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Truthout...
GE’s Strategies Let
It Avoid Taxes Altogether
Thursday 24 March 2011
by David Kocieniewski
General Electric, the nation’s largest corporation, had a very good
year in 2010.
The company reported worldwide profits of $14.2 billion, and said $5.1
billion of the total came from its operations in the United States.
Its American tax bill? None. In fact, G.E. claimed a tax benefit of
$3.2 billion.
That may be hard to fathom for the millions of American business owners
and households now preparing their own returns, but low taxes are
nothing new for G.E. The company has been cutting the percentage of its
American profits paid to the Internal Revenue Service for years,
resulting in a far lower rate than at most multinational companies.
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. G.E.’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
I.R.S. and virtually all the tax-writing committees in Congress.
While General Electric is one of the most skilled at reducing its tax
burden, many other companies have become better at this as well.
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.
In a regulatory filing just a week before the Japanese disaster put a
spotlight on the company’s nuclear reactor business, G.E. reported that
its tax burden was 7.4 percent of its American profits, about a third
of the average reported by other American multinationals. Even those
figures are overstated, because they include taxes that will be paid
only if the company brings its overseas profits back to the United
States. With those profits still offshore, G.E. is effectively getting
money back.
Such strategies, as well as changes in tax laws that encouraged some
businesses and professionals to file as individuals, 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.
Yet many companies say the current level is so high it hobbles them in
competing with foreign rivals. Even as the government faces a mounting
budget deficit, the talk in Washington is about lower rates. President
Obama has said he is considering an overhaul of the corporate tax
system, with an eye to lowering the top rate, ending some tax subsidies
and loopholes and generating the same amount of revenue. He has
designated G.E.’s chief executive, Jeffrey R. Immelt, as his liaison to
the business community and as the chairman of the President’s Council
on Jobs and Competitiveness, and it is expected to discuss corporate
taxes.
“He understands what it takes for America to compete in the global
economy,” Mr. Obama said of Mr. Immelt, on his appointment in January,
after touring a G.E. factory in upstate New York that makes turbines
and generators for sale around the world.
A review of company filings and Congressional records shows that one of
the most striking advantages of General Electric is its ability to
lobby for, win and take advantage of tax breaks.
Over the last decade, G.E. has spent tens of millions of dollars to
push for changes in tax law, from more generous depreciation schedules
on jet engines to “green energy” credits for its wind turbines. But the
most lucrative of these measures allows G.E. to operate a vast leasing
and lending business abroad with profits that face little foreign taxes
and no American taxes as long as the money remains overseas.
Company officials say that these measures are necessary for G.E. to
compete against global rivals and that they are acting as responsible
citizens. “G.E. is committed to acting with integrity in relation to
our tax obligations,” said Anne Eisele, a spokeswoman. “We are
committed to complying with tax rules and paying all legally obliged
taxes. At the same time, we have a responsibility to our shareholders
to legally minimize our costs.”
The assortment of tax breaks G.E. has won in Washington has provided a
significant short-term gain for the company’s executives and
shareholders. While the financial crisis led G.E. to post a loss in the
United States in 2009, regulatory filings show that in the last five
years, G.E. has accumulated $26 billion in American profits, and
received a net tax benefit from the I.R.S. of $4.1 billion.
But critics say the use of so many shelters amounts to corporate
welfare, allowing G.E. not just to avoid taxes on profitable overseas
lending but also to amass tax credits and write-offs that can be used
to reduce taxes on billions of dollars of profit from domestic
manufacturing. They say that the assertive tax avoidance of
multinationals like G.E. not only shortchanges the Treasury, but also
harms the economy by discouraging investment and hiring in the United
States.
“In a rational system, a corporation’s tax department would be there to
make sure a company complied with the law,” said Len Burman, a former
Treasury official who now is a scholar at the nonpartisan Tax Policy
Center. “But in our system, there are corporations that view their tax
departments as a profit center, and the effects on public policy can be
negative.”
The shelters are so crucial to G.E.’s bottom line that when Congress
threatened to let the most lucrative one expire in 2008, the company
came out in full force. G.E. officials worked with dozens of financial
companies to send letters to Congress and hired a bevy of outside
lobbyists.
The head of its tax team, Mr. Samuels, met with Representative Charles
B. Rangel, then chairman of the Ways and Means Committee, which would
decide the fate of the tax break. As he sat with the committee’s staff
members outside Mr. Rangel’s office, Mr. Samuels dropped to his knee
and pretended to beg for the provision to be extended — a flourish made
in jest, he said through a spokeswoman.
That day, Mr. Rangel reversed his opposition to the tax break,
according to other Democrats on the committee.
The following month, Mr. Rangel and Mr. Immelt stood together at St.
Nicholas Park in Harlem as G.E. announced that its foundation had
awarded $30 million to New York City schools, including $11 million to
benefit various schools in Mr. Rangel’s district. Joel I. Klein, then
the schools chancellor, and Mayor Michael R. Bloomberg, who presided,
said it was the largest gift ever to the city’s schools.
G.E. officials say the donation was granted solely on the merit of the
project. “The foundation goes to great lengths to ensure grant
decisions are not influenced by company government relations or
lobbying priorities,” Ms. Eisele said.
Mr. Rangel, who was censured by Congress last year for soliciting
donations from corporations and executives with business before his
committee, said this month that the donation was unrelated to his
official actions.
Read the rest of the story at Truthout
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