The latest outrage comes from General Electric. Joining companies like Bank of America and Verizon, G.E. did not pay any taxes for 2010, the second year in a row. 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. But, they did not pay a single cent. Instead, they claimed a tax benefit of $3.2 billion.
In a statement, General Electric said that it “pays what it owes under the law and is scrupulous about its compliance with tax obligations in all jurisdictions.” The company claims that its zero-dollar tax bill is largely a result of losses at its financial arm, GE Capital, due to the Wall Street meltdown.
Low taxes are not new for the huge corporation. They have been reducing their tax burden for years by employing former officials from the U.S. Treasury, the I.R.S. and virtually all the tax-writing committees in Congress. They also lobby aggressively for tax breaks.
The top corporate tax rate in the United States is 35 percent, and Republicans often remind us that the rate is one of the highest in the world. However, the U.S. tax code is also full of loopholes such as tax credits and subsidies so that most corporations pay for far less.
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. And even this might be overstated. These figures include taxes that will be paid only if G.E. brings its overseas profits back to the US.
“Two things are disconcerting. One is, there’s disproportionate amount of profits being reported offshore. And then, even for the profits that are reported onshore, they’re paying less than 35 percent,” said Martin Sullivan, a contributing editor for Tax Analysts.
Tax loopholes, along with changes in tax laws, have decreased the corporate share of the nation’s tax receipts—from 30 percent of all federal revenue in the mid 1950’s to 6.6 percent in 2009. But, many companies still complain that the tax rate is still too high. They claim they are not able to compete with foreign rivals. Although, many in the federal government have been pushing for a balanced budget and spending cuts, they are also talking about lowering tax rates. President Obama has said he is considering changing the corporate tax system, by lowering the top rate and ending some of the tax loopholes. In the end, he feels the changes would generate the same amount of revenue.
Another concerning issue is that G.E.’s CEO– Jeffrey Immelt—has been advising the president and serves as the chairman of Obama’s Council on Jobs and Competitiveness. White House spokesman Jay Carney said that the president is “bothered” by the idea that a U.S. company could pay no taxes, but he wouldn’t talk about GE specifically. Carney was also quick to say that Immelt’s council advises the president on job growth and not on tax policy.
“It is part of the problem of the corporate tax structure that companies hire, you know, armies of tax lawyers to understand how it works and to take advantage of the various loopholes that exist, that are legal in order to reduce their tax burden,” Carney said.
While G.E. has been paying no taxes and still making profits, they have also been laying off workers and closing American factories. Under Immelt’s leadership, the corporation has laid off 21,000 workers and closed 20 factories. More than half of GE’s workforce is now outside the United States.