Saturday, March 26, 2011

More On GE's Tax Avoidance

The fact that GE paid no US income tax in 2010 is not the only reason to worry about the lobbying efforts that the NYT reports and this article from The Atlantic summarizes.  GE has posted a response here.

This February Derek Thompson article from The Atlantic reminds us that "President Obama named General Electric CEO Jeffrey Immelt the chair of his new Council on Jobs and Competitiveness, which is expected to suggest changes to the corporate tax code."  I may be a bit paranoid, but is really good policy to have the CEO of a company that spent $4.1 million in lobbyists and who paid no 2010 taxes in a position of influencing tax policy?

Thompson links to a Martin Sullivan page that provides the following analysis and conclusion.  Visual learners should feel free to follow the link for a few charts.
Fact: #1 GE's effective tax rate reported to shareholders has dropped precipitously from the 30s in the 1990s to extremely low levels.

Fact #2: The decline in GE's effective tax rate has little to do with domestic tax breaks but is almost entirely due to low-tax foreign profits.

Fact #3: More and more of GE's business and employment is outside of the United State. Still, profits booked outside of the United States have grown even faster, suggesting GE is taking advantage of lax U.S. transfer pricing rules that make it easy to shift profits into tax havens.

Fact: #4. The rapid increase in profits booked abroad has resulted in a massive accumulation of earnings "permanently invested" outside the United States.

Like the CEOs of most U.S. multinationals, Jeffrey Immelt wants the option of repatriating GE's accumulated $84 billion under the provisions of a temporary tax "holiday" where U.S. tax would only be 5.75 percent instead of the full 35 percent corporate tax rate. Immelt and his CEO brethren argue this will create jobs although evidence from the prior holiday (enacted in 2004) does not support this. Citizens have a right to be concerned the president's new advisor will give priority to promoting the competitiveness of U.S. multinationals rather than the competitiveness of the overall U.S. economy. And why shouldn't he? He has a fiduciary responsibility to his shareholders to do exactly that. 

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