Fortune even gives it a Business Insider-style headline: “The truth about GE’s tax bill.”
What’s the truth they spent all these months digging up?
The company says that it’s not getting any refund for 2010 — validating Outslay’s analysis. Its 2010 tax situation? “We expect to have a small U.S. income tax liability for 2010,” GE chief spokesman Gary Sheffer told us. How big is small? GE declined to say. The number is unlikely to ever be disclosed unless GE goes public with it, or is forced to do so.
Wait a second. That’s not news. GE said the same thing to various people, including Business Insider and me, last week. It also said at other points last week that it “did not pay US federal taxes last year because we did not owe any,” and that its 2010 U.S. taxes would be offset entirely by overpayments and “other adjustments.”
Here are Sloan and Gerth’s conclusions regarding the Times:
Did GE get a $3.2 billion tax refund? No.
Did GE pay U.S. income taxes in 2010? Yes, it paid estimated taxes for 2010, and also made payments for previous years. Think of it as your having paid withholding taxes on your salary in 2010, and sending the IRS a check on April 15, 2010, covering your balance owed for 2009.
Will GE ultimately pay U.S. income taxes for 2010? After much to-ing and fro-ing — the company says it hasn’t completed its 2010 tax return — GE now says that it will pay tax.
First of all, the Times didn’t say that GE got a $3.2 billion tax “refund,” as Sloan and Gerth admit. The paper’s David Kocieniewski called it a “tax benefit.” But I do agree that the Times should have better explained what that tax benefit was. Still, ProPublica/Fortune here purport to correct something the Times never said. Better just to have said what we said: the Times should have spelled out what it meant by “benefit.”
But the major problem here is that Sloan and Gerth’s big conclusion—that GE paid taxes after all—is based on the word of GE alone. GE says it will end up paying net U.S. income taxes last year (estimated taxes don’t matter if you get them back). But as I wrote last week, GE has squandered whatever credibility it had on this subject with its bumbling misinformation campaign. It’s unclear why Sloan and Gerth take their word for it now and act like it’s some kind of “Truth” from on high.
And even if GE does end up paying taxes for 2010, it’s quite possible, as Charles Kaiser pointed out, that the company will have maneuvered to do so only after the Times’s story caused it serious political repercussions. And that “small amount” GE pays could, for all Sloan and Gerth know, be one dollar rather than even 1 percent of its profits, which would mean the Times was essentially correct after all.
ProPublica editor Paul Steiger (my former top editor at The Wall Street Journal) said this in an email to Kaiser:
We agree that for reporting to shareholders, GE shows no tax liability. But we say that GE will pay some taxes for its 2010 tax year.
That’s the thing: Until and unless GE lets us look at its income tax reports, which it’s not going to do, the only way we can independently verify what it’s paying in taxes is by looking at what it tells shareholders in its GAAP financial statements, and those statements show what the Times reported. There are problems with that, but that’s the only independent (audited, for what that’s worth) data we’ve got.
And Sloan and Gerth admit that they really have no clue know how much or whether GE will actually pay U.S. income taxes:
Professor Outslay drew up 10 GE tax metrics for us, and could have given us at least six more. None of them show what GE’s U.S. income tax bill is for a given year.
That’s another big problem with the ProPublica/Fortune piece: It doesn’t attempt to tell us what GE actually does pay in taxes. And when Sloan and Gerth do give us a hint, what do they use? GE’s GAAP financial statements:
Last year, GE’s tax rate, for earnings-reporting purposes, was 7.4 percent.
The problem there is, the Times already explained why that 7.4 percent figure is no good:
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.
In the end, Sloan and Gerth haven’t set the record straight on anything here with the Times story.
But they use their conclusions to give us some very weak logic:
Why should you care about this? Because we all have a stake in how this plays out. Thanks to the uproar over GE, we now risk ending up with legislation that targets GE but produces all sorts of unintended consequences. Public rage can make for bad law. For example, the Alternative Minimum Tax was adopted in 1969 amid an uproar generated by a Treasury report that said 155 wealthy families had paid no income tax. But the bill, badly designed and badly amended, has morphed into a mess that affects millions of middle- and upper-middle-class families, but not the really-high-income tax-minimizing families. They’re not affected because the AMT fades out of the picture for families with income of $600,000 and up.
Don’t get mad about GE paying no taxes or we might pass laws with unintended consequences like that thing forty-plus years ago. Instead we’ll pass good laws based on General Electric’s word. Presumably those will have no unintended consequences. Sloan and Gerth apparently don’t pause to wonder if public outrage is necessary to pass good laws that effect real change.
This is all too bad, because their accompanying piece on “5 Ways GE Plays the Tax Game”—the one they’d been working on for months—is really good, if similar to what the Times reported a few days earlier. It’s almost as if Sloan and Gerth had to come with a news peg for their story since the Times beat them to it. The rushed post is not very good, but the piece they took some time on is. Maybe there’s a lesson in this.
In fact, there’s no shame in getting beat by a few days on a story like this. That’s an Old Journalism way of thinking. All reporters working on projects are filled with dread that somebody else will get the story out first. All reporters have had that sick feeling in their stomach when they’ve woken up in the morning and seen it happen to them.
But the fact that Sloan and Gerth independently came to many of the same conclusions about GE’s tax avoidance, while filling in other pieces of the picture, makes both their piece and the Times’s that much stronger.
(UPDATE: I neglected to point out Felix Salmon’s post for us on Sloan and Gerth’s story. See that for a somewhat different take.)