Paul L. Caron

Wednesday, August 24, 2011

Johnston: America is GE's Tax Haven

G.E. Logo Reuters, America Is GE's Tax Haven, by David Cay Johnston:

Washington politicians say high corporate tax rates are driving U.S. companies to invest offshore where tax rates are lower. But that is not General Electric's experience. GE's disclosures show that over the last decade it paid much lower tax rates in America than offshore, just the opposite of the Washington political mantra. Even more puzzling, the U.S. corporate giant chooses to take more of its profits in other lands despite the higher tax rates there.

Given that GE has a roughly 1,000-person tax department dedicated to paying as little as possible in taxes, what the disclosures show is that something other than tax policy is driving GE's business decisions. The law gives companies a great deal of latitude in deciding how to arrange where they report profits from multinational transactions. GE won't elaborate on why it takes so much of its profit in higher tax jurisdictions offshore.

From 2001 through 2010, GE's total American corporate tax burden averaged 9.4 percent of its profits in American corporate income taxes compared to its 17.9 percent foreign tax rate.

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Sorry that should have been $1,160.3/ $5,078 for the domestic rate of 22.8%

Posted by: SR | Aug 25, 2011 5:09:16 PM

What am I missing? I looked at the 2010 tax footnote. In 2010 GE reported total earnings from continuing ops before taxes of$14,208. this was $5,078 domestic and $9,130 non-US.

How do we get to 22.9% offshore? I get closer to a 4.3% rate. This is basically $5,078 x 35% = $1,777.3 and 9130 x 4.34% = $396.5. These two total to $2,173.8 which when divided into $14,028 = 15.5%. that equals the 35% less the 19.7% differential in the 2010 tax footnote. The US business credits is negative 4.4% of $14,208 or $617.2. The US taxes is therefore $1,777.3 less $617.2 or $1,160.3. $1,160.3/$14,028 is 22.8% domestic. I didn't know what the "All-other-net" was so I didn't put it in either marginal rate.

Posted by: SR | Aug 25, 2011 5:06:52 PM

@ SCtax, did you read my column before posting your juvenile comments?

Transfer pricing is, without a doubt, involved, but a) so are the significant business tax credits enacted during the GWBush era, b) the four-fold increase in GE lobbying expenses and c) the issue my column focused on is completely missed in your post.

Posted by: David Cay Johnston | Aug 25, 2011 4:25:21 AM

anon @ 240. Depending on how you do the math, income shifting can cause a decrease in the effective tax rate. But you raise a good point. Someone needs to dig into this (and not me cuz i'm busy).

Posted by: anon | Aug 24, 2011 4:38:41 PM

My understanding is GE gets massive amounts of Energy credits from its industrial and consumer products which push down its ETR in the US (absent valuation allowances). Since the credits (and any US NOL if the US income is lowered) can be carried forward it is still rational to prefer that more profit be earned overseas than in the US due to their lower statutory rates. Helpful that they have globe spanning operations that would support the transfer pricing.

Posted by: Dave | Aug 24, 2011 12:20:03 PM


You do realize that article is about effective tax rates and not the US reported taxable income, right?

Posted by: anon | Aug 24, 2011 11:40:51 AM

We should move back to the tarrifs system of the early 20th century, where each country's ability to tax was a function of its citizens' consumption.

Posted by: anon | Aug 24, 2011 10:18:35 AM

Dumbass Reuter's Liberal. Writing about 5hit he doesn't understand. It's called transfer pricing goober-head. GE foreign subs charges it US mother high prices for goods, thereby EXPORTING the profit to lower taxed subsidiary, thereby driving down the US reported taxable income.

Posted by: SCtax | Aug 24, 2011 8:47:11 AM