On the earnings call, Apple’s leadership did more to explain why they’re going to start borrowing money and it turns out to be pretty uninteresting: Tax avoidance. Not evasion, mind you, avoidance. The issue is that to minimize its corporate income tax bill, Apple (like most large American multinationals) structures its business so as to maximize the share of its profits that are registered as coming from low-tax countries. Some of this is perfectly genuine. Ireland has low corporate income taxes and some Irish people own iPhones. And a lot of it is gamesmanship. But by hook or by crook, the upshot is that a very large share of Apple’s cash is located “offshore” and in order to use it for share repurchases or dividends, Apple would need to “repatriate” it and pay corporate income tax.
The statutory corporate income tax rate is quite high—35 percent—so it turns out to be cheaper to borrow the money and pay interest than to repatriate cash and pay taxes.
This kind of monkey business is a key reason why in an ideal world we would replace the corporate income tax with higher taxes on corporate executives and rich shareholders.