General Electric went into full public-relations pushback mode after The New York Times’s damaging story Friday on how it avoids paying U.S. corporate income taxes. But in doing so, the company, unable to get its own story straight, just compounded the damage.
First, its response on its GE Reports website, where it calls the Times piece a “particularly distorted and misleading account,” is chock full of red herrings and straw men. Let’s take these one by one (the bold in the bullets is GE’s emphasis, not mine):
GE pays what it owes under the law and is scrupulous about its compliance with tax obligations in all jurisdictions. We are committed to acting with integrity in relation to our tax obligations. At the same time, we have a responsibility to our shareholders to reduce our tax costs as the law allows.
Tax evasion is illegal, but tax avoidance is legal, and the Times doesn’t accuse or imply that GE breaks the law by evading taxes. A major theme of the story is how GE uses its money and lobbying might to curry favor with the government to set up the law so it can avoid taxes.
Next, GE says:
Significant losses at GE Capital during the financial crisis, largely in the United States, reduced GE’s overall tax rate below historic levels the past few years. Those losses and the subsequent reduction in taxes owed is not a “tax avoidance” strategy. Taking out GE Capital makes GE’s effective tax rate 21% over the past several years. GE’s consolidated (or overall) effective tax rate prior to the financial crisis was in the teens to more than 20%.
But the whole point of the Times’s piece is that GE uses GE Capital to lower its U.S. tax bill. Forbes said much the same thing a year ago in a story on how GE didn’t pay U.S. income taxes last year:
It’s GE Capital that keeps the overall tax bill so low. Over the last two years, GE Capital has displayed an uncanny ability to lose lots of money in the U.S. (posting a $6.5 billion loss in 2009), and make lots of money overseas (a $4.3 billion gain). Not only do the U.S. losses balance out the overseas gains, but GE can defer taxes on that overseas income indefinitely.
Further, the Times doesn’t say that losing money is a tax avoidance strategy for GE, and the paper did report, despite what GE says now, that “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.” I agree that the NYT should have fleshed out the lending losses factor a bit more, but I don’t think it was required to do so here.
Also problematic for GE’s defense: It emphasizes its pre-crisis effective tax rate here. That tax rate, best as I can tell, includes deferred taxes that GE is likely never to have to pay, unless it for some reason decides to repatriate foreign earnings to the U.S. without a tax holiday (or unless some future post-Gilded Age United States somehow decides to get tough on corporate tax sheltering). So that’s an artificially inflated number. The Times terrific infographic shows what the real story is:
Here’s how the Times put the chart in the text of the story:
…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.