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Immigration Bill Pass Out of Senate Committee; Apple Criticized for Tax Avoidance; Oklahoma Teachers Praised for Bravery in Face of Tornado

Aired May 25, 2013 - 14:00   ET


CHRISTINE ROMANS, CNN ANCHOR: A surprise in Washington this week -- real compromise. I'm Cihrstine Romans. This is YOUR MONEY.

Twenty-seven years -- that's how long it's been since the United States overhauled immigration law. But this week we got a step closer. On Tuesday members of the Senate judiciary committee reached an agreement on a landmark immigration bill. Three Republicans joined the panel of Democrats in voting for the measure. It now moves to the Senate floor for a full vote.

Immigration touches every aspect of American life. It raises heated controversial issues about national security and cultural identity. But make no mistake, make no mistake. At its core immigration is 100 percent about jobs. Under this bill the number of highly skilled foreign workers admitted to the country would rise from 65,000 a year to 110,000 and possibly more depending on the unemployment levels. That's a major win for big tech firms. Tech company CEOs say they can't find enough talent at home to fill the positions they need.

The legislation also scraps reconciliations requiring companies to make a good faith effort to find American workers before hiring from abroad. That now only applies to companies that hire foreign nationals for more than 15 percent of the workforce.

At the other end of the spectrum, millions of undocumented workers would be granted registered provisional immigrant status, meaning they can stay in the country legally. They can work in this country legally. After a decade, they would become eligible for a green card and three years later full citizenship.

The bill also establishes a new visa program for low skilled workers on America's farms and elsewhere.

Judiciary committee member Jeff Sessions, a Republican, he voted against the measure. He is worried authorizing millions of undocumented workers to take jobs legally will push down already stagnant wages. That hurts low skilled Americans, he says, the most vulnerable people in this workforce right now. As he put it, quote, "My Republican colleagues seem oblivious to the free market."

Ana Navarro is a CNN contributor and a Republican strategist. Ana, you are a Republican in favor of immigration reform. You have to tell me, how divided is your party on this issue right now? How do the factions stack up here? ANA NAVARRO, CNN CONTRIBUTOR: You know, Christine, I think that the division is highly exaggerated. I don't see the level of division that I saw in 2007 or that I have seen in the past. Most Republicans agree that what we have right now is de facto amnesty, that it is a broken system, and that it needs to be resolved. There are some differences on how to resolve that, but there is almost consensus on the first part.

And I would tell you that the Republicans that matter, the ones that draft policy, the ones that shape the agenda, are very committed to moving something and passing something.

ROMANS: I will say you do not see the heat and sort of the public interest and also misinformation that you saw in 2007. This has been moving quickly and sort of under the radar, wouldn't you agree?

NAVARRO: I think a few things are happening. First of all, there is a lot of things going on at the same time. It is almost hard to keep up with the scandal du jour in Washington. But I also think having Marco Rubio in the mix is making a huge difference. He is uniquely situated to explain this and talk about this bill and the benefits of this bill as a Hispanic, as a Republican, and as somebody that really understands and communicates and identifies with the base of the Republican Party.

ROMANS: He doesn't agree with another senator that has a voice on this, too. When you look at the two different positions of Senator Cruz and Senator Rubio, it is sort of illustrates what Republicans are grappling with right now.

NAVARRO: You know, I have been somewhat surprised by the attitude and the votes of Senator Cruz. I think he has changed somewhat from when he was back in 2000 working in the Bush campaign, but also, he is at this point he is in the minority in the Republican faction of the Senate. You're seeing that this thing is moving along.

What we saw this week is we saw the four members of the Senate gang of eight who were also members of the Judiciary Committee stick together and protect the integrity of the deal they crafted. They swatted away anything that would be a poison pill amendment. On both two Democrats did it as well as the two Republicans that were in the committee. So there is great commitment to getting this deal through.

ROMANS: All right, Ana Navarro, nothing more interesting and controversial than when you put politics, jobs, and immigration all in one discussion. Certainly this discussion will only get louder and more interesting over the next few weeks. Thanks, Ana.

NAVARRO: Thank you.

ROMANS: Some in government want to take a bigger bite out of Apple.


SEN. JOHN MCCAIN, (R) ARIZONA: It is past time for American corporations like Apple to reorganize their tax strategies, to pay what they should and invest again in the American economy.

SEN. RAND PAUL, (R) KENTUCKY: I frankly think the committee should apologize to Apple.


ROMANS: Is this a greedy company, a broken tax system? The truth about big corporate tax loopholes, next.


ROMANS: I have here in my hands the U.S. tax code. This big binder is one of 16, 16 binders, 74,000 pages is the U.S. tax code. It is a confusing maze for both individuals and corporations. The top tax rate for businesses is 35 percent. But many companies don't pay that. They don't pay that because within all of these books, within all of these words, within 74,000 pages are scores, hundreds, thousands of loopholes for companies. And companies don't pay those top tax rates, including Apple.

This week a Senate committee grilled Apple CEO Tim Cook on the company's tax practices. The committee wrote a scathing report that found Apple uses subsidiaries in Ireland to avoid paying taxes, all legal because of all of these books behind me. Senator John McCain coauthored the report.


MCCAIN: America's tax system is broken and uncompetitive and I have long supported efforts to modernize it. However, I will not allow that position to be used as an excuse to turn a blind eye to the highly questionable tax strategies used by Apple.


ROMANS: Apple CEO Tim Cook defended his company.


TIM COOK, APPLE CEO: We pay all of the taxes we owe every single dollar. We not only comply with the laws, but we comply with the spirit of the law. We don't depend on tax gimmicks. We don't move intellectual property offshore and use it to sell our products back to the United States to avoid taxes.


BERMAN: Apple isn't doing anything illegal. It is simply doing what every U.S. company does, take advantage of all of these loopholes that Congress itself created. It is a point Senator Rand Paul made during one of the hearings more fire breathing moments.


SEN. RAND PAUL, (R) KENTUCKY: I frankly think the committee should apologize to Apple. I think the Congress should be on trial here for creating a bizarre and byzantine tax code that runs into the tens of thousands of pages, for creating a tax code that simply doesn't compete with the rest of the world.


ROMANS: So this is that tax code, and Paul went on to say that Congress doesn't need to be having a hearing. It needs to be looking in a mirror. It needs a mirror because it is time for Congress to take a good look at itself before castigating companies for legally navigating the system.

David Cay Johnston is a columnist for "Tax Analysts," Jeanne Sahadi is a senior writer for CNN Money. David, Congress creates tax laws, and now senators are grilling Apple over loopholes in the laws. Is that fair? Isn't tax reform really the answer here?

DAVID CAY JOHNSTON, COLUMNIST, "TAX ANALYSTS": Well, of course tax reform is the answer. But, remember, the companies are the ones who go and give campaign contributions and hire relatives of lawmakers to get all of these complexities. For 100 million of the 140 million tax returns filed in this country by individuals, it's so simple you can put it on one page. In fact, I have written you could eliminate tax filing.

But companies like Apple engage in strategies that are to cite the title of my book "Perfectly Legal," but have the same effect of not paying taxes. And that means you and I either have to get less government services, pay higher taxes, or have the government take on more debt while Apple defers its taxes. I have a column laying out how this hits your pocketbook, how Apple is costing you money that's at the today.

ROMANS: And you can draw that direct connection, the direct connection with complicated and sometimes not very complicated tax strategies, usually involving Ireland, that keep a company's tax billow and my tax bill where it stands now?

JOHNSTON: Here is the simple way to think about it. Imagine if instead of having your taxes taken out of your check before you got it, you can keep that money and pay the government 30 years from now. If you invested that money at three percent, it would be 2.5 times as large in the future but the taxes would be the same. It is a zero interest loan. You would actually make money off the tax system. And that's what Apple and other big companies do. The tax system is a profit center, and indeed Enron called its tax department a profit center.

ROMANS: Jeanne, I have to say when I talk about taxes and budgets, Jeanne is the one. We just chat about taxes and budgets all the time. Apple's complex tax strategies really draw -- it's an example of what's wrong with the tax code. Explain how U.S. multinationals take advantage of the loopholes in the system.

JEANNE SAHADI, SENIOR WRITER, CNNMONEY.COM: One of the big things discussed on Tuesday when Apple was on the Hill was and called a cost- sharing agreement. U.S. multinationals choose to share things like the costs of research and development, whether they are offshore subsidiaries or in cases of Ireland, no tax countries.

What the problem with that is, tax experts say, is that they give the offshore subsidiaries a sweetheart deal that they would not give an outside party. So if I am going to invite you in to get in on the ground floor of my next great product, I will make you pay for that. What happened in the case of Apple is that they -- the offshore subsidiaries pay a little more than 50 percent of the costs and earned about 15 times the profits on their investment, whereas the U.S.-based operation only earned about eight times.

So that sort of raises a red flag to tax experts saying that a fair market price that you charge your subsidiaries? And that offshore profits as David noted don't get paid U.S. taxes are not paid on that for years with and years and years because they don't bring the money back home.

ROMANS: David, what this all tells me, what I learn this had week listening to the hearings and listening to fire breathing senators angry about a tax code that they created, what it cements in my opinion is executive there is charge of tax departments at major corporations are probably the most important people in business today. Do you agree?

JOHNSTON: They're certainly very, very important. They are very well paid. GE has it is estimated more than 800 tax lawyers. This is a huge waste of human capital we should be putting into other things. But what we shouldn't do is just cut tax rates, because if we just cut tax rates, everything that's wrong will stay in place. We need to have real fundamental reform. We should have, I believe, something called signal company accounting that would end the practice Jeanne described, by the way, much better than any of the newspapers I read this morning. And we should end deferrals. We require companies to keep two sets of books, one shareholders and one for the IRS. I think we should go to unified accounting.

ROMANS: All right, well, let's come back and talk taxes again sometime soon. I think it is not going away. One thing certain, death, taxes, and fighting about the taxes. Thanks so much, David and Jeanne.

Coming up, Yahoo! CEO Marissa Mayer promises the company won't screw up Tumblr. What do Tumblr uses really want to know? What happens with all of that adult content? That's next.


ROMANS: It is official. Tumblr is becoming part of Yahoo!. Now what? Yahoo! Bought the Web site for $1.1 billion this week, but Tumblr may be worth even more to Yahoo!. Yahoo! CEO Marissa Mayer promised Tumblr users that her company, quote, "won't screw this up," but users are skeptical.

CNN Money's technology correspondent Laurie Segall sat down with Tumblr CEO David Karp this week. And I think it is so interesting this kid didn't even go -- didn't even finish high school and now he is negotiating with Marissa Mayer, probably one of the most famous female tech executives for his company. What was her role in all of this?

LAURIE SEGALL, TECHNOLOGY CORRESPONDENT, CNNMONEY.COM: Marissa Mayer has for some reason this charge in the tech industry. You see, all of these young entrepreneurs going to Yahoo! now, and Yahoo! wasn't able to get a lot of the younger start-ups to get involved. It wasn't cool to be acquired by Yahoo!. I will say this. David Karp really defines cool. He is a New York-based entrepreneur and used to drive a Vespa around the streets and has a beautiful girlfriend.

ROMANS: A gray hoodie.

SEGALL: He wears a hoodie. He is very much cool. Yahoo! really wants to be cool. When I spoke to him I sat down with him and he said really it wasn't just about Yahoo!. It was Marissa Mayer, formerly Google and now at Yahoo!. Listen to what he said to me.


DAVID KARP, FOUNDER AND CEO, TUMBLR: Not only is she a genius of the geniuses, she is something that I really value, which is she is one of the most uniquely happy and productive people I have ever met, certainly in this industry. And that's something that we have just strive for in our team is that sense of eternal optimism and purpose. She just brings that in a profound way.


SEGALL: I will say this. I immediately sat down with him like let's talk about the acquisition and he corrected me. He had let's talk about the partnership, because he doesn't want to be seen as just a part of Yahoo!. Tumblr very independent, the cool kids blog. They don't want to change now that they're at Yahoo!. He made that very clear.

ROMANS: It is so clear. People think he made $250 million of his own money on this. Here is a good born and raised in Manhattan, his parents let him drop out of high school because, you know, high school wasn't really feeding his brain. They let him work on his own and make his own programs. This is not your typical kid.

SEGALL: Absolutely not. I will say when he showed up to the interview he brought his mom. They're from the upper west side here. He said he doesn't suggest that entrepreneurs should drop out. You hear this and you say, OK, maybe everyone should drop out and sell their company for $1 billion. But he said it is a full time job since he was 14. He said his parents were very different than many other parents because they supported him leaving. He actually told me a little bit about it. Listen to this.


KARP: I give my parents so much credit for this. It was, in fact, their idea. I knew what I wanted to be working on. I wasn't really getting it out of school at the time. My parents saw that. They helped me find opportunities where I could pursue that.


SEGALL: But when it comes down to that, it is not easy starting a company 14, 15, 16 years old. He has had to learn a lot. He said the highs have been very high and entrepreneurship, the lows are very low, too.

ROMANS: Absolutely. I think it is so interesting that this guy, you know, $250 million maybe, high school dropout, clearly one of the tech brains.

We have been hearing about Tumblr users jumping ship all week. What is the status of what the users are saying about this acquisition, sorry, partnership?

SEGALL: Exactly. Look, people are worried. The Tumblr users, there is a certain user base. They have fiercely independent people pouring their hearts out on blogs. And a lot of people went to WordPress, the biggest competitor and I had the opportunity to sit down with the founder of word press, and they're looking at the tenth anniversary. Believe it or not, they have been around for 10 years. And he said, look, people jump ship any time this kind of thing happens. We'll see if it sticks. What he said that was very interesting is they didn't sell for enough. Listen to what he told me.


MATT MULLENWEG, FOUNDER AND CEO, WORDPRESS: Yahoo! needs somewhere to work and they need a social network, and really I think they sold for too little. Like I had, blogging platforms have huge potential, and they have fantastic engagement as well.


SEGALL: So if you look in the future, could Tumblr have sold for not $1.1 billion but tens of billions? That's what matt says. He says it was very bittersweet, because this platform, you look in the future, it could be very, very successful and for advertisers, too.

ROMANS: We know there is a lot of adult content Tumblr. Should users expect big changes?

SEGALL: I asked him that. I will say this. He was a little awkward about the answer. I thought maybe it was because I was asking him about the porn problem on Tumblr in front of his mother. But what he really said was nothing is going to change. Those guidelines are strict. I think we're honestly I think it will take time. We'll look, because people are posting a lot of times illegal material on Tumblr. Now it is part of a big public company. You can't ignore that now.

ROMANS: Laurie Siegel, such an interesting interview. We'll talk to you again very, very soon.

And coming up, most days they grade tests and assign book reports, but this week teachers in Oklahoma put their lives on the line to protect the children at the teach. Our look at the courage of the profession, the courage of teachers, next.


ROMANS: When you drop your child off at school in the morning you never think it is the last time you will see your little boy or girl. But as we've learned too often in the past few months there do come day when is it just might be.

I want you to listen to something. It's the sound of 25 terrified children huddled inside in an elementary school bathroom as a massive tornado rains debris on them. You can hear sixth grade teacher Lynn Breton trying to reassure them.


UNIDENTIFIED FEMALE: You're OK. You're OK. You're OK. You're OK.


ROMANS: You're OK. This week as the full horror of the deadly tornado in Oklahoma emerged, so did story after story of heroic teachers that put themselves between their tiny charges and the fury of that twister.


UNIDENTIFIED MALE: His teacher is in the hospital. His teacher saved his life.

UNIDENTIFIED MALE: Who is his teacher?

UNIDENTIFIED FEMALE: I no doubt god and his teacher, they lifted a wall off of these kids.

UNIDENTIFIED MALE: Me and four other guys pulled a teacher out on top of three kids. The kids were fine. She was hurt pretty bad.

UNIDENTIFIED FEMALE: It is nothing anybody wouldn't do. These children, we see their smiles, their tears, every day, in and out. And we love them. And they're our babies.


ROMANS: This isn't the first time teachers have bravely stood up in the face of terror. Nearly six months ago in Newtown, Connecticut, six teachers died trying to shield their students from a gunman bent on mass murder. In February President Obama posthumously awarded those educators the Medal of Freedom.


BARACK OBAMA, (D) PRESIDENT OF THE UNITED STATES: They could have taken shelter by themselves. They could have focused on their own safety and well-being, but they didn't. They gave their lives to protect the precious children in their care.


ROMANS: Away from the headlines teachers are called on every day to exhibit a quiet heroism that can change lives. We depend on them not only to educate our kids and prepare our kids for the rest of their lives but also to detect whether a child is being abused or intervene if a child is being bullied.

Let's not forget, more than 355,000 teacher jobs have been lost since June of 2009 when the recession officially ended. Since the recession ended, the average starting salary in education, about $40,000 a year. College grads who start in communications or health sciences are making more. Someone who gets into teaching clearly isn't doing it for the money. They are doing it, we know, to shape young lives and to provide the knowledge that will enable the next generation to compete in the global economy.

But sometimes in between a mundane math quiz or a lesson on subject verb agreement, they're asked to sacrifice their own safety. When they do so often they say they were just doing their jobs. We wanted to take a moment to say thank you to this country's teachers. That's what they're doing in Moore, Oklahoma. Just listen to David Wheeler that says his son Gabrielle is alive today, alive thanks to the actions of his third grade teacher Julie Simon.


DAVID WHEELER, TORNADO SURVIVOR: She is a member of our family for the rest of our lives. And she will be a part of it forever. There is nothing that we can give to her that will repay her. We just thank you, Julie, and we love you.


ROMANS: The largest profession in America and none more important, our sentiments exactly.

Thanks for joining the conversation this week on "YOUR MONEY." We're here every Saturday at 9:30 a.m., 2:00 p.m. eastern, and also Sunday at 3:00 p.m. Until then you can find me on Facebook and on Twitter. My handle is @ChristineRomans.