Capitalism is the only economic system that works. Capitalism works best when the government gets out of the way.

Tax Reform’s Apple Dividend. $38 billion in taxes finances a lot of Social Security checks.

People stand in line near an Apple Store at an outdoor shopping mall in Beijing, Oct. 20, 2017.

By The Editorial Board Jan. 18, 2018

The public’s perception of the Republican tax reform is improving, and it’s easy to see why. An announcement from Apple this week is the latest and largest example that reform is working as supporters promised, not least in bringing back capital to the United States.

Apple said Wednesday that it will pay $38 billion in taxes on the $250 billion or so in cash the company holds overseas; that’s a lot of money for Social Security checks and food stamps. Apple also said it would invest or spend on purchases some $350 billion in the U.S. over five years and add 20,000 jobs.

Apple’s windfall for the U.S. Treasury is the result of the reform bill’s 15.5% “deemed” tax rate on profits previously earned overseas whether or not they are returned to the U.S. The old system featured a one-two punch of taxation abroad and than again at home at a punishing 35% rate if the money was repatriated.

Apple had no plans to return the money to the U.S. under that regime, and ditto for many other companies that together have some $2.5 trillion abroad. Republicans broke this logjam by lowering the top rate and creating a permanent system that taxes income where it’s earned. Now Apple can put this cash to whatever the company deems the highest use, without arbitrage from tax policy.

Reform critics said these distortions didn’t matter because Apple could borrow at home and that the GOP tax bill would only encourage more investment overseas. Not for Apple. Now the same naysayers are mumbling that this investment would have happened anyway, but Apple’s decision shows that tax rates matter.

The more dishonest critics are saying Apple received a tax “cut” by bringing the money back at a lower rate, which is some crack economic theory. The reality is that Republicans unlocked $38 billion for the Treasury that otherwise might have been $0.

By the way, some of the benefit is flowing into wages. Apple also announced a $2,500 employee bonus in the form of restricted stock. The longer-run benefit to workers is that investment makes labor more productive, which will make wages grow over time. Yet Democrats are still claiming that shareholders will be the sole beneficiaries of tax reform and workers will get crumbs. Who you gonna believe: Chuck Schumer or your own eyes?

President Obama could have made all of this happen, but he refused to negotiate seriously with a GOP Congress. Companies continued to self-deport from the U.S. through corporate inversions and financial engineering that erodes the tax base. Democrats in Congress made the same calculation last year, and now not one can share in reform’s political dividends.

The political winners here are the GOP Congress and President Trump, who couldn’t resist taking a victory lap on Twitter this week. But once in a while his boasts are true. The biggest winners are U.S. companies, workers and the American economy.