarter of the calendar year (the company's fiscal year first quarter), and the stock shot up more than $30 in after-hours trading. If AAPL opens above $450 Wednesday morning, it will be the most valuable company on the planet by market capitalization, edging out the former champ, Exxon. The company sold 15.43 million iPads in the quarter, up 111% from last year, and 37.04 million iPhones, up 128% from a year ago. This great news from AAPL has shares of suppliers Qualcomm (QCOM, $58) and Broadcom (BRCM, $35) also indicated higher in the after-hours and may lift much of the technology sector Wednesday morning. Tim Cook, Apple's CEO, noted that the company's pipeline of new products is "amazing" and that iPhone sales in China are staggering, with demand "off the charts." Also, the company mentioned "active" discussions concerning what it may do with its now $97 billion of cash. Those are the kinds of comments that the market loves to hear.
About the only way that Apple hasn't rewarded shareholders is with a cash dividend. That is certainly understandable, since the company has plenty of opportunities to invest in its own innovation and growth, but all that cash gives the company the ability to initiate such a payout or buy back shares. Tonight is President Obama's last State of the Union address before the November election (and maybe his last one, period), and the subject of dividends will be hanging heavy in the air. In a bit of political theater now common to the annual message, President Obama's special guest tonight will be Warren Buffet's secretary, as yet not known by name but surely destined to be the Democrats' "Joe the Plumber." The legendary investor (I first heard of him when I was in college and just assumed he was Jimmy Buffet's dad) apparently couldn't keep busy enough managing his investments, so he ventured into the realm of politics by pointing out that his secretary paid taxes at a higher marginal tax rate than his own. This has been fresh, red meat for the Democrats because it plays perfectly with their class-warfare script. The fact is that, yes, dividends, which constitute much of the income earned by people like Buffet and Mitt Romney, are taxed at a maximum rate of 15%. Governor Romney just released some of his tax returns, and we can expect to hear much howling and moaning about how he doesn't pay enough taxes (does anybody pay enough taxes?). However, political demagoguery has a way of getting in the way of the facts. I honestly doubt that President Obama will offer any attempt at clarification tonight, so we'll just do that here.
Most of the payments that corporations make are tax-deductible. When a company buys office supplies, pays its employees, or pays interest on its loans, those payments are deducted from income before taxes are calculated, just the way an individual would deduct mortgage interest or gifts to charity. When a company invests in a major physical asset, it can depreciate that purchase over time with the annual depreciation amount serving as yet another deduction. About the only payment of money out that isn't tax-deductible is the dividend amount that the company pays to its shareholders--earnings are what the company pays taxes on, so what is left after paying Uncle Sam is what can be distributed to shareholders. The portion of earnings paid out as dividends has already been taxed at the corporate level, so we could argue that dividends should not be taxed again at all at the personal level. That is the argument for taxing dividends at a rate lower than the rate on ordinary income, and that is why it appears that Mr. Buffet and Governor Romney are somehow getting off easy, when in fact their income is taxed twice.
One of the ways to fix this would be to eliminate or drastically reduce the corporate income tax. That would also have the very favorable effect of encouraging more businesses to set up shop in the good old USA. It is a sad commentary on the State of our Union, though, that some of our political leaders stoke the flames of class warfare by portraying successful business leaders as the villains in some economic drama. Most troubling of all, no one really seems interested in acknowledging that many of these dividend recipients are the very entrepreneurs that create the jobs in this country. It is just easier to play this out as a Manichean struggle between Buffet's secretary and the person who created her job in the first place.
I'm just glad I've got Jimmy, not Warren, on my iPod.
Life is short. Get busy.
Jim
No comments:
Post a Comment