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Thread: G.E.’s Strategies Let It Avoid Taxes Altogether

  1. #1
    SiriuslyLong is offline
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    Joined: Jan 2009 Location: Ann Arbor, MI Posts: 3,560

    G.E.’s Strategies Let It Avoid Taxes Altogether

    G.E.’s Strategies Let It Avoid Taxes Altogether
    Published: March 24, 2011
    New York Times

    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.

    Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.

    That may be hard to fathom for the millions of American business owners and households now preparing their own returns, but low taxes are nothing new for G.E. The company has been cutting the percentage of its American profits paid to the Internal Revenue Service for years, resulting in a far lower rate than at most multinational companies.

    Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore. 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.

    While General Electric is one of the most skilled at reducing its tax burden, many other companies have become better at this as well. Although the top corporate tax rate in the United States is 35 percent, one of the highest in the world, companies have been increasingly using a maze of shelters, tax credits and subsidies to pay far less.

    In a regulatory filing just a week before the Japanese disaster put a spotlight on the company’s nuclear reactor business, 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.

    Such strategies, as well as changes in tax laws that encouraged some businesses and professionals to file as individuals, have pushed down the corporate share of the nation’s tax receipts — from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009.

    Yet many companies say the current level is so high it hobbles them in competing with foreign rivals. Even as the government faces a mounting budget deficit, the talk in Washington is about lower rates. President Obama has said he is considering an overhaul of the corporate tax system, with an eye to lowering the top rate, ending some tax subsidies and loopholes and generating the same amount of revenue. He has designated G.E.’s chief executive, Jeffrey R. Immelt, as his liaison to the business community and as the chairman of the President’s Council on Jobs and Competitiveness, and it is expected to discuss corporate taxes.

    “He understands what it takes for America to compete in the global economy,” Mr. Obama said of Mr. Immelt, on his appointment in January, after touring a G.E. factory in upstate New York that makes turbines and generators for sale around the world.

    A review of company filings and Congressional records shows that one of the most striking advantages of General Electric is its ability to lobby for, win and take advantage of tax breaks.

    Over the last decade, G.E. has spent tens of millions of dollars to push for changes in tax law, from more generous depreciation schedules on jet engines to “green energy” credits for its wind turbines. But the most lucrative of these measures allows G.E. to operate a vast leasing and lending business abroad with profits that face little foreign taxes and no American taxes as long as the money remains overseas.

    Company officials say that these measures are necessary for G.E. to compete against global rivals and that they are acting as responsible citizens. “G.E. is committed to acting with integrity in relation to our tax obligations,” said Anne Eisele, a spokeswoman. “We are committed to complying with tax rules and paying all legally obliged taxes. At the same time, we have a responsibility to our shareholders to legally minimize our costs.”

    The assortment of tax breaks G.E. has won in Washington has provided a significant short-term gain for the company’s executives and shareholders. While the financial crisis led G.E. to post a loss in the United States in 2009, regulatory filings show that in the last five years, G.E. has accumulated $26 billion in American profits, and received a net tax benefit from the I.R.S. of $4.1 billion.

    But critics say the use of so many shelters amounts to corporate welfare, allowing G.E. not just to avoid taxes on profitable overseas lending but also to amass tax credits and write-offs that can be used to reduce taxes on billions of dollars of profit from domestic manufacturing. They say that the assertive tax avoidance of multinationals like G.E. not only shortchanges the Treasury, but also harms the economy by discouraging investment and hiring in the United States.

    Page 2 starts here:

    Great article highlighting one of my liberal friends key arguments. This IS wrong, and both demo-pukes and repukes appear to be guilty; though it was interesting to read that Reagan of all people acted on this.

    Two words - flat tax - no loopholes, no credits...... Just pony up say 10% of PBT.

  2. #2
    Havakasha is offline
    I heard you need a new brain S&L. Sorry your old one doesnt work so well. I will try my best to
    give you some information to help balance its rightward tilt.

    Flat Tax Fiasco

    by Douglas Dunn
    Copyright (c) 1998, 2006 Douglas Dunn / Word Wizards communications -- all rights reserved

    The simplistic "flat tax" idea is once again a topic of hot conversation in political and economic circles. While this interest is largely fueled by a spate of proposals calling themselves a "flat tax" it is important to consider the idea of the flat tax itself apart from the specific proposals, especially since NONE of the "flat tax" proposals currently being considered actually addresses the true theoretical concept of a real flat tax. The proposals are primarily offered as either recommendations for tax simplification (which is an important issue but entirely unrelated to the issue of tax rate structure, as noted later in this commentary) or are not actually flat, as also noted below.

    In addition to discussing the problems with the theoretical model of a true flat tax, this commentary will also briefly discuss why current proposals are not real flat tax systems at all and also discuss the important issue of tax simplification and reform.

    Flat Tax Frauds

    In the U.S. Senate, Arlen Specter proposed a flat 20% tax on earned income (working people's wages), from which rich people's unearned income (capital gains, interest and dividends) would be exempt. Congressman Dick Armey supports similar legislation in the House. Former presidential candidate Steve Forbes (who has exhibited virtually no entrepreneurial innovation in his life and became wealthy by inheriting his late father's publishing empire) made as a centerpiece of his failed campaigns a flat tax scheme that salutes the idle rich (as distinguished from hard-working innovators or entrepreneurs who actually earned their wealth) by exempting UNEARNED income gained as a return on investment (not merely protecting the value of the principal, but allowing those who gain wealth without working for it to avoid taxes while those who work hard for what they gain pay all the taxes). Since Forbes' plan reduces taxes on the poorest and especially favors the wealthy, but is supposed to be revenue-neutral (no loss of incoming tax revenues) once again it means the middle class working people would be the ones squeezed to make up for benefits to the rich.

    In California, former Assemblyman Howard Kaloogian teamed up (unsuccessfully) with Arthur Laffer and others to introduce a similar proposal for our state. Laffer is the economics guru who inspired Ronald Reagan's "supply side economics." Starting Laffer's theories on cutting marginal tax rates on the highest incomes, Reagan developed a plan to balance the budget by cutting taxes for rich people while increasing spending, resulting in all-time record deficits paid for by the middle class and future generations, and which George Bush (senior) labeled "Voodoo Economics" when he first heard about it in 1980. The essence of Reagan's "tax cuts," which Laffer engineered, was to reduce the progressive character of federal taxes by eliminating the highest tax brackets. Middle-class and low-income working people never saw any substantial difference in their taxes.

    All of the various proposals (Specter, Armey, Forbes, Kaloogian) are fraudulent. None of them is a true "flat tax." In actuality, each of these proposals recognizes the need for progressivity (the differing relative value of dollars at differing income levels, as discussed below) by allowing a primary exemption -- that no tax will be assessed against a primary layer of income. This creates a "progressive" system with two tax brackets: zero and the top rate. Allowing this primary exemption acknowledges the need to distinguish between the differing levels of marginal utility of money, but goes from one extreme, a "zero" rate, all the way to the other extreme of the top rate in one single jump. Since they have acknowledged the need for at least one level of graduation, it makes sense to phase it in through gradual layers of progressivity, as was done during the prosperous era of the 1950s and 1960s.

    Proponents of these "flat" taxes love to point out that it is unfair to charge some people a different rate than others. But under their proposals, some people would pay no tax at all and others would pay the full rate. This is supposed to be more fair?

    Problems with a flat tax

    The notion of a flat tax does have a certain simplistic, egalitarian appeal. But it has three main flaws: 1) It seeks to improve something that is already completely equal; 2) It forces middle-class taxpayers to subsidize the wealthy (especially those incarnations such as Forbes' that exempt "unearned" income such as the interest on his invested inheritance, so that working people would support the idle rich); and, 3) It confuses much-needed tax reform and tax simplification in defining taxable income with the unrelated issue of whether the rate applied to that income is flat or graduated. Anyone who wants to support a flat tax better run the numbers first and see how much more they're going to pay!

    The Graduated Progressive Tax is FAIR

    A lot of people don't understand graduated taxes. They think if you make more money you pay a higher rate on your entire earnings, which seems unfair. Graduated progressive taxes are FAIR for three reasons: 1) they treat all taxpayers exactly the same; 2) they treat dollars with appropriate difference based on differing levels of marginal utility; and 3) those who receive the most benefit should pay for the disproportionate benefit derived from the system. Let's examine each of these reasons in more detail:

    Graduated Progressive Tax Treats Every Taxpayer the Same

    Graduated progressive taxes do treat all taxpayers equally. Every taxpayer pays the same rate on equivalent layers of income. People in higher brackets don't pay the higher rate on their entire income, only on the portions of income in the higher layers of marginal income. People, not dollars, are treated equally.

    Simplified hypothetical example:
    Let's examine a hypothetical example of a true flat tax (we have to use a hypothetical example because none of the actual proposals is a true flat tax) and compare it with a simplified example of a hypothetical progressive system. Let's imagine a progressive system with three rates: 15% on the first $25,000 income layer, 28% on the next $30,000 layer (from $25,000 to $55,000) and 33% above $55,000. A person who earns $25,000 would be entirely in the first 15% layer, for a tax of $3,750. His take-home pay is $21,250. A flat 20% rate would raise the working guy's taxes by $1,250.

    A person earning $200,000 (the wealthiest 2% of the population) pays an exactly equal $3,750 for the first $25,000 layer. For the layer from $25,000 to $55,000 he pays the 28% tax of $8,400; and for the final $145,000 layer he pays the 33% tax of $47,850 for a total tax of $60,000. His take-home pay is $140,000 -- more than six times that of the $25,000 worker. With a flat 20% rate the investor's taxes would go down by $20,000!

    Under the current proposals, the taxes for low-income workers (in the exemption level) would be substantially reduced or eliminated altogether, at the same time taxes for the wealthy would be greatly reduced. The result would be one of three possible outcomes:
    Last edited by Havakasha; 03-25-2011 at 09:49 AM.

  3. #3
    Havakasha is offline
    1. Cut back government operations. Sounds good to many people but "cutting down the government" is also very simplistic. The government (at local, state and federal levels) does lots of very good and important things that have to be handled at the public (community) level because they affect all of us. It keeps our food and medical supply system safe. It develops, builds and operates a highways system and other transportation policies that allow people to move freely and become economically productive on a scale that could not occur in the private sector alone (have you ever tried to drive through large freeway-less cities in third-world countries?). It operates public parks and lands on a huge scale and manages them rather efficiently for the benefit of the people as a whole. It operates systems of law enforcement, judicial systems and penal systems to ensure public safety. It operates public health and emergency systems to maintain order during natural disasters or crises. It operates education systems that keep our nation technologically and economically competitive, despite huge problems in sending kids into public schools from family environments where they have been exposed to guns, drugs, poverty, abuse, or come from different cultures and languages and have a hard time keeping up with education in English. It operates massive military systems to protect us from invasion and to defend our interests worldwide. And this does not even include things such as job training programs to get people off welfare, programs for the disabled, and Social Security or Medicare. These are massive, complex operations and they take a lot of money. If the government would shut down for just a few days we would all be in a panic. Is there waste, fraud and abuse? Of course there is. Much of that has to do with economies of scale, just because the government is necessarily so humonguous. Large corporations (the famous "private sector") also are fraught with waste, fraud and corruption. Look at Enron and Global Crossing (and probably many more that haven't been making the headlines). Look at the faceless corporate bureaucracies parodied in "Dilbert" -- there is a reason that comic is so popular: it strikes a chord in the hearts of those who have to deal with those corporate bureaucracies on a daily basis. My business is to provide communications services, and I do contract work with small businesses, large corporations, private nonprofit organizations and public agencies (everything from law enforcement, courts, schools, and every kind of public agency you can imagine), either in preparing documents or working at their sites or other venues such as conferences/conventions. Small businesses are lean and mean and most efficient (not that I'm biased or anything). Large corporations and the government are most wasteful; small public agencies are more efficient than large bureaucracies. I note, for example, that if I am working a corporate conference or public training seminar, corporate hosts generally provide food, drinks, coffee, etc. (nice!) whereas public (tax-supported agencies) provide water -- not even coffee -- not as nice, but makes me feel there is some effort to avoid being wasteful. And we do need to continue to be vigilant in watching for and rooting out waste, fraud and corruption when they do occur (and they do).

    2. Return to "borrow-and-spend" deficit governments. Deficits ballooned exponentially under the Reagan and Bush-I administrations, as taxes were cut for the rich but (despite lip service of reducing the size of government) government was not reduced. The costs of deficits are paid for by the middle class in three important ways: higher inflation as their paychecks become worth less and less; paying for increased government costs for interest on public debt; and, higher costs of private borrowing when public debt takes money out of circulation that could have been available for private lending markets and increases the costs of loans for houses, cars, appliances and other consumer uses.

    3. Squeeze the middle class. If the rich pay less and the poor pay less and we don't cut government or run deficits, then the difference is going to be made up for, you guessed it, on the backs of the middle class workers who work hard already and are the ones who really need tax relief. If we're going to have reforms, it should benefit the middle class, not those who already pay the least.

    Graduated Progressive Tax Addresses Differing Levels of Marginal Utility

    Under graduated, progressive rates, all people are created equal, but not all dollars are created equal. Earnings of the working poor (not those on welfare) go almost entirely for survival expenses such as food, shelter and clothing. At that level, every dollar is critical; even a small difference causes tremendous changes in the quality of life. Those in the middle class are still very conscious of expenses, but have much greater flexibility in absorbing small fluctuations in income. On the other hand, a family earning $200,000 or more (wealthiest 2%) not only enjoys a higher standard in the quality of their "necessities" (better home, car and food), they also have much more discretionary income for recreation or investment. While no one enjoys a dip in income, a loss of ten or twenty thousand dollars is often within the normal fluctuation of a wealthy investor's investment portfolio, whereas that amount would be disastrous to the middle-class worker. This applies even more for those with even larger incomes, such as those who receive multi-million dollar salaries. This principle is most obvious at the extremes: consider the effect of a flat 10% on a single mother supporting her family working as a seamstress in a garment sweatshop for minimum wage ($10,000 per year) and the effect of a flat 10% on a corporate CEO earning ten million dollars per year. For the minimum wage seamstress, that ten percent is $1,000 -- a huge bite in the wallet for someone barely trying to survive. For the CEO, the bite is a million dollars. Sure, that's no small amount of change, but he is left with nine million dollars. A person can live pretty well on that amount of take-home pay. The fact is, even a tax bite of a million dollars does not really impact the day-to-day reality of his quality of life, which is very high. The equivalent value of each dollar (even as an equivalent percentage value rather than a fixed dollar amount) is simply less at higher levels of income, and the differing value of each additional dollar at the top (the margin) is simply not the same as primary marginal levels needed for bare survival. While this is most clearly seen when comparing the extremes, the same principle applies throughout all income strata.

    Even some of the national proposals recognize this, and want to exempt a primary layer from the tax system (which is why they can not accurately be described as true flat taxes). So, since they recognize that survival dollars are different than wealthy dollars, why go suddenly from one extreme (paying no taxes) to the other (paying the top rate). So, since they recognize that survival dollars are different than wealthy dollars, why should we go suddenly from one extreme (paying no taxes) all the way to the other extreme (paying the top rate) in one single step? This is what graduated rates are all about. Since the current proposals are supposed to be bring in the same total amount of tax revenue, if the poor are going to pay less and the rich are going to pay less, it is naturally going to fall on the middle class (as usual) to make up the difference!

    In the 1950's, the tax rate for the highest income layers was much higher than now, and there were many more brackets. There were 13 brackets, and the top marginal rate was 91%, though very few people had incomes reaching into that strata and those who did only paid that percentage on the fractional portion of their income that made it into that level. Most agreed it was too high, and in the early 1960's, President John F. Kennedy proposed that it be lowered it by 25% and the proposal was actually enacted in early 1964, after his death. Yet, the economy was not burdened by excessive taxes. Those were very prosperous decades, in large part because a greater share of the burden came from those who could most afford it, while middle class working families paid lower rates (before inflation-generated "bracket creep"), leaving more disposable income for more people to pump back into the economy.

    And the rest. Yes, its a long article.

  4. #4
    SiriuslyLong is offline
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    Joined: Jan 2009 Location: Ann Arbor, MI Posts: 3,560
    Thanks for the long article. Regardless of flat tax or progressive tax, GE should pay something. It's nonsense. Would you agree?

  5. #5
    Havakasha is offline
    Yes of course GE should be paying taxes. Thanks for posting.
    This goes along with my thesis that the growing inequality in this country is hurting our economy, not to mention being totally unjust and unfair.

  6. #6
    SiriuslyLong is offline
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    Joined: Jan 2009 Location: Ann Arbor, MI Posts: 3,560
    For a minute there I was thinking you were going to defend GE as some of their credits are from alternative energy initiatives.

    Income inequality is your thesis?

  7. #7
    Havakasha is offline
    I quess you dont know me too well then.

    Not a thesis. A real concern and belief. Income and tax inequality is a cancer on this society and I dont believe i am being too dramatic.

  8. #8
    SiriuslyLong is offline
    SiriuslyLong's Avatar
    Joined: Jan 2009 Location: Ann Arbor, MI Posts: 3,560
    The drama is crushing me!!!

    Free enterprise is the solution. Earned success. Individual liberty. The only inequality to worry about is the inequality of opportunity. Simply provide all American's an opportunity to succeed. That's the only guarentee.

  9. #9
    Havakasha is offline
    No such thing as free enterprise as you profess it. Good luck trying to level the playing field. It will never happen with all the money there is in politics.

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