You can bet Darrell Issa’s office read the NYT closely this morning.
Rangel is a mostly washed up politician, though. The important thing here is that huge, wealthy American corporations are getting by with paying no taxes, and how the tax system incentivizes lending:
That pendulum began to swing back in the late 1990s. G.E. and other financial services firms won a change in tax law that would allow multinationals to avoid taxes on some kinds of banking and insurance income. The change meant that if G.E. financed the sale of a jet engine or generator in Ireland, for example, the company would no longer have to pay American tax on the interest income as long as the profits remained offshore.
Known as active financing, the tax break proved to be beneficial for investment banks, brokerage firms, auto and farm equipment companies, and lenders like GE Capital. This tax break allowed G.E. to avoid taxes on lending income from abroad, and permitted the company to amass tax credits, write-offs and depreciation. Those benefits are then used to offset taxes on its American manufacturing profits.
G.E. subsequently ramped up its lending business.
To put it another way: GE gets out of paying American taxes by lending to foreign companies, which means American taxpayers are indirectly subsidizing those foreign loans (while the company, the NYT is excellent to note, has been slashing its American workforce).
There’s a subtext here, which the Times unfortunately doesn’t explore. That last paragraph implies that the tax code helped turn an industrial giant into a too-big-to-fail finance company that had to be bailed out by taxpayers with tens of billions of dollars in loan guarantees. My only quibble with this story is I wish the NYT had mentioned these bailouts. Just a sentence or so would have done.
Adding that angle shows more fully just how much of a corporate-welfare monstrosity the $210 billion General Electric really is. It not only pays no taxes here (or gets money back), it was bailed out by taxpayers for its stupid lending. Plus it continues to get implicit government subsidies via its coveted too-big-to-fail status, which lets its lenders know they’ll never have to take a haircut on their bonds.
What’s $11 million for some schools in Harlem if it helps keep you in that sweet spot?
Great work by Kocieniewski and the Times.