General Electric pays no U.S. taxes

[Rogue 9]

New York Times

But Nobody Pays That
G.E.’s Strategies Let It Avoid Taxes Altogether
By DAVID KOCIENIEWSKI
Published: March 24, 2011

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.

Defying Reagan’s Legacy

General Electric has been a household name for generations, with light bulbs, electric fans, refrigerators and other appliances in millions of American homes. But today the consumer appliance division accounts for less than 6 percent of revenue, while lending accounts for more than 30 percent. Industrial, commercial and medical equipment like power plant turbines and jet engines account for about 50 percent. Its industrial work includes everything from wind farms to nuclear energy projects like the troubled plant in Japan, built in the 1970s.

Because its lending division, GE Capital, has provided more than half of the company’s profit in some recent years, many Wall Street analysts view G.E. not as a manufacturer but as an unregulated lender that also makes dishwashers and M.R.I. machines.

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 G.E. — 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 G.E. to pay a far higher effective rate, up to 32.5 percent.

That pendulum began to swing back in the late 1990s. G.E. and other financial services firms won a change in tax law that would allow multinationals to avoid taxes on some kinds of banking and insurance income. The change meant that if G.E. financed the sale of a jet engine or generator in Ireland, for example, the company would no longer have to pay American tax on the interest income as long as the profits remained offshore.

Known as active financing, the tax break proved to be beneficial for investment banks, brokerage firms, auto and farm equipment companies, and lenders like GE Capital. This tax break allowed G.E. to avoid taxes on lending income from abroad, and permitted the company to amass tax credits, write-offs and depreciation. Those benefits are then used to offset taxes on its American manufacturing profits.

G.E. subsequently ramped up its lending business.

As the company expanded abroad, the portion of its profits booked in low-tax countries such as Ireland and Singapore grew far faster. From 1996 through 1998, its profits and revenue in the United States were in sync — 73 percent of the company’s total. Over the last three years, though, 46 percent of the company’s revenue was in the United States, but just 18 percent of its profits.

Martin A. Sullivan, a tax economist for the trade publication Tax Analysts, said that booking such a large percentage of its profits in low-tax countries has “allowed G.E. to bring its U.S. effective tax rate to rock-bottom levels.”

G.E. officials say the disparity between American revenue and American profit is the result of ordinary business factors, such as investment in overseas markets and heavy lending losses in the United States recently. The company also says the nation’s workers benefit when G.E. profits overseas.

“We believe that winning in markets outside the United States increases U.S. exports and jobs,” Mr. Samuels said through a spokeswoman. “If U.S. companies aren’t competitive outside of their home market, it will mean fewer, not more, jobs in the United States, as the business will go to a non-U.S. competitor.”

The company does not specify how much of its global tax savings derive from active financing, but called it “significant” in its annual report. Stock analysts estimate the tax benefit to G.E. to be hundreds of millions of dollars a year.

“Cracking down on offshore profit-shifting by financial companies like G.E. was one of the important achievements of President Reagan’s 1986 Tax Reform Act,” said Robert S. McIntyre, director of the liberal group Citizens for Tax Justice, who played a key role in those changes. “The fact that Congress was snookered into undermining that reform at the behest of companies like G.E. is an insult not just to Reagan, but to all the ordinary American taxpayers who have to foot the bill for G.E.’s rampant tax sheltering.”

A Full-Court Press

Minimizing taxes is so important at G.E. that Mr. Samuels has placed tax strategists in decision-making positions in many major manufacturing facilities and businesses around the globe. Mr. Samuels, a graduate of Vanderbilt University and the University of Chicago Law School, declined to be interviewed for this article. Company officials acknowledged that the tax department had expanded since he joined the company in 1988, and said it now had 975 employees.

At a tax symposium in 2007, a G.E. tax official said the department’s “mission statement” consisted of 19 rules and urged employees to divide their time evenly between ensuring compliance with the law and “looking to exploit opportunities to reduce tax.”

Transforming the most creative strategies of the tax team into law is another extensive operation. G.E. spends heavily on lobbying: more than $200 million over the last decade, according to the Center for Responsive Politics. Records filed with election officials show a significant portion of that money was devoted to tax legislation. G.E. has even turned setbacks into successes with Congressional help. After the World Trade Organization forced the United States to halt $5 billion a year in export subsidies to G.E. and other manufacturers, the company’s lawyers and lobbyists became deeply involved in rewriting a portion of the corporate tax code, according to news reports after the 2002 decision and a Congressional staff member.

By the time the measure — the American Jobs Creation Act — was signed into law by President George W. Bush in 2004, it contained more than $13 billion a year in tax breaks for corporations, many very beneficial to G.E. One provision allowed companies to defer taxes on overseas profits from leasing planes to airlines. It was so generous — and so tailored to G.E. and a handful of other companies — that staff members on the House Ways and Means Committee publicly complained that G.E. would reap “an overwhelming percentage” of the estimated $100 million in annual tax savings.

According to its 2007 regulatory filing, the company saved more than $1 billion in American taxes because of that law in the three years after it was enacted.

By 2008, however, concern over the growing cost of overseas tax loopholes put G.E. and other corporations on the defensive. With Democrats in control of both houses of Congress, momentum was building to let the active financing exception expire. Mr. Rangel of the Ways and Means Committee indicated that he favored letting it end and directing the new revenue — an estimated $4 billion a year — to other priorities.

G.E. pushed back. In addition to the $18 million allocated to its in-house lobbying department, the company spent more than $3 million in 2008 on lobbying firms assigned to the task.

Mr. Rangel dropped his opposition to the tax break. Representative Joseph Crowley, Democrat of New York, said he had helped sway Mr. Rangel by arguing that the tax break would help Citigroup, a major employer in Mr. Crowley’s district.

G.E. officials say that neither Mr. Samuels nor any lobbyists working on behalf of the company discussed the possibility of a charitable donation with Mr. Rangel. The only contact was made in late 2007, a company spokesman said, when Mr. Immelt called to inform Mr. Rangel that the foundation was giving money to schools in his district.

But in 2008, when Mr. Rangel was criticized for using Congressional stationery to solicit donations for a City College of New York school being built in his honor, Mr. Rangel said he had appealed to G.E. executives to make the $30 million donation to New York City schools.

G.E. had nothing to do with the City College project, he said at a July 2008 news conference in Washington. “And I didn’t send them any letter,” Mr. Rangel said, adding that he “leaned on them to help us out in the city of New York as they have throughout the country. But my point there was that I do know that the C.E.O. there is connected with the foundation.”

In an interview this month, Mr. Rangel offered a different version of events — saying he didn’t remember ever discussing it with Mr. Immelt and was unaware of the foundation’s donation until the mayor’s office called him in June, before the announcement and after Mr. Rangel had dropped his opposition to the tax break.

Asked to explain the discrepancies between his accounts, Mr. Rangel replied, “I have no idea.”

Value to Americans?

While G.E.’s declining tax rates have bolstered profits and helped the company continue paying dividends to shareholders during the economic downturn, 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 offshore profits have risen to $92 billion from $15 billion.

“That G.E. can almost set its own tax rate shows how very much we need reform,” said Representative Lloyd Doggett, Democrat of Texas, who has proposed closing many corporate tax shelters. “Our tax system should encourage job creation and investment in America and end these tax incentives for exporting jobs and dodging responsibility for the cost of securing our country.”

As the Obama administration and leaders in Congress consider proposals to revamp the corporate tax code, G.E. is well prepared to defend its interests. The company spent $4.1 million on outside lobbyists last year, including four boutique firms that specialize in tax policy.

“We are a diverse company, so there are a lot of issues that the government considers, that Congress considers, that affect our shareholders,” said Gary Sheffer, a G.E. spokesman. “So we want to be sure our voice is heard.”

Y'know, when Reagan championed a bill to increase corporate taxes and certain House Democrats work to undo it at the behest of the same corporation that caused even Reagan to balk at how they abused the tax code, something has gone seriously screwy.

[wautd]

I find this news pretty unbelievable. Infuriating even, and I'm not even an American.

Got to love American politics, where bribing is called "lobbying". In China they executed people for less.

[LaCroix]

Make 5.1 billion profit, get 3.2 billion tax refund. That's -(in words MINUS) 62% income tax.

Wow. Just - wow.

Any bets they manage a -100% tax after they get to rewrite the code?

[Crossroads Inc.]

This is one of the things that makes me in favor of Draconian flat taxes for coporations.

You made 10 billion last year? Ok we'll take 20% of that, no loopholes, no deductions, no credits. 20% of all profits, pay up now bitch.

[Eternal_Freedom]

How do they manage to get away with this shit? More importantly, how do they get away with all the lobbying and stuff? Someone must have noticed this going on.

[Zed]

This is one of the things that makes me in favor of Draconian flat taxes for coporations.

You made 10 billion last year? Ok we'll take 20% of that, no loopholes, no deductions, no credits. 20% of all profits, pay up now bitch.

You're aware that it's easy as hell to artificially reduce profits?

[Darksider]

How do they manage to get away with this shit? More importantly, how do they get away with all the lobbying and stuff? Someone must have noticed this going on.

As long as the politicians are the ones being bribed, and the public doesn't give a shit, they can get away with it. Stories like this about how utterly corrupt and broken our political system is have been popping up on blogs and independent news sources for years now. It's the same old "American idol" dilemma. As long as the public's interest is captured by mindless shit like reality T.V. and useless consumer products, nothing will change.

[Mr. Coffee]

How do they manage to get away with this shit? More importantly, how do they get away with all the lobbying and stuff? Someone must have noticed this going on.

Because the way US Tax Law is written it's absurdly easy for people with a little time and bit of creativity can manipulate the system well enough seriously mitigate tax liability. It only gets easier to do when you can afford to hire a few dozen lawyers and accountants that specialize in tax law to do it for you.

[Knife]

How do they manage to get away with this shit? More importantly, how do they get away with all the lobbying and stuff? Someone must have noticed this going on.

Because they take some of that 3.2 billion and pay off politicians and lobbyists. They then take some more of that money and make adds and buy Right Wing hacks to perpetuate the story line of big business and normal folks get taxed too much and need tax relief. If they just reduce the taxes of the corporations first, it'll trickle down to the average Joe. In reality, they drop their tax rate and let the rest fall on the middle class so the middle class gets all pissed off at all the taxes and falls for the corporate line of a need to drop taxes.

[MKSheppard]

Because they take some of that 3.2 billion and pay off politicians and lobbyists

Like Obama who got $499k in donations during the 2008 campaign cycle?

Link

[Alyrium Denryle]

Because they take some of that 3.2 billion and pay off politicians and lobbyists

Like Obama who got $499k in donations during the 2008 campaign cycle?

Link

Yes. Exactly. Just like that.

[Knife]

Because they take some of that 3.2 billion and pay off politicians and lobbyists

Like Obama who got $499k in donations during the 2008 campaign cycle?

Link

Yeah, and? As much as I'd like to see Obama raise the corporate tax rate and lower the middle class taxes, I don't expect it to happen.

[PeZook]

This is one of the things that makes me in favor of Draconian flat taxes for coporations.

You made 10 billion last year? Ok we'll take 20% of that, no loopholes, no deductions, no credits. 20% of all profits, pay up now bitch.

There's a slight problem with that: What is "profit"?

Here we turn to creative accounting, because you just can't make those rules simple or update them in real time, so there's always wiggle room.

It's a much more complicated problem than "close all the loopholes". One solution I know of is turning exclusively to sales taxes, except those are pretty damn regressive, and have their own bloated set of regulations.

What we need are some new concepts for our economic system. Something as revolutionary as the idea of money or credit.

[Alferd Packer]

The problem is that if you raise corporate taxes in the United States, companies will just leave faster than they already are, setting up shop in Ireland or Switzerland, where the tax rate is lower. Despite all the headaches being (or becoming) a multinational company, if it saves money, they'll do it, and there's no realistic way to prevent it. Corporations will continue to move their assets to places where they're taxed less.

One suggestion I've heard is to keep the corporate tax rate the same, but offer a tax break on those multinational companies who reinvest their overseas profits back into the United States. The argument is that money will never come back into the country anyway(doing so will cause it to be taxed at the full rate), so the incentive would allow at least some tax revenue to be recovered from these overseas profits.

[Eulogy]

You could just slap tariffs on goods and services imported from overseas companies, reducing the incentive to buy from China. </heresy>

Besides, if the rich really hated living in America, they'd offically move. The rich should be taxed more - they can pay for it, after all.

[Simon_Jester]

Because they take some of that 3.2 billion and pay off politicians and lobbyists

Like Obama who got $499k in donations during the 2008 campaign cycle?
Link

Ayup.

I mean come on Shep, it's not like it's exactly news at this point that Obama is enabling the rise of the American oligarchy, even if he isn't actively and openly promoting it. It's not what I voted for him to do, and yes I'm disappointed, but anyone who's had their head out of the sand for the past year has already noticed this.

You could just slap tariffs on goods and services imported from overseas companies, reducing the incentive to buy from China. </heresy>

Better yet. Slap nonuniform tariffs. See, companies headquartered in China aren't really the problem here; multinationals don't want their HQ in China because then they're subject to Chinese regulations, and while the Chinese can be pretty fucking lax, they have absolutely zero ideological sympathy for "free market you can't tell CEOs what to do waaah!"

They'd much rather move to countries more sympathetic to that worldview- like, at the moment, the US. And we can say "oh, well the corporate HQs will all move out if we tax them," and that may even be true... but, well. Europe seems to manage; don't they have higher corporate taxes than we do?

[Commander 598]

Of course if you're really worried about them leaving, you could just make it far more expensive for them to outsource/move away than to simply stay.

[Eternal_Freedom]

If you do that, the companies will get their lobbyists and Congressmen to public complain that the Government is making life really hard for Big Buisiness (TM) and are therefore hurting the Almighty Economy and, oh, by the way, they're evil Democrat liberal scumbags who don't follow true American values, like we in the GOP do.

Rinse and repeat.

[Alferd Packer]

You could just slap tariffs on goods and services imported from overseas companies, reducing the incentive to buy from China. </heresy>

Besides, if the rich really hated living in America, they'd offically move. The rich should be taxed more - they can pay for it, after all.

Actually, they do. On 60 Minutes last week, they described how a Houston-based oil company set up an office in Switzerland and claimed to be a Swiss company for lower taxes. When the Texas state legislature tried to stop them through some law or another, all of their top executives promptly moved to Switzerland and have been running the company from there ever since.

[Eulogy]

Actually, they do. On 60 Minutes last week, they described how a Houston-based oil company set up an office in Switzerland and claimed to be a Swiss company for lower taxes. When the Texas state legislature tried to stop them through some law or another, all of their top executives promptly moved to Switzerland and have been running the company from there ever since.

Proof this is the norm, or is this antedote just an aberration?

[Zaune]

Proof this is the norm, or is this antedote just an aberration?

It's not atypical for thinly-veiled threats to this effect to be made, with the associated loss of income and property tax. First time I've heard of someone actually carrying it out, though.

[Eulogy]

Proof this is the norm, or is this antedote just an aberration?

It's not atypical for thinly-veiled threats to this effect to be made, with the associated loss of income and property tax. First time I've heard of someone actually carrying it out, though.

So it's mostly just bluster then? Saying and doing ARE two different things.

[Zaune]

Good question, actually. I don't think many governments have the balls to call their bluff these days.

[eion]

This is one of the things that makes me in favor of Draconian flat taxes for coporations.

You made 10 billion last year? Ok we'll take 20% of that, no loopholes, no deductions, no credits. 20% of all profits, pay up now bitch.

You're aware that it's easy as hell to artificially reduce profits?

And you're aware that a company that engaged in such a practice would mostly likely see a hit to their stock price?

Now before you say, "But everyone would know they were just doing it to lower their tax burden." How would they be sure? Is the CEO just going to come out and say, "Now, we only did this to screw Uncle Sam." No, because then he's guilty of tax fraud.

See, the problem fixes itself.

I too favor a no-loopholes corporate tax rate, perhaps with a brackets based on size of the company or total revenue.

[Guardsman Bass]

So it's mostly just bluster then? Saying and doing ARE two different things.

It's just bluster because most state legislatures don't go through with the threat/legislation.

Now before you say, "But everyone would know they were just doing it to lower their tax burden." How would they be sure? Is the CEO just going to come out and say, "Now, we only did this to screw Uncle Sam." No, because then he's guilty of tax fraud.

Not exactly. Film production companies do this all the time, using tax shelters and separate off-the-books corporations upon which they upload many of their losses. It's a tad shady, but all legal - and everybody knows it.