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Friday, March 25, 2011

NY Times: G.E.: Tax Imagination at Work

G.E. Logo New York Times, G.E.'s Strategies Let It Avoid Taxes Altogether, 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 IRS 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 IRS and virtually all the tax-writing committees in Congress. ...

[C]ritics 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.” ...

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.”

(Hat Tip: John Domaschko, Bert Lockwood, Greg McNeal, Ann Murphy, Deborah Schenk.)

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Comments

GE's 900 tax experts -- How big government is ruining America
By: Timothy P. Carney 03/25/11

Plenty of people have written about GE's $0 federal corporate income tax bill for 2010, reported on in this NY Times piece. GE folks tell me the piece is misleading (for instance, the $3.2 billion "tax benefit" GE reported is an accounting matter -- it's not a tax rebate). GE also argues that the Times piece doesn't mention all of GE Capital's losses, which caused 2010 taxes to be so low.

But GE isn't the story here. If I had my way, every company would pay $0 in corporate income taxes every year.

My problem is what GE reflects. Here's the most upsetting part of the NYT piece:

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.
GE allocates hundreds of talented minds to attempts at lowering taxes. I don't blame GE for that. It's probably worth it -- which is exactly the problem. In a world with a simpler tax code -- or better yet, with no corporate income tax -- GE would spend those resources creating something of value. Again, this is a case where government creates a chasm between what's profitable (gaming tax law) and what's valuable for society. Also, this story demonstrates once again how Big Government hurts small business much more than it affects Big Business, which can afford to figure out a way around taxes.

Posted by: Woody | Mar 27, 2011 9:46:11 AM

Come on! 975 tax professionals?! Smacks of avoidance techniques by the boatload. Tax Whistleblowers where art thee? Time to put some controls on GE imagination, low grade I would bet, and line your own pockets. Surely there is someone within that 975 who is disgruntled but knows a lot? Any takers??

Posted by: JP Karmodi | Mar 28, 2011 9:12:15 AM

Timothy,

Well said.

Posted by: EBW | Mar 30, 2011 10:04:34 AM