GE Paid Zero Taxes in 2010, Despite $14.2 Billion in Profits
Categories: Business, Economy, Featured, Politics, Tax Policy
GE’s accounting and lobbying prowess exemplifies the influence of corporations over government
Jack Donaghy, the irrepressible network executive of 30 Rock played by Alec Baldwin, may have moved to Kabletown last season, but it doesn’t sound like the real General Electric is doing too bad without him, especially in light of the news last March that GE paid zero taxes in 2010.
The top corporate marginal tax rate in the United States is 35%, nominally one of the highest in the world. And yet, thanks to corporate tax loopholes, GE paid absolutely nothing in taxes for 2010, making their effective tax rate the equivalent of zero. Not only did the company not pay taxes, they earned a $3.2 billion tax credit despite earning a whopping $14.2 billion in profits.
Why didn’t the giant corporation owe anything? Well, part of the reason GE paid no taxes is because so much of its profits are concentrated overseas. Of the $14.2 billion the company reported, $9 billion of them were parked offshore and were thus not subject to US taxes.
GE candidly revealed that the tax rate on its American profits was 7.4% – which itself is about ⅓ of what the average US multinational reports. But those taxes will only be paid if the company repatriates those profits, and since they remain offshore GE essentially gets money back.
GE also claimed that its low tax burden was due to the fact that its financial arm, GE Capital, suffered losses during the Wall Street meltdown.
While It’s true that the company posted a loss in 2009, over the last five years they have also accrued $26 billion in American profits. Yet, despite these gargantuan profits, the company’s tax burden was a net tax benefit from the IRS of $4.1 billion.
While all of this may sound felonious, it’s in fact perfectly legal. That’s because GE is a master at manipulating the political system for its own gain.
As a New York Times piece on the company noted,
Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore. 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. Indeed, the company’s slogan ‘Imagination at Work’ fits this department well. The team includes former officials not just from the Treasury, but also from the IRS and virtually all the tax-writing committees in Congress.
Clearly this band of experts are adept at exploiting the corporate tax code to GE’s advantage. But the secret to GE’s success also lies in the tenacity of its lobbying. Over the last ten years the company has spent $200 million in lobbying fees and has been quite successful at persuading Congress to enact new tax breaks that benefit GE first and foremost.
For instance, GE has successfully lobbied for a more generous depreciation schedule for jet engines, for green energy credits for its wind turbines, and to ensure its lucrative ability to operate a leasing and lending business abroad that is subject to few foreign taxes and and no American taxes as long as the money stays offshore, among many other tax breaks.
The tax breaks allowed by Congress are so valuable to GE that when one of the most beneficial was set to expire in 2008, the company hired a bevy of outside lobbyists, organized a letter writing campaign with other companies, and sent some of the highest figures in the company to successfully lobby Congress for the extension of the tax break.
All of this might very well just be relegated to business as usual if not for Occupy Wall Street, which has recently shone a harsh light on the practices of America’s major corporations.
Over the last two months protesters camped out in downtown Manhattan, and in several other locations across the country, have protested the tyranny of the 1% of top income earners and the behavior of large American companies which has contributed to this percentile’s staggering earnings.
A majority of Americans support the goals of the Wall Street occupiers, but it seems to me that all their anger is misdirected. Can we really blame a business for doing everything it can to maximize profits? And should we? This after all is exactly what a free enterprise is supposed to do. The promise of increased wealth is one of the major drivers of capitalism and progress.
GE and all of the other companies and banks and financial services firms currently under siege by Occupy Wall Street are only behaving rationally, not to mention legally. They cannot reasonably be expected to forgo opportunities to increase their profits.
As such the failure to behave morally and responsibly lies not so much with the 1%, but with the politicians who enable them. Just as it is the capitalist’s duty to maximize profits so too is it the public servant’s duty to work for the good of their constituents and the good of the country, and in this they are failing miserably.
Though Occupy Wall Street is a groundswell of anger on the left, liberal politicians in Washington have done little to combat the special favors corporations like GE receive from the government.
Charlie Rangel, for example, the Democratic Congressman who represents Harlem, may stand on the floor of the House and talk sympathetically of Occupy Wall Street and make appearances at Zuccotti Park in a show of solidarity with the protests, but he himself is a guilty as anyone of giving special favors to these corporations.
When that important tax break was set to expire in 2008, John Samuels, the vice president and senior counsel of GE’s tax policy and planning department, himself was seen literally begging on his knees – in jest, a spokeswoman claimed – before Rangel, then chairman of the House Ways and Means Committee. Later the very same day, Rangel dropped his opposition to the tax break.
One month later GE donated $30 million to New York City schools, $11 million of which went to schools in Rangel’s district. He and GE’s CEO Jeffrey Immelt stood together in St. Nicholas Park while Immelt made the announcement of what Mayor Bloomberg described as the largest gift to New York City schools ever made.
In pretending to sympathize with the sentiments of Occupy Wall Street, Rangel has exposed himself as nothing but a political opportunist and rank hypocrite. This is such a shame given his reputation as one of the most honest and ethical members of Congress.
But it’s not just Congress. President Obama is chummy with GE as well. CEO Jeffrey Immelt advises Obama on economic matters and serves as chairman of the President’s Council on Jobs and Competitiveness.
Mr. Obama has consulted Immelt on jobs despite the fact that from 2007 to 2009 the company laid off 21,000 workers and closed 20 factories, the President’s repeated demonization of wealthy individuals and corporations who take advantage of tax loopholes to avoid paying their fair share notwithstanding.
Recently Ben LaBolt, a spokesman for the Obama re-election campaign, castigated the Republican candidates, accusing them of favoring “policies that led to our challenges, letting Wall Street write its own rules and more tax cuts for large corporations.” But this is precisely what a Democratic Congress has itself been guilty of.
For their part, Republicans are too busy kowtowing to Grover Norquist and debating about whether the semantics of “closing tax loopholes” constitutes raising taxes, which they have sworn never to do.
Even if you believe that America’s corporate tax rate should be lower, ostensibly to make American businesses more competitive with the rest of the world, I don’t think it’s possible to disagree that loopholes should be closed. The richest corporations who expend the most money on lobbying should not be allowed to carve out exemptions that benefit them. Republicans, for all their recent obsession with flat taxes, should be able to support this.
Allowing certain companies to bend the law to their advantage at the expense of others is not consistent with the philosophy of market competition and thus not consistent with capitalism itself. This too is something Republicans should approve.
Nor is it unprecedented for conservative politicians to take action to close corporate tax loopholes. In his day, the patron saint of conservatism President Ronald Reagan was opposed to GE’s extreme efforts to avoid paying its taxes. In fact one of the focuses of his 1986 Tax Reform Act was on combating loopholes that benefit financial giants like GE. According to the same New York Times article
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 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.
Despite this achievement, in the 1990s GE had managed to lobby its tax rate back well below this line.
There is even a history among the current crop of Republican candidates of similar action being taken. Though in his rhetoric Mitt Romney has since enthusiastically jumped on the Grover Norquist bandwagon, he was himself something of a corporate tax loophole crusader during his time as Governor of Massachusetts.
Mr. Romney, despite his business background and connections, aggressively closed corporate tax loopholes, increasing state revenue by several hundred million dollars, according to a New York Times article. An examination of the period
Shows a governor who sometimes put the need to find revenues ahead of the conservative argument that tax increases almost by definition kill jobs; a shrewd financial manager who aides said was guided by a strong sense of rectitude, not just pragmatism; and a political aspirant willing to buck the orthodoxies of his own party.
For the primaries, at least, Romney has to pretend he’s a fiscal conservative and thus rarely mentions his efforts to close corporate tax loopholes. Many in Massachusetts, however, consider his actions a rare of demonstration of political courage.
I have a feeling that if Romney wins the nomination, we’ll begin to hear a lot more about this in the general election, especially if the current Occupy Wall Street discontent rises among the middle class.
In the meantime, Occupy Wall Street should try to spread some of their bright anger to Washington, to the steps of the Capital and the White House. That’s where the real problem is.