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 Tax.com 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. 

A Major WTF Moment

I knew corporations dodged taxes, but, like Ronald Reagan, “I didn’t realize things had gotten that far out of line.”   According to a NYT article,

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.

The reason is pretty simple; "The company spent $4.1 million on outside lobbyists last year, including four boutique firms that specialize in tax policy." [page 4 of article]

Tax cuts are supposed to produce jobs.  Since GE is able able to "write its own tax rate,"  one would assume that the company had produced thousands, if not millions of jobs.  That assumption would be wrong:  "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." [page 4 of article]

I often tell my students to put facts in context and not to assume that readers will draw the same conclusions that they do.  In this case, I'm not sure there's much context.  Earning $14.2 billion and getting a tax refund of $3.1 billion is an insult to everyone who files and pays on income of $20,000 or $50,000 or even $500,000.  It also shows the flaws of South Dakota's efforts to gain jobs by bribing businesses; clearly, businesses know how to manage bribes far better than government.

"Mirror, Mirror" in America

For the young or non-Trek literate readers, "Mirror Mirror" is a classic episode of the original Star Trek series.  The plot featured an alternate universe with a tyrannical Empire instead of a benevolent Federation, a bearded Spock, and a Tantalus Field that the Department of Homeland Security is probably trying to develop at this very moment.  As with all Star Trek episodes, good triumphed and everyone had a laugh on the bridge.  I'm not so sure the episode Americans are experiencing now will have such a happy ending.

First, a tweet by Peter Daou points to this article that confirms that 400 Americans have more wealth than the 155 million poorest Americans. For the purposes of comparison, Irene, South Dakota, would have more economic power than the states of California, Texas, New York, Florida, Illinois, Pennsylvania, Ohio, Michigan, Georgia, the nine US states with the largest populations.

Second, the US military is actively torturing an American citizen who has been convicted of nothing.  I naively believed that the US believed that one was innocent until proven guilty.  I also thought Obama condemned torture, but I guess that was when it didn't apply to Bradley Manning who is alleged to have turned over documents to Wikileaks.  To make matters worse, the White House has apparently decided to fire P.J. Crowley who was perceptive enough to call the government's treatment of Manning "ridiculous, counterproductive and stupid."  I guess that the prohibitions against cruel and unusual punishment and the protection of free speech can be selectively applied.

Third, via The Madville Times, I discover that South Dakota's budget is twice as large as it was in 1996 but it spends half as much on tax relief for the the elderly poor.

One of the running jokes about the original Star Trek series was that characters who appeared in a red uniform would die by the end of the episode.  Somehow, it seems as if a large portion of America just got beamed down wearing a red shirt.

A Random Question about Accountability

 Michael Steele, head of the RNC, apparently isn't responsible for the staffer who took people to a lesbian/bondage themed club.  High school teachers, however, are responsible for how their students perform on NCLB tests. 

Most stats say that kids are away from school 91% of the time.  I have contact with my students about 55 minutes a day.  I'm willing to bet that Steele has more contact with his staffers than I have with my students.  Isn't there a double standard here?