The Artful Dodger: GE picks the public's pocket in a Dickensian economic system
A March 24 NY Times article headlined "GE’s Strategies Let It Avoid Taxes Altogether" described how General Electric, the nation’s largest corporation, reported $14.2 billion in 2010 global profits, including $5.1 billion from its operations in the United States, yet not only paid absolutely zero U.S. taxes, but actually claimed a tax benefit of $3.2 billion.
Reporter David Kocieniewski notes that "low taxes are nothing new for GE", and are the result of "an aggressive strategy that mixes fierce lobbying for tax breaks with innovative accounting that enables it to concentrate its profits off-shore. GE’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm".
According to Kocieniewski, nearly a thousand GE employees spend at least half their time exploiting an already porous tax code that allows corporations to avoid paying taxes on income from certain kinds of financial operations abroad, and then use tax credits, write-offs, and depreciation from those activities to off-set taxes on domestic profits.
"But critics say the use of so many shelters amounts to corporate welfare", the article says, and that "the assertive tax avoidance of multinationals like GE not only shortchanges the Treasury, but also harms the economy by discouraging investment and hiring in the United States".
GE recently reported that it pays a mere 7.4 percent of its American profits in taxes, or about a third of the amount paid by the average American multinational corporation. And even that percentage is over-stated, Kocieniewski says, because it includes taxes that GE only has to pay if it brings overseas profits back to the U.S. By not doing so, it effectively gets money back from the government.
"The assortment of tax breaks GE has won in Washington has provided a significant short-term gain for the company’s executives and shareholders", the article says. "While the financial crisis led GE to post a loss in the U.S. in 2009, regulatory filings show that in the last five years, GE has accumulated $26 billion in American profits, and received a net tax benefit from the IRS of $4.1 billion." [Emphasis added]
This serves to illustrate the larger and more salient point that
Although the top corporate tax rate in the United States is 35 percent, one of the highest in the world, companies have been increasingly using a maze of shelters, tax credits, and subsidies to pay far less. ... Such strategies ... have pushed down the corporate share of the nation’s tax receipts — from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009.
A key element in this trend has been corporations' increasing shift of their profits overseas. Until 1998, GE's domestic revenues and profits were roughly in balance — about 73 percent of its total. But since then, the company has earned 46 percent of its revenue in the U.S., but just 18 percent of its profits. By declaring an increasingly large percentage of its profits in low-tax countries such as Ireland and Singapore, it has reduced its domestic tax liability nearly to zero.
The article notes that the 1986 Tax Reform Act was spurred in part by President Ronald Reagan's surprise when he found out that GE and dozens of other U.S. corporations were using accounting slight-of-hand to avoid paying any taxes at all. Among other things, the Act closed corporate tax loopholes and required GE and other companies to pay a far higher effective rate of as much as 32.5 percent.
“Cracking down on off-shore profit-shifting by financial companies like GE was one of the important achievements" of the Act, the Times quotes Robert McIntyre, director of Citizens for Tax Justice, as saying. But the fervid embrace of deregulation and corporate lobbying by both Democratic and Republican administrations since then has led to a return to what McIntyre describes as “rampant tax sheltering.”
Many corporate tax breaks and other subsidies are predicated on the dubious claim that they'll increase investment and job creation in the U.S., which in most instances is shown to be unfounded. In GE's case, quite the opposite is true:
While GE’s declining tax rates have bolstered its profits and helped the company continue paying dividends to shareholders during the economic down-turn, some tax experts question what taxpayers are getting in return. Since 2002, the company has eliminated a fifth of its work force in the United States, while increasing overseas employment. In that time, G.E.’s accumulated off-shore profits have risen from $15 billion to $92 billion. [Emphasis added]
Despite GE's role as the posterchild for America's perfidious corporate culture, President Obama had the jaw-dropping audacity to name the company's CEO, Jeff Immelt, as his so-called "jobs czar". Yet at least one Democrat was willing to condemn the utter folly of deliberately handing the nation's wallet to a band of corporate pickpockets:
“That GE can almost set its own tax rate shows how very much we need reform,” said Rep. Lloyd Dogget, Democrat of Texas, who has proposed closing many corporate tax shelters. “Our tax system should encourage job creation and investment in America, and end tax incentives for exporting jobs and dodging responsibility for the cost of securing our country.”