(UPDATE: See my follow-up post on GE’s poor PR response to the Times’s story)
The New York Times unloads a fantastic piece of reporting on General Electric and taxes this morning. It’s an ugly portrait of GE and the political system it’s helped create.
David Kocieniewski zeroes in on GE’s tax avoidance, which is a proud corporate strategy at Obama appointee Jeff Immelt’s company, which earned $14.2 billion globally last year but paid no taxes in the U.S. It actually had a negative U.S. tax rate last year, since it got a $3.2 billion American tax benefit. Over the last five years, GE made $26 billion in what it says were American profits, but got the IRS to pay it $4.1 billion total (UPDATE: I should clarify that this is an accounting benefit, not an actual cash payment). Astonishing.
How does that happen?
The Times is excellent on that, using reporting on Representative Charlie Rangel, the, um, ethics-challenged Democrat from New York to give us a look at how the sausage is made. Here’s Kocieniewski’s telling of what happened when Rangel and the Dems threatened to yank one of GE’s richest tax breaks:
The head of its tax team, Mr. Samuels, met with Representative Charles B. Rangel, then chairman of the Ways and Means Committee, which would decide the fate of the tax break. As he sat with the committee’s staff members outside Mr. Rangel’s office, Mr. Samuels dropped to his knee and pretended to beg for the provision to be extended — a flourish made in jest, he said through a spokeswoman.
That day, Mr. Rangel reversed his opposition to the tax break, according to other Democrats on the committee.
The following month, Mr. Rangel and Mr. Immelt stood together at St. Nicholas Park in Harlem as G.E. announced that its foundation had awarded $30 million to New York City schools, including $11 million to benefit various schools in Mr. Rangel’s district. Joel I. Klein, then the schools chancellor, and Mayor Michael R. Bloomberg, who presided, said it was the largest gift ever to the city’s schools.
That would be very interesting if that were all there was, but here’s where it becomes a thing of beauty:
G.E. officials say that neither Mr. Samuels nor any lobbyists working on behalf of the company discussed the possibility of a charitable donation with Mr. Rangel. The only contact was made in late 2007, a company spokesman said, when Mr. Immelt called to inform Mr. Rangel that the foundation was giving money to schools in his district.
But in 2008, when Mr. Rangel was criticized for using Congressional stationery to solicit donations for a City College of New York school being built in his honor, Mr. Rangel said he had appealed to G.E. executives to make the $30 million donation to New York City schools…
In an interview this month, Mr. Rangel offered a different version of events — saying he didn’t remember ever discussing it with Mr. Immelt and was unaware of the foundation’s donation until the mayor’s office called him in June, before the announcement and after Mr. Rangel had dropped his opposition to the tax break.
Asked to explain the discrepancies between his accounts, Mr. Rangel replied, “I have no idea.”
It’s worth noting that Kocieniewski has made something of a living the last few years on the Charlie Rangel corruption beat, with a number of bigtime exposés that cost the congressman his chairmanship of the powerful Ways and Means committee and got him censured by the House. Add another one to that growing list.
So Rangel’s claims here, then, wouldn’t be very credible even if the Times hadn’t caught him saying the direct opposite thing three years ago.
Indeed, a look back at one of Kocieniewski’s big scoops from 2008, shows Rangel doing something similar on the CCNY solicitation:
Representative Charles B. Rangel has helped raise $11 million for a City College of New York school of public service to be named in his honor. In recent months, as questions have emerged about his fund-raising, he has insisted that he has kept his efforts to attract donors scrupulously separate from his official duties in Congress.
Why not take a different approach to eliminating these special deals for favorite corporations. You couldn't get a deal if there was no corporate tax to escape from. Once more, who pays corporate taxes? You, the buyer of products made by those corporations. What other source of money do the corporations have? Eliminating their taxes would provide a level playing field for the products of US capital and labor in the world market, eliminate the opportunity for sweetheart deals for campaign contributors (like GE), decrease the cost to you of their products at home through pressure of competition on lower costs, and eliminate any advantage in keeping capital offshore where it creates jobs there instead of here at home. The idea that there is really a tax on those big bad corporations is s hoax; its a tax on you the consumer. Ending it should be a part of total tax and entitlement reform, the only way to get us out of the economic mess both partys have built in paying off their contributors.
#1 Posted by tom beebe st louis, CJR on Sat 26 Mar 2011 at 11:37 AM
Gary Sheffer from GE. The Times stopped short of discussing the main reason for our low tax rate in 2010 -- siginficant losses at our financial business, GE Capital, stemming from the global financial crisis. Like any company or individual, we do seek to keep our tax burden low but we are fully compliant with the law. And losing money is not a tax avoidance strategy. Also, we told Times (which included a brief comment) that we had been considering a grant to New York City schools for many years. Mr. Rangel had no knowledge of the grant until it was awarded and, as we told the Times, his positions on tax policy did not align with GE before or after the grant. In fact, Congressman Rangel introduced tax legislation in 2008 that GE strongly opposed. We have posted these and other answers to Mr. Kocieniewski's questions on www.gereports.com.
#2 Posted by Gary Sheffer , CJR on Sat 26 Mar 2011 at 12:43 PM
Why do corporations pay income tax at all?
People should pay taxes. Not fictitious business entities.
I could solve America's financial problems with two simple laws -
1. Elimination of corporate income tax (along with corporate welfare).
2. Elimination of income tax withholding.
If corporations didn't have to worry about the double taxation of income, they would have more capital available to grow the economy. America would become a business tax haven and payrolls (and consequently income tax revenue) would increase.
If the average American had to write a check for ten grand every April 15th instead of "getting" a "refund" from Uncle Sam, there would mobs of taxpayers with pitchforks storming the Capitol on April 16th to put an end to the ridiculous governmental looting.
#3 Posted by padikiller, CJR on Sat 26 Mar 2011 at 01:51 PM
Please. Average Americans "write a check" every single payday to Uncle Sam, in the form of federal tax withholding -- that is, the people who work for a living, not the ones who live down in their mother's basement while she does his laundry every week. There is no "refund" about it -- if they get money back, it is THEIR OWN MONEY in the form of overpaid tax. Dohhhhh. Bzzzzt. Next.
Mr. Padikiller, you are one angry, incoherent person. I urge you to seek treatment for your condition. You'll feel better, I promise. There is help out there for people like you.
#4 Posted by James, CJR on Sat 26 Mar 2011 at 02:07 PM
James...
Your ad hominem is but a childish evasion.
If the average Amercian got a bill and had to write a check for all of his or her taxes at once - there is no question that there would be an instant movement to slash the size of the federal government.
Withholding (like used car financing) is a very effective way of making a huge expense seem small.
On nearly a daily basis, I deal with clients who have tax problems, and the mentality among most taxpayers is one of expectancy - they've come to regard tax season as Christmas
Four federal laws that would fix America without requiring a constitutional amendment
1. A $100,000 fine for any Congressman who votes for an unbalanced budget.
2. Increase the number of representatives from 435 to 2500.
3. Eliminate withholding of income tax.
4. Eliminate corporate income tax.
#5 Posted by padikiller, CJR on Sat 26 Mar 2011 at 02:26 PM
I'm sorry, but not surprised, to see that you have fallen face first into the "balanced budget" bull hockey, foisted upon the more dumbass of American citizens by the GOP.
In fact, no responsible person, or business, has a "balanced budget." Responsible persons, and businesses, when times are good, don't spend all their money like drunken sailors but put away some of their money "for a rainy day." That way, during the bad times, they don't have to give up their house and home and go live in a homeless shelter wearing old rags and rummaging through garbage cans for food. During bad times, competent businesses make sure they have assets sufficient to smooth out and get through a bad business cycle, without firing all their management, selling off their desks and computers and real estate, and do business on the side of a road.
Yet that's what "balanced budget" amendments require governments to do. "Balanced Budget" amendments require governments to spend all revenues every year (or refund them) -- so when times are good, rather than doing the responsible thing and forecasting a downturn, responsibly putting some revenue aside, they are required to spend, spend, spend. Then when the downturn inevitably occurs, there is no cushion to get through it. Sheer stupidity.
I fail to see how your prescription would "fix" America in a good way. Please show your theoretical hypotheses as to why they would work.
I feel sorry for your purported tax clients. heh heh. wink wink.
#6 Posted by James, CJR on Sat 26 Mar 2011 at 03:24 PM
GE's responsibilities are to its customers, employees and shareholders. We should not be upset at GE for hiring the best tax team and using legal methods to lower its tax rate. By doing so, they have lowered the prices of our light bulbs, paid higher wages and given jobs to our friends/family and have been able to earn more and pay higher dividends to the underfunded defined benefit pension plans that will provide retirement to our school teachers, police officers and State employees. If anything, the NYTimes article showed all the reasons to eliminate the US corporate income tax entirely so all US companies could have the same benefits that GE gives its customers, employees and shareholders.
Let's fix the US economy and kill the corporate income tax at the State and Federal level. www.EliminateCorporateIncomeTax.com
#7 Posted by Blaine, CJR on Sun 27 Mar 2011 at 11:52 PM
Blaine, GE has transferred thousands of jobs out of the country while simultaneously decreasing taxes paid, so clearly you are a GE shill trying to support their thievery from the american people.
#8 Posted by AKG, CJR on Tue 29 Mar 2011 at 09:46 AM
What this posting and the NYT article misunderstand is what GE is doing is legal. If it is legal then it is not tax avoidance. People need to understand what they are talking about before they write about a topic. If you do not like the tax law then vote for legislative representatives that will change it. But do not conjure fantastical images of tax cabals and conspiracies to devise tax avoidance. Do you claim an individual exemption for yourself on your individual tax return? Yes? That lowers your taxes. Do you think that is tax avoidance? No? Why? GE does the corporate equivalent of claiming individual exemptions. The deferral mechanisms, deductions and credits it uses are all provided by the tax code which was passed by Congress.
#9 Posted by Doug, CJR on Wed 30 Mar 2011 at 07:58 AM
@Gary Sheffer, your posting is very misleading and probably intentionally so. No one is complaining if a company that loses money in a year does not pay cash taxes. The perceived problem with GE is even when GE makes significant income it pays far less than 35% (see any of the past 10 years 10-K filings). GE's low tax burden is hardly a product of losing money but rather pushing significant capital outside the US, base eroding foreign jurisdictions to the max, asserting APB 23 on those foreign earnings, for prior years claiming FSC/ETI benefits, crosscrediting FTCs [e.g., 863(b) sales], various other business tax credits, and an overall culture permeating not just within the tax department but throughout the business units (GE business units is measured for management accounting purposes [that means what their bonus is based on] on an after tax basis) of developing tax strategies to minimize taxes. None of this is tax avoidance as I posted earlier and is allowed by the tax code. But to state GE's low tax rate is because of recent losses in the financial services business is either ignorant or intentionally deceptive and I'm wagering its the latter.
#10 Posted by Doug, CJR on Wed 30 Mar 2011 at 09:30 AM
Hey, look at this, looks like the NY Times and GE are both full of shit.
http://www.businessinsider.com/ge-taxes-new-york-times-2011-3
#11 Posted by Mike H, CJR on Wed 30 Mar 2011 at 10:22 AM
Part of the problem with some of the reporting here is people look at the US GAAP financials and think that is what is filed on the tax return but it isn't. If you look at GE's financial statements (specifically the statement of cash flows - see page 96 of the 2010 10-K) you will see GE paid $2.7 billion in taxes in 2010, $3.1 billion in 2009, etc. Its not easy to discern to what countries those taxes were paid but it is paying taxes.
#12 Posted by Doug, CJR on Thu 31 Mar 2011 at 03:59 PM
See my follow-up on GE's PR pushback:
http://www.cjr.org/the_audit/ge_flubs_social_media_pushback_nyt.php
#13 Posted by Ryan Chittum, CJR on Thu 31 Mar 2011 at 06:50 PM