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If you keep up with earnings reports and the like, or you're an Apple stockholder, you've probably heard by now about Apple's plan to buy back $60 billion in stock, and increase its dividend to shareholders that was announced in yesterday's quarterly earnings call.

One of the surprising parts of that call, to many people that follow Apple's business, is that rather than paying for the buyback out of their massive hoard of cash (of which $60 billion dollars represents less than half), that Apple will be issuing debt to pay for it for the first time in years.  Apple, historically, has been so against issuing and carrying debt that they did not have a credit rating on file with Standard and Poor, who had to issue a rating for the company shortly after the earnings call ended.  The rating, by the way, is AA+.

So why is this such a big deal?  Follow me below the fold, and I'll tell you.

Much of Apple's cash hoard comes from revenue/profit generated overseas, and therefore is untaxed by the US government until it's brought into the country.  Like most businesses that generate overseas revenue overseas, Apple's been hoping for, if not agitating for, a corporate tax amnesty bill so that they can repatriate those funds without paying a tax bill that could reach $28 billion.

That's right, $28,000,000,000.

So what does this half to do with a stock buyback and increased dividends, which when viewed on their own, are actually some of the better things a business can do when they move from growth to value stage?

The buyback will be financed with debt, which given Apple's massive cash hoard and AA+ credit rating, should be acquired at really low rates.  So Apple now has $60 billion (or however much debt they issue) that costs them 3% or less to acquire.  They'll then pay down that debt with the overseas cash, avoiding paying taxes on it, especially if the issuing firms issue the debt overseas and receive the debt payments through a foreign holding or subsidiary.

This means that Apple can avoid paying tax on this overseas cash hoard, while only paying a few percent in interest on it rather than paying 35% of it in tax to the US government, where it houses its headquarters and makes most of its revenue.  Apple gets the vast majority of it's overseas cash back into the US, and the US government gets zero thanks to creative accounting.

That's around $28,000,000,000 in tax revenue our government will never see.  That would pay down a lot of debt, or fund a lot of programs that our sequester chopped funding for.  And the only thing the media is reporting is how "Oh, Apple's earnings are falling" or "Investors will love the buyback and dividend plans!".  Not a work about the tax dodge.

I don't know what you all think, but the government sure could use those tax dollars right about now.

Update, 11:49am PDT:

Modified the title so that it stops distracting from the overall point of the diary -- that there's something seriously wrong with tax law when a company can dodge one of the largest tax bills in history by paying a financial institution a few percent to finance some debt.

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