On March 25, the NYT’s David Kocieniewski splashed a bombshell of a story across the front page; its current headline, online, is “GE’s Strategies Let It Avoid Taxes Altogether”:
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.
Cue a massive scurrying sound, as dozens of journalists around the country started talking to GE, trying to work out whether or not the NYT allegations were actually correct. GE’s own PR operation was far from helpful in this regard, simultaneously claiming that GE did make “significant US federal income tax payments” while telling AFP that “GE did not pay US federal taxes last year because we did not owe any”. The @GEpublicaffairs Twitter account, in particular, became a case study in how not to communicate in the age of social media.
Now, after literally months of work, Allan Sloan and Jeff Gerth of Fortune and ProPublica have come along to adjudicate the issue. Squeezing months of work into just a couple of weeks is a neat trick, which isn’t nearly as clever as the way that GE pays single-digit income taxes despite a corporate tax rate of 35% — it just so happens that Sloan and Gerth were working on a GE taxes story anyway, so they’d already done a lot of the legwork needed to get to the bottom of the matter when the NYT story came out.
The verdict? The NYT got the truth right, but the facts wrong. GE hasn’t actually filed its tax return for 2010 yet, and when it does it will pay some unknown amount in US income taxes. This admission was dragged painfully and reluctantly out of GE’s secretive tax department by Sloan and Gerth, and was not available to Kocieniewski; probably were it not for Kocieniewski’s article, GE would never have revealed it.
What we have here, then, is a classic example of the power of iterative journalism. In the wake of a big story, further important details nearly always emerge. But in this case, the NYT was the worst possible place for those details to be published and the story to iterate: the paper was far too busy formally standing by its story and failing to engage GE’s PR spin in public. So it’s great that Sloan and Gerth — both veteran financial journalists who aren’t daunted by obscure 3,000-page leasing handbooks — were perfectly positioned to pick up the story and carry it forwards.
The big picture, here, is just as scandalous as Kocieniewski made it out to be. GE can, at the margin, raise or lower its tax bill by billions of dollars at a stroke, simply by declaring overseas profits to be indefinitely invested abroad. It epitomizes the revolving door between the IRS and private industry — the head of GE’s tax department, for instance, is a former Treasury tax official. It has its very own US tax loophole — the “active finance exemption”. It uses the American Jobs Creation Act of 2004 to save hundreds of millions of dollars in taxes every year by moving jobs to Ireland. And so on and so forth.
So let’s see more cases like this one, where one big publication picks up another outlet’s ball and runs with it. Historically, media outlets have chased exclusives at the cost of enlightenment. If they can all pull in the same direction, as here, the results can be fantastic.Felix Salmon is an Audit contributor. He's also the finance blogger for Reuters; this post can also be found at Reuters.com. Tags: Fortune, General Electric, ProPublica, Taxes, The New York Times