Marginal Revolution
The NYTimes reported earlier this year that through an extraordinary use of tax breaks and clever accounting:
[General Electric] 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.
The Times highlighted the skill of GE’s dream team:
G.E.'s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world's best tax law firm. Indeed, the company's slogan "Imagination at Work" fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.
More recently from The Weekly Standard we find what kind of effort it takes to pay no taxes on $14 billion in profits:
General Electric, one of the largest corporations in America, filed a whopping 57,000-page federal tax return earlier this year but didn’t pay taxes on $14 billion in profits. The return, which was filed electronically, would have been 19 feet high if printed out and stacked.
(FYI, the length of GE’s tax return has doubled since 2006 when it (first?) filed electronically at an equivalent of 24,000 pages.)
GE’s tax bill illustrates both why our corporate tax rate is too high and too low. The nominal rate is too high which encourages a real rate which is too low.
Consider the resources that GE spends to lowers its tax bill, not just the many millions spent on clever accounting and accountants and the many millions spent on lobbying but also the many inefficient ways that GE structures its businesses just to avoid paying taxes and the many millions it invests in socially wasteful projects just in order to produce privately valuable tax credits. Now add to that the allocational inefficiencies of taxing some firms at different rates than others and you have a corporate tax system which wastes a lot of resources and raises relatively little revenue. Indeed, a corporate tax system with a tax rate of zero could well be preferable as it would waste fewer resources and raise not much less revenue.
Hat tip: TaxProf blog.
76 comments
Tickling Leviathian in all the right places is a growth industry.
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If I look at GE’s 10-K for the year ending Dec. 31, 2010, I see the following: http://www.sec.gov/Archives/edgar/data/40545/000119312511047479/d10k.htm#tx37537_40, Statement of Earnings, p. 90
Benefit (provision) for income taxes (Note 14)
2010 -1. 05 billion
2009 +1.148 billion
2008 -$1.102 billion
Thus, GE Consolidated is showing tax liabilties for both 2008 and 2010. 2009 shows a net tax benefit, notably due to losses incurred at GE Capital Services (which are consolidated into GE for reporting purposes).
So, I am not entirely convinced that I see in the financial statement that GE is paying no taxes. But maybe I’m reading it wrong.
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GE is the #1 stock holding for members of Congress. I’m sure it’s just a coincidence. http://www.cnbc.com/id/45307704?slide=11
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“GE's tax bill illustrates both why our corporate tax rate is too high and too low. The nominal rate is too high which encourages a real rate which is too low”
give me a break. if the tax rate was lower they wouldn’t do this bull shit?
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Surely if the tax rate was 0% they would just fire the whole tax department, no?
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+1
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Of course they wouldn’t! What kind of fool are you??? If the nominal tax burden went from $1.785 billion (35% of domestic operations) to, say, $800 million, what idiot executive at GE would spend $50 million on a division to eliminate the entire tax burden?
Oh. My badsies.
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You think it only costs $50 million to do this? It isn’t somebodies personal finances where close is close enough. They’d spend $799 million to avoid $800 million in taxes.
Notably, the paychecks of the tax lawyers are not the major expense. Irrational firm behavior is the major expense.
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High rates encourage lobbying for and granting of of deductions, credits, etc. A low flat rate with no deductions would be a vast improvement and would also encourage companies to repatriate profits.
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eliminate lobbying and the unemployment rate among liberal arts majors would really jump. future job opportunities for all the ivy league history and political science majors would plummet…
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“give me a break. if the tax rate was lower they wouldn't do this bull shit?”
If they lower the tax rate and ‘remove the deductions’, yes they wouldn’t do this ‘bull shit’.
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Quite amusing and scary at the same time.
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Given that GE is effectively gaming the system to pay net zero (or even negative) corporate taxes, what then to make of Soros encouraging higher taxes on high earners? Ha ha!
You’re right, lowering nominal rates to zero would yield a small drop in tax revenue, if any, but on the downside would provide little opportunity for graft. And what would all those tax lawyers do for a living?
All snark aside, how do we change this model? A uniform, small corporate tax code, with known variables and little opportunity for insider deals could radically alter the competitive environment across industries, but how does this ever get passed? I don’t see it.
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