Apple: not such a taxing issue

The fundamental point is obvious. It is tax law, in the US and elsewhere, that needs to change, not Apple or any other company. Companies exist to please the people who own them. The freedom to be as avaricious as possible within the law keeps companies hard, fast and efficient, which is how we like them. For Tim Cook, Apple's boss, to claim that his company is concerned with the spirit of the law - as he did before Congress this week - is fatuous and beside the point.

Why bother with congressional hearings about who has posted profits to abstractions in Ireland? "Of course we have to change the system but in order to change it we have to understand it," the presiding legislator, Carl Levin, suggested. (A theme echoed by European politicians planning more intrusive reporting rules.) Actually, senator, could we skip that first step? A blank sheet of paper and some international co-operation might work better, with less drama.

There is a non-theatrical reason for investors to be interested in all this. The debate between stock bulls and bears has taken on a focused form lately, over whether profit margins, which both sides agree are historically high, are cyclically or structurally elevated. If cyclical, look out. Margins mean-revert, and stocks that looked cheap turn out to have been expensive. If structural, buy and prosper.

Structuralists like to point out that one of the things that has changed - along with globalisation and lower debt costs - is that taxes on US corporations are lower. In the past 10 years, less than 20 per cent of pre-tax corporate profits have gone on taxes; the 50-year average is 30 per cent. Bank of America reckons that net margins at S&P 500 non-financial companies were 9.2 per cent in 2012, more than a third higher that the levels of a decade before. About a third of that improvement is due to lower effective tax rates. A historically normal tax rate would take corporate profits down by at least a tenth. But bulls can take comfort from the fact that policy changes take a long time.

The most significant support that governments provide to investors is not declining tax rates, however. It is deficit spending, which has a very tight correlation with corporate profits going back many decades (astute observers will also notice that tax policy and deficits are related). Tax me if you must, a greedy company might say - but keep that borrowed money coming.