GE & The Tax Code: Imagination At Work

Imagination @ work -_-

Oh…another day, another example of a large corporation, one that makes billions of dollars each year, paying less taxes than I did from the meager pittance I generated with this blog.

Yes, I paid more taxes on my blogging income than General Electric paid last year.

Now that’s not because I make so much money blogging, but because GE literally paid no taxes for 2010. Not only did GE not pay a single, freakin’ dime in taxes, but they claimed $3.2 billion in tax benefits last year.

Time to break out my -_- face.

And before you go all free-market fundamentalist on my ass, GE isn’t doing badly. Not hardly.

No, America’s largest corporation did just fine last year.

The corporate behemoth had worldwide profits of $14.2 billion last year–$5.1 billion of which came from its operations in the United States. That’s an incredibly accomplishment, considering that it happened during a year when the country was struggling out of a crippling recession.

GE didn’t owe any taxes in 2008 either, and has received a net tax benefit over the last 5 years. That’s not that completely surprising, since according to a 2008 GAO study two out of every three U.S. corporations paid no federal taxes at all.

Yup, 67% of all corporations don’t pay a red cent in taxes.

They ship our jobs overseas, ravage our environment, run themselves into the ground then come asking for taxpayer funded handouts…all while downsizing their work forces year after year after mother bleepin’ year.  Yet they pay no taxes.

Oh what would Gunnery Sergeant Hartman say?

U.S. Tax Code...set to "broil"

Probably something about them being the kind of person that would “f@#$ a guy in the ass and not have courtesy to give him a reach-around”.

But I digress.

Now a great many of those companies, of course, owed nothing because they didn’t make any money, or took a net loss.  I get that and I don’t have any problem with them receiving tax benefits.

But GE managed to claim substantial tax benefits in spite of making billions of dollars by having a tax department of nearly 1,000 people—sometimes called the world’s best tax law firm—staffed with Treasury department and IRS officials.

The company aggressively lobbies Congress for tax breaks and—like many multinational corporations—tries to “offshore” its profits by concentrating its costs in the U.S. and its profits in low-tax countries.

Now what did GE choose to do with this windfall they essentially received from lil’ old you & me?  Certainly they must have chosen to reinvest that money in America, preferably in the form of new hiring…right?

Wrong.

They could have hired people, nudging along the recovery by putting some cash in the hands of consumers.

But nope, GE announced that it has spent that $3.2 billion to buy a 90 percent interest in Converteam, a Massey, France-based company. The move is expected to help GE “expand its global markets”.

And this isn’t new for GE.

Yves Smith has this to say at Naked Capitalism:

“The New York Times reports tonight on what a great job General Electric does in tax evasion avoidance, reaping a tax credit of $3.2 billion on $5.1 billion of reported US profits. And while GE is a particularly egregious example by virtue of having the most sophisticated tax operation in the US, it illustrates a more general point.

The idea that US corporations are heavily or even meaningfully taxed is a canard (and this is true at the small end of the spectrum too). While nominal tax rates may appear to take a serious bite out of corporate earnings, a myriad of loopholes and income-shifting schemes allows companies to slip the taxman’s leash.

And before some of you contend that this line of thinking is somehow anti-capitalist, consider the reaction of President Reagan when learning of GE’s skills in tax dodging:

There you go again...

As it has evolved, the company has used, and in some cases pioneered, aggressive strategies to lower its tax bill. In the mid-1980s, President Ronald Reagan overhauled the tax system after learning that GE — a company for which he had once worked as a commercial pitchman — was among dozens of corporations that had used accounting gamesmanship to avoid paying any taxes.

“I didn’t realize things had gotten that far out of line,” Mr. Reagan told the Treasury secretary, Donald T. Regan, according to Mr. Regan’s 1988 memoir. The president supported a change that closed loopholes and required GE to pay a far higher effective rate, up to 32.5 percent.

And don’t try contending that it has always been like this. From Richard Wolf in the Guardian (emphasis his):

During the Great Depression, federal income tax receipts from individuals and corporations were roughly equal. During the second world war, income tax receipts from corporations were 50% greater than from individuals. The national crises of depression and war produced successful popular demands for corporations to contribute significant portions of federal tax revenues.

US corporations resented that arrangement, and after the war, they changed it. Corporate profits financed politicians’ campaigns and lobbies to make sure that income tax receipts from individuals rose faster than those from corporations and that tax cuts were larger for corporations than for individuals. By the 1980s, individual income taxes regularly yielded four times more than taxes on corporations’ profits…”

Evasion, avoidance...what's in a word?

One can’t really blame GE for taking every tax break it can. GE doesn’t appear to  have broken any laws.

I wish I could have found a legal way to pay no taxes myself.

But it does make it hard to believe claims that we need to cut corporate taxes because the corporate tax burden is “stifling” American productivity. It’s true that the U.S.’ high marginal tax rate of 35% gives corporations an incentive to move operations offshore.

President Reagan tried to change those incentives with the 1986 Tax Reform Act after learning GE was paying no taxes during his administration by closing loopholes and eliminating corporate tax breaks. But thanks to the lobbying of GE and other corporations, more loopholes and tax breaks found their way back into the tax code.

It does make sense to lower the nominal corporate tax rate, if we also eliminate tax breaks and make it much more difficult for corporations to avoid taxes by sending parts of their operations overseas.

But don’t believe for a damn minute that federal taxes are cutting into corporate profits, or that companies like GE are cutting workers because they aren’t doing well.

Corporations certainly aren’t paying too much taxes, and we damn sure don’t need to go down the road the GOP leaders in Wisconsin, Michigan and Florida have chosen to by lowering the amount companies pay.

As Jon Stewart said on The Daily Show, “I’m not sure you can lower it from nothing.”

A side observation: If you want to stay informed on GE’s brilliant schemes to avoid paying taxes, don’t watch NBC or its affiliates. The network, which is owned by GE, didn’t bother to report on the company’s taxless status.

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4 thoughts on “GE & The Tax Code: Imagination At Work

  1. I guess it worked out well for GE that Jeffrey Immelt is such a good friend of the President. Take a look at how much tax Goldman Sachs paid and then look at who’s campaign they donated too (hint: less then 1% tax paid and over $600 million to Democrats).

    It’s good to have friends in high places when it comes to tax avoidance, ask Timothy Geithner.

  2. I don’t dispute your general idea, but I adore how you think the GOP doesn’t pull this stuff. The current tax rates were put in place under Bush my friend and only extended, after much debate/dispute, by the current administration. The same goes for a great many of the loopholes these companies take advantage of.

    This is a bipartisan thing all across the board.

    • Don’t get me wrong, the GOP helped their corporate friends when they where the majority. You brought up GE that is why I pointed out their “friends in high places”. Many of the oil industry tax breaks are due to GOP leadership.

      The only way to fix this problem is to scrape the progressive tax system and implement a new system. As long as we have a 13,000 page tax code politicians will find ways to manipulate “loop holes” to help their supporters.

      • Indeed. They system is almost irrelevant with all the loopholes. We need such a huge overhaul to the code that it isn’t funny =(

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